Crude Oil and Speculation

One advantage of having worked as an economist in the government affairs department of a now-departed major oil company during the second oil shock of the 1970s is that I have seen this movie before. I hear the arguments, accusations and rebuttals and sneer to myself, "Amateurs! That line didn't work in 1979; what makes you think they are going to fall for it now?"

(And as long as we are on the movie theme, may I recommend the political spinmeisters of Wag the Dog and the tobacco industry spokesman in Thank You For Smoking? Nice, but both could use a little help in the amorality department.)

Given that background, I do not have to prove my hydrocarbon street cred to anyone. I can look anyone from the industry in the eye and say, "Remember who you're talking to." My remarks to the knee-jerk critics of the energy industry are less charitable.

I'm Shocked -- Shocked! -- to Find That Speculation Is Going On in Here

This brings us to the question of whether the price of crude oil is higher than it would be otherwise because of the activities of speculators in all forms. For reasons of popular psychology, an affirmative answer makes people feel better; it allows them to assign blame to economic forces beyond their control.

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Howard L. Simons is president of Simons Research, a strategist for Bianco Research, a trading consultant and the author of The Dynamic Option Selection System. Under no circumstances does the information in this column represent a recommendation to buy or sell securities. While Simons cannot provide investment advice or recommendations, he appreciates your feedback; click here to send him an email.

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