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What's causing the steep rise in oil prices

Traders work in the crude oil and natural gas options pit on the floor of the New York Mercantile Exchange on June 20, 2011 in New York City.

JEREMY HOBSON: The price of oil is up above $100 a barrel, they're up 2.5 percent this morning in New York Trading. And the price of oil has risen by about 20 percent in just over a month.

And that's where we'll start with our regular Wednesday analyst, Josh Brown of Fusion Analytics. He's with us live from New York as always. Good morning.

JOSH BROWN: Good morning.

HOBSON: So Josh, why this steep rise in oil prices?

BROWN: I think a lot of what you're seeing is not so much to do with commercial or industrial demand, but speculators in the market. The CFTC (Commodity Futures Trading Commission) just put out their Commitment of Traders report, and they're showing that hedgefunds have increased their crude oil bullish bets by 7.2 percent into last week. That is a high since May.

HOBSON: So these are just investors that are just trying to make money by betting on what the price of oil is going to do, not necessarily driven by supply and demand -- but I assume it still has a big impact on the global economy if oil prices go higher?

BROWN: That's the unfortunate part of this. So, the threshold for where the consumer starts to push back -- they say -- is somewhere around $5 per gallon of gasoline, which would equate to a touch over $100 crude. So the last thing we want to see is for speculators driving prices to the point where it affects the economy.

HOBSON: Well Josh, we've heard this story before, of course -- are we in any better shape to deal with higher oil prices now than we were say, three years ago?

BROWN: Probably not. I think the big problem is that the government has made bets on solar and wind, there are subsidies for ethanol, but really what we could have done, and we could still do, is something with nat-gas trucking. I think that would move the needle and have a much more ameliorative effect.

HOBSON: Josh Brown of Fusion Analytics, thanks as always.

BROWN: Thank you.

About the author

Josh Brown is a New York City-based financial adviser at Fusion Analytics.

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