Oil & Speculation

http://knowledge.wharton.upenn.edu/article.cfm?articleid=2789

http://www.cnn.com/2011/WORLD/meast/05/29/us.saudi.prince.oil/index.html?eref=mrss_igoogle_cnn

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"The last time anybody made a list of the top 100 character attributes of New Yorkers, common sense snuck in at number 79." (Douglas Adams)

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Since I was born in New York, I feel comfortable with the quote. What I am not comfortable with is the notion that the "market price" for oil is anywhere near what true supply/demand balance would dictate. The Wharton article attached appears to suggest that speculation has less to do with current prices than most of us think: "Although speculation does exist and can affect prices, most of the recent price swings in oil and other commodities are happening for fundamental economic reasons." Really.

The article goes on to "hedge" by defining "bad speculation" and "good speculation" and separating that from market manipulation which is illegal. The Hunt brothers case of buying enough silver to corner the market (and the price) in 1980 is an excellent example of that and they refer to it. Here's the deal: the real price of oil should probably be somewhere between $70 and $80 per barrel. And, the actual supply/demand price should be more like $60 per barrel.

I've attached Fareed Zakaria's interview on Sunday with Prince Al-Waleed bin Talal (the grandson of the founding king of Saudi Arabia) who has his own investment fund and has been rated somewhere between the 14th and 26th richest man in the world. He is a long time stockholder in Citigroup and has participated in bailing out that organization twice in its history.

Talal's perspective is that oil should be somewhere between $70 and $80 per barrel in order to avoid incenting the U.S. and Europe to accelerate efforts to wean themselves off his country's supply.

I would "speculate" that oil could go all the way to $150 (or more) but not for any supply/demand reason. There is plenty of oil. I would hope that oil drops back to $70 or less so that world economies could recover more than they have.