In my previous post, I suggested that Hurricane Ernesto would give us a small opportunity to quantify the extent of hurricane speculation in each barrel of oil. Based upon my rough assessment, it looks like $2 (or roughly 3%) is a good guess. Oil went up about $2 last Thursday on fears that Ernesto was going to hit the oil assets in the Gulf of Mexico. Then, on Monday, when we knew that the path had changed and oil rigs would not be targets, oil declined $2. I know this is a pretty blunt analysis, but in my opinion, it is about as close as we can get to pinpointing a speculative figure. And by the way, I still haven’t found a way to justify the claims that $20 / barrel is related to speculation, so I am going to stick with an estimate of 3% for the component coming from hurricane fears. I know this isn’t as dramatic as what you may hear on the financial media programs, but I think it’s reasonable. As for the portion relating to terrorist fears and war disruptions in major oil producing countries, I have no clue what the speculative premium is and hopefully we will not find out.

Since oil has declined about 10% over the past 3 weeks, I am personally going to thank the oil speculators for being the sole reason that we are seeing lower prices. NO, not really - I am just kidding and trying to point out how absurd it is to assign all the blame or all the credit for changes in oil prices to the effect of speculators. Supply and demand may seem too simplistic or boring to other commentators, but until I see evidence of something else, I am going to stick with the simplistic and boring approach.