Oil and Wall Street

I am in Seoul, South Korea on a teaching assignment. I have been here for a week and will be here for another. I haven’t had time to write anything useful, even though there is so much going on. Seoul is a great city and the people I meet here are very warm and kind. I also admire their willingness to stand up in protest as tens of thousands did last weekend in objection to the lifting of the import ban on US beef (which has now been delayed).

Although I don’t have time to write an analysis I wanted to publish a couple of links regarding the impact of speculation in the commodity markets on oil prices. There have been several hearings going on, and some hedge fund managers and others seem to be speaking out against certain trading strategies and deregulation dating back to Enron that could be causing significant upward pressure on energy prices. Here is a link to Michael Greenberger’s Congressional Testimony from this morning that I found stunning. He appeared today before the Senate Commerce Committee together with the well known hedge fund manager George Soros and others. It is not the easiest testimony to read but if you have 10 minutes I highly recommend you give it a go. You don’t need to follow all of the statutory references or read the entire document to get the drift of what he is saying so you can skip a lot of the detail and still get the message. Here is another link to some Congressional testimony by Michael Masters, a hedge fund manager, from May 20, 2008 that I think is also worth a read.

In a nutshell, some informed people believe that a large portion of the run-up in oil prices is a Wall Street phenomenon and federal regulators are simply looking the other way as US consumers are being separated from their savings. If Mr. Greenberger is correct then I believe this is an outrage of gigantic proportions and another monumental regulatory failure by our government. I hope our elected officials get to the bottom of this one quickly either way because the thought of paying $5.00 a gallon for heating oil next winter is bad enough, but to pay that much so that some investors can earn a nice return really twists my insides.

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