Oil prices may bubble on speculation

Oil refinery

TEXT OF STORY

Scott Jagow: Oil prices are back above $88 a barrel this morning. Seems like a bargain compared to where they've been lately. Some people blame speculators for the big spike in oil prices. Today, the Senate will look into this. John Dimsdale reports.


John Dimsdale: Investor trading in oil has jumped along with the price this year, and senators want to know if speculators have created an oil bubble.

Deutsche Bank energy analyst Adam Sieminski says on the contrary, investors speculating on future prices help markets work.

Adam Sieminski: Speculators in oil are providing the liquidity there. Speculators in corn are making it easier for farmers to sell their corn into the futures market. So the term has somehow become a pejorative, when in fact it's not a bad thing.

But Edward Krapels of Energy Security Analysis, who'll be testifying today, says large investments can exaggerate the underlying price.

Edward Krapels: You can have a bull market in oil, just like you had a bull market in Internet stocks that went on for years, even though the underlying value was much lower than what the trade pushed it up to.

Krapels says the government needs to keep track of -- and disclose -- how investors are influencing the price of oil.

In Washington, I'm John Dimsdale for Marketplace.

About the author

As head of Marketplace’s Washington, D.C. bureau, John Dimsdale provides insightful commentary on the intersection of government and money for the entire Marketplace portfolio.

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