Very, very interesting column from Ed Wallace that you can (and should) read here. You might remember we’ve profiled Wallace, a high-profile automotive journalist and radio personality, in the pages of National Oil & Lube News before.
While I won’t give away what he has to say, it’s interesting to note that the run-up in crude oil prices (indeed all commodity prices) is partially (or maybe even fully) due to an influx of investment money. Simply put, entities (be they hedge funds, wealthy investors, etc.) are looking for safer bets than traditional investments like mortgages, stocks and such, and so are throwing a ton of money at commodities like crude oil, beef, corn, etc. What happens in a free market when there’s a rush to buy certain things? The prices skyrocket. Until the crash.
Because if there’s one thing the history of economics has taught us, it’s that when the “bubble” bursts and prices begin falling, many of those same hedge funds and investors that are artificially propping up commodity values will pull out lickety-split. When that happens, and all the investment money that was flowing into commodities begins to pull back out, the prices plummet. Could we see that with crude oil? Read what Ed Wallace has to say.