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High Oil Prices: The Truth About Obama's Misguided Witch Hunt

It has been less than a month since President Obama declared war on those evil oil speculators.

Standing in the Rose Garden on April 17th, the president laid out a $52 billion initiative to increase federal supervision of oil markets in an effort to crack down on oil price spikes.

At the time, oil was trading at $117.41 a barrel and $5 a gallon gas seemed all but inevitable.

According to the p resident, evil speculators had been working behind the scenes to screw the rest of us while engorging themselves on riches beyond our wildest dreams.

I said it then and I'll say it again...the president is chasing a ghost he'll never catch. Spending $52 billion on additional oversight is a complete waste of money and a misguided witch hunt.

I mean, think about it. If speculators are the same ones responsible for high oil prices, ask yourself why they're the ones getting raked over the coals these days as oil prices fall.

The short version: It's because speculators don't control oil prices and never have.

The Real Culprits Behind High Oil Prices

Pricing inputs - for better or worse - are driven by geopolitics, supply constrictions, war, tyrants with spigots and buyers who will only purchase as long as the prices are low enough.

This is not complicated. Any time there are more buyers than sellers, prices go up. When there are more sellers than buyers, prices go down.

Whether or not what's happening now turns out to be short- term noise or a long- term trend remains to be seen.

As I noted in a widely read article on April 20th, legitimate speculation has a valuable and essential role in the markets. It's very different from the already illegal manipulation that the president seems to confuse with speculation.

Oil prices are driven by two groups of participants - hedgers and speculators.

The former are typically producers or suppliers with a vested interest in securing as high a price as possible for their output. They can also be manufacturers who depend on procuring as low a price as possible for their raw materials. Both parties are interested in delivery as a function of pricing.

Speculators don't care about delivery and, in fact, go to great lengths to avoid it.

They profit from price changes that would otherwise hold hedgers apart while also providing liquidity to other market participants.

Here's an example that may help bring this to life.

Join the conversation. Click here to jump to comments…

About the Author

Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs High Velocity Profits, which aims to get in, target gains, and get out clean. In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at

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  1. gsdollar | May 14, 2012

    If the reason "hedgers" are raising the price, why has the ratio of hedgers to "speculators changed from 75% hedgers/25% speculators to the reverse??? The speculators ARE the cause, but fear not…the President has had his photo-op, exactly like LAST years, with the spectre of Eric "I have guns toi Sell" Holder being as ineffectual as the previous "attempt" to find what fuels high oil prices.

  2. Earl Richards | May 14, 2012

    Google the "Global Oil Scam." Purchase electric cars and solar panels. The price of oil and gasoline is determined by those who manipulate and control the crude oil futures markets, namely, the IntercontinentalExchange(ICE), ICE Futures Europe and the NYMEX and the price of oil is not decided by Obama, OPEC, Iran, Saudi Aramco,Inc., Libya and the laws of supply and demand.

  3. H Craig Bradley | May 14, 2012


    Remember the 1970's movie "Deliverence" and those inbred, but somewhat talented "Banjo Players" (as in the song "dueling banjos")? Well, the same thing goes with many otherwise talented Americans and their duly elected representatives (politicans). The conservation measures of Congress, the President, and the individual consumer won't change Keith's trend of limited oil and unlimited global growth in demand and therefore, prices.

    So, whether you can drive a Hummer or a Prius makes little difference to the price of oil, or even gasoline. Federal policy and legislation that effectively locks-up large domestic deposits of recoverable oil and gas make domestic gasoline and energy price increases even more certain to affect Prius drivers and their families.

  4. Pete Thompson | May 15, 2012

    I'm not falling for this, sounds like the argument of a speculator.

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