Oil Barrel by Yuan2003

Oil Barrel by Yuan2003

Let’s run through this quickly:

First: this was caused, according to the Financial Times, by shorts on the futures markets having to cover their bets. The point here is that shorts are automatically long interest. All the idiot regulators who are saying stocks can’t be shorted need to remember this.

Second: covering in the futures markets means buying another futures contract to cancel yours out in most cases, not buying physical crude. That means the argument about whether speculation on the futures market can cause price increases and decreases in the actual price of oil is over. Clearly it does.

Third: The $15 run[up before today was because of the huge rush of liquidity into the market. As Bernanke flushed money during the first half of the year into the market, prices went up. Last week, central banks flushed hundreds of billions into the market. Oil prices rose. You can’t bet against firms you know will go under, what are you going to bet on? How about oil?

Fourth: Paulson’s bailout will also go to the price of oil. Bet on it.

Fifth: I actually expect this spike to be followed by a decline, but then there will be a rise again as the bailout plan (in whatever form it winds up in) hits the economy and the markets. This will be offset by real problems in the actual economy. The question will be whether or not that outweighs inflation in high end money supply (M3) causing inflation as people with money desperately search for some place to make profits.

Ian Welsh

Ian Welsh

Ian Welsh was the Managing Editor of FireDogLake and the Agonist. His work has also appeared at Huffington Post, Alternet, and Truthout, as well as the now defunct Blogging of the President (BOPNews). In Canada his work has appeared in Pogge.ca and BlogsCanada. He is also a social media strategy consultant and currently lives in Toronto.

His homeblog is at http://www.ianwelsh.net/

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