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$100 Oil? Blame Speculators and the Bank Lobby, Consumer Advocate Says

Aaron Task
Editor in Chief
Fin - Daily Ticker - US

Oil prices fell Tuesday after Kuwait's oil minister said OPEC may hold an "urgent meeting" to discuss the cartel's response to escalating warfare in Libya, where output has fallen by as much as 1 million barrels a day, Bloomberg reports.

Still, crude remains well above $100 per barrel as the rolling protests in the Middle East have raised the specter of another supply shock.

But North America is "awash in a sea of crude reserves, both public and commercial, says Tyson Slocum director of the energy program at Public Citizen, a non-profit organization. "There's no supply-demand fundamentals that are justifying this huge price spike."

Concerns about unrest in Saudi Arabia are overblown, says Slocum, who believes the odds of a disruption to Saudi supplies are "unbelievably low."

Rather than geopolitics, Slocum says "speculators on Wall Street" are to blame for the recent spike in energy prices. "This is a case where speculators are driving the market rather than end users like refiners. [Speculators] use any excuse to push prices up beyond supply-demand fundamentals."

While it's impossible to specifically quantify the impact speculators have on prices, commodity speculation has risen dramatically in recent years thanks to the popularity of commodity-focused ETFs and institutional benchmarks like the S&P Goldman Sachs Commodity Index (GSCI). The net long position of non-commercial speculators hit an all-time high this month, according to the Commodity Futures Trading Commission.

"The fact is we've got documentation these speculators are driving the market," Slocum says. "I really don't think the unrest in the Middle-East is a legitimate cause justifying this level of increase."

Slocum, who serves on the CFTC's newly created Energy & Environmental Markets Advisory Committee, sees position limits as a means to dampen speculation and the potential for a small group of players to control the market.

But the CFTC has "punted" on this issue, he laments, blaming "political infighting among members of the commission because of the lobbying campaign the banks have been waging."

Because of the profitability of proprietary trading, Wall Street firms are keen on "preserving access to this under-regulated markets," he says, referring to derivatives generally and energy futures specifically. "But what's good for Goldman Sachs is not necessarily good for motorists, small businesses or anybody else exposed to higher energy prices."

Aaron Task is the host of Tech Ticker. You can follow him on Twitter at @atask or email him at altask@yahoo.com