[Mo_Gearhead]

I’m a big Supply and Demand type person. I think that most markets are efficient because of this ‘balancing act’ if you will.

Some time back I wrote here (in a thread) that I felt most of the rise in oil prices was ‘mostly’ driven by new demand from growing economies (ie: India, China, etc.) I poo-pooed some of you that stated speculation was a big contributor. I am now here to eat humble pie.

From a recent story, I now know that speculation in oil has grown tremendously in the last few years. Now being used by huge banks, pension funds, wealthy individuals, etc. …oil futures are being treated as if they were stocks and bonds, as a hedge against inflation.

In 2000 the entire ‘futures market’ in oil was about 9 Billion dollars. In 2007 that market had grown to 250 Billion! That figure amounts to several months of oil demand for the entire world!

The war in Iraq, the declining dollar, recession in the USA, the housing crisis; there can be many factors that can drive money towards other forms of security for one’s money (gold, art, foreign markets, etc.) but it certainly seems that oil has now become a big part of the speculators portfolio.

It brings to mind however the question of, can it be sustained? Or will oil, at some point, hit the wall and take a dive (ala the U.S. housing market)?

I am not sure what series of events could bring that about, but I certainly hope it happens ...and sooner rather than later.