OK I have been going nuts over the Krugman/Cowen/Kling brouhaha. My overarching complaint is that such high-caliber economists keep talking past each other because they aren't defining terms and then being consistent. So you've got, for example, Kling proving that "speculation" about the nature of the universe always determines prices, and of course anyone who subscribes to subjectivist price theory agrees with that. But naturally that's not what Krugman and Congress are talking about.
On the other hand, it does seem a bit crazy to say that oil has shot up so much in just a year, and this is all due to "fundamentals." Is that really what I'm saying?! Three points:
(1) From mid-June 2007 to mid-June 2008, fully 15% of oil's tremendous nominal price jump can be explained by the dollar's fall against the euro. So right there I just took care of 15% of the issue.
(2) China has been growing like gangbusters. Estimates vary, but people think they are accumulating diesel so that they can turn off their coal-fired power plants a month before the Olympics (to reduce air pollution). So yes that's "building inventories" but it's not for speculative price appreciation, it's because they need to physically consume it very rapidly in the near future. The larger point is, global demand for crude oil is rising. We only rule out a "fundamentals" explanation because our way of life is fairly stationary right now, but it isn't around the world.
(3) There have been all sorts of supply disruptions and faster-than-expected declines, e.g. Nigeria and Mexico, and a lot of this stuff happened fairly recently.
In conclusion, the only real wild card in this is Saudi Arabia. If they thought oil prices were going to explode in the future, then they could be producing less now, and you might call this "speculation." That's fine. But it's NOT being driven by people dabbling in the futures markets, since there has been backwardation (higher spot than futures prices) for large portions of the runup.
OK, so it is possible that there is a "speculative bubble" in oil prices, but if so it's due to producers' misjudgments, not to institutional investors throwing money after oil.
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