Since roughly February, a solid minority of commentarors, including this blogger, have questioned the thesis that the rapid increase in oil prices was solely the function of supply and demand. It was disconcerting to see what reactions this stance elicited. There was often an unwillingness to read what was written, and instead turn the post into an exercise in projection. Use of the word “speculator” is taken to mean the author 1. thinks speculation is bad (no, depends on circumstances), 2. is economically illiterate and 3. is a Peak Oil denier (a lot of vitriol here).

When oil sprinted to its $147 a barrel summit, there was plenty of commentary supporting the price as a function of fundamentals (despite quite a few oil company presidents and industry greybeards begging to differ), save some short-covering when the price rose above $140. But when I came back from Alaska and prices were continuing to fall, the explanations had at least as much to do with, um, speculative factors, like investors dumping oil and commodities for the dollar, as demand destruction.

It seems ironic that now that prices are falling, the CFTC has reclassified its data to show that some traders on exchanges that were previously designated as commercial are now classified as “non-commericial”. The role of weight of non-traditional money in the market now lends support to the notion that demand from new players looking for an inflation hedge or simply participation in a different asset class played a role in the sudden price move.

From the Wall Street Journal: