Oil Prices See Rally Again!

Once again, oil prices, energy bills and global food shortages are hitting the limelights of our daily news and various airwaves. With household outgoing bills on its ascendency by the moments, many are asking the question, ‘when will this would end?’

In 2008, we have seen crude oil prices accentuating its position towards the $140 ~ $150 per barrel margins as speculated earlier on in the year. Last week, we saw oil prices hitting new heights of $139.89.

The recent times has see tremendous spike in the market. In the near term it will not be surprising to see speculated values of $140 ~ $150 per barrel. To learn more on this story here’s an exepts of a powerful article I read last week by Maria Godoy. Read Full Story..

Why do lawmakers think speculators are driving up food and energy prices?

It all has to do with what’s been going on in commodities futures markets. Traditionally, these markets were used by players such as farmers, miners or refineries — who either produce the commodities being traded, or rely on them to do business. Activity on futures markets helps set the benchmark global price for food and energy.

In recent years, however, commodities markets have seen a flood of new money from institutional investors — such as hedge funds, pension funds and index funds linked to commodities. Investment from commodities-linked indices jumped from $13 billion in 2003 to $260 billion today, according to Michael Masters, the head of Master Capital Management LLC, a hedge fund. These investors aren’t in commodities because their business depends on it; they’re simply looking to make a profit from fluctuations in prices (that’s the classic definition of speculation, and it’s perfectly legal). But many lawmakers and other critics blame these new investors for driving up prices.

So how much of the jump in oil and food prices can be attributed to increased demand, and how much is due to speculation?

Investors have almost certainly helped push prices higher than they otherwise would be, but no one knows how much higher. In May, Masters testified before Congress that institutional investors are largely responsible for soaring food and fuel prices.

But other market experts aren’t so sure. On Tuesday, for example, Merrill Lynch analysts issued a note arguing that speculative frenzy isn’t to blame; supply and demand is, along with low interest rates that have made emerging markets more liquid and hungrier for raw materials. They point out that even commodities that aren’t traded in funds — such as coal, rice and steel — have seen big appreciation.

Even lawmakers who blame speculators for soaring prices also acknowledge the reality of increased demand for food and energy from emerging markets such as India and China.

Is there evidence that market manipulation is at work?

None that has been documented. There’s no disputing that the jump in food and oil prices has been astounding. Since January 2007, the price of crude has leaped from $60 to more than $130 a barrel. And prices for corn and other staples have reached record highs. But there’s also no evidence that market manipulation is at play.

Nonetheless, those suspicious of the spike in energy prices are quick to point to so-called “dark markets” — energy trading markets that were deregulated in late 2000 at the request of Enron. Some people suspect nefarious transactions are taking place in these unpoliced markets, and that traders are raising prices basically at will. Again, there’s no actual evidence that that is the case.