Betting on Oil Prices? Beware the Speculative Squeeze

Oil is selling higher than it should do. Speculation is just one of the reasons, but a significant one. After being bailed out, pardoned for their crimes, and otherwise given another chance, the uber-speculators are back for more devastation and booty at your expense.

Kevin Kerr, president of commodities firm Kerr Trading International, pulled no punches, calling the current price levels “simply a money grab and fear trade.”

“Speculators in the energy markets right now have a lot of risks to consider but unfortunately it can get overdone and I hope that the various funds and large speculative entities will take a step back and really evaluate the true fundamental picture. We do have plenty of oil on the market right now and while some fear premium is certainly legitimate, in my opinion it is not a justification for over $100 right now,” he said.

Kerr said the escalating violence in Libya, as rebel forces attempt to oust long-time dictator Col. Muammar al-Qaddafi, raises legitimate concerns for “real disruption,” but still does not justify the current prices.

Kerr also warned of the global impact resulting from artificially high oil prices: “Speculators and funds who are driving up the price of oil based on fear premium and the weak dollar will hopefully evaluate the implications for driving the price much higher than it really needs or deserves to go, at least at this stage,” he said.

Finally, Kerr recalled “the extreme liquidation” that followed the last precipitous rise in oil prices, when a barrel passed $147 in the summer of 2008 and then plunged below $40 in a matter of months.

“I would like to say that rampant speculators learned from what happened in 2008 but it seems fiduciary responsibility and true market fundamentals are still on the back burner,” Kerr concluded. _FoxBiz

The speculator-premium is closer to $30 a barrel than $15, according to Al Fin analysts. But then, the price of oil has been bouncing around like a pinball. The news media is happy to jump on every rumour, and oil traders are squeezing each one for every penny possible.

The discord sweeping Arab lands is quite real, justified, and long-overdue. The blowback from this discord onto global markets is likewise real, and will require serious planning and adjustment to compensate -- at least for the short term.

But the screeching hysteria coming from every peak oil doomer and hobbyist is just a bit overdone. The smart money understands that political disruptions to oil supply are temporary setbacks. Better analysts likewise understand that total energy reserves are growing, rather than shrinking, and that for the next decade or two, civilisation is not at risk from long-term energy shortages on either the supply or the demand side.

But political forces are a real danger, and the greatest danger comes from corrupt political agencies and factions -- including the US Federal Reserve and Treasury Department. US President Obama's grand strategy of energy starvation is not helping very much, either.

As for the energy speculators, they never sleep, they can game the system in ways you never dreamed of, and the only reason they haven't picked your pockets yet is because you're probably not worth it. Don't make it easy for them.

The name of the game for most people in the age of Obama is asset protection, and doing what you have to do to get ready for a changing of the guard and the return of opportunity eventually.