Energy Security

[bourbon]

The role of hedge funds and speculators in sustaining high oil prices is very much overrated.

According to whom?

They can drive a spike higher but they can't sustain a plateau: speculators can't produce actual demand and they can't profit until they sell their position, which means price support doesn't last.

Profits can be made through index speculation and OTC swaps. They wouldn’t want to sustain a price plateau; they would want to drive volatility, create bubbles. It’s not investing, it’s trading for maximum returns – the money is made from the price swings.

When speculators see upside pressure on oil prices they will jump in and try to make some short-run profit, but they don't stay and when they underlying causes of the upside pressure resolve they will bail.

Which is all the better if the country’s national-oil-company has the ability to influence supply pressures; its SWF can front-run the speculative herd and fleece western institutional investors.

In any event high oil prices are not contrary to US/Western interests at this point.

Maybe, for one thing it seriously screws with the Chinese. Bill Casey and the Saudi’s did the opposite to the Soviets in the 1980’s. The role low oil prices played in the collapse of the USSR is overlooked.

The Gulf SWFs in particular are pretty conservative and very diversified in their investments, and you're more likely to see them buying US and European real estate at this point than oil futures.

How exactly would you know this? They don’t have to reveal their activities, and it is easy enough to obscure them anyhow.