Report says speculators had big role in oil price run-up - USA Today

http://www.usatoday.com/money/industries/energy/2008-09-10-oil-speculation_N.htm?csp=34


By Adam Shell, USA TODAY


NEW YORK —

The findings of hedge fund managers Michael Masters and Adam White on the controversial issue were released Wednesday by Sens. Byron Dorgan, D-N.D., and Maria Cantwell, D-Wash., and other lawmakers.

Pension funds, college endowments and other institutional investors poured cash into commodity index funds, they said. And that — not just supply-and-demand factors — helped to drive crude to a record $145.29 a barrel in July.

The recent plunge in oil prices, the study adds, was caused by these same investors yanking huge amounts of money out of these funds, which invest in oil futures markets.



The study said that institutions poured $60 billion into commodity funds in the first five months of the year, a period in which the price of a barrel of oil soared nearly $33.
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Actually, Masters testified that pension funds and hedge funds are investing in many commodities including grains - about 25 in all. They invest in commodities indexes which require the commodities traders providing such indexed commodities (such as Coldmand Sachs) to keep 'rolling over' futures contracts which keeps demands for the commodities futures contracts high.

for example the Dow AIG commodities index. (check out pg 2. and pg 9 for list and distribution of 25 commodities in the index).

A very good summary of Masters testimony to Congress: http://www.geocities.com/jwalkerxy/Oil_speculation.htm#Quant"">Quantifying Commodities Speculation


masters complete testimony to Congress

"The authors' findings challenge the view of many economists, Federal Reserve Chairman Ben Bernanke and other government agencies (yeah, like the CFTC__JW), which say global economic conditions drove prices. "


the decline in the economy and then the stock market and the devaluation of the dollar (all caused by increasing national debt to pay for Cheney's oil venture in Iraq) all are fundamental economic conditions, yes, which created the conditions where commodities became the most attractive investment and hedge against inflation (this started 2 to 3 years ago).

Once the trend to commodities became stronger and more obvious the institutions and large commodities speculators (e.g. Vitol) started piling on (starting in fall of 2007). Speculation and especially commodities index speculation did it but this was the last link in a chain starting with the massive increase in national debt to pay for the Iraq Oil venture and the devaluation of the dollar to boost exports - all thanks to the Cheney administration (Bush is nothing but a puppet).