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Do you agree that oil prices have been manipulated?

Several months back when oil was $140 a barrel I stated that people will ultimately go to jail when the American Public realizes prices were being manipulated. At that time, most people on this blog claimed the demand justified and was coming from China and other emerging markets. Like the housing bubble I didn't believe it was sustainable especially after the Olympics were over and if Obama won the presidency. I thought oil should be half of what it was. Now, I believe it may even go to $40 if OPEC doesn't cut production again trying to prop up prices - which in itself is manipulation. I believe the fact oil is under $60 when demand since July is only off 20% is by definition, manipulation. Many of my friends believe redemptions are forcing hedge funds to sell oil to these levels. What do you think?

Public Comments

1. Yes...I think they have.In fact,I noticed that over at the gas station,the gas was $18 and a few months ago it was $30.So the prices have totally changed.
2. Well, Iran is doing their part. They are doing their saber rattling in order to scare the markets, but they have heard it all before. OPEC is quite likely going to cut production, they like high prices, which is the reason for their cartel in the first place. The global economic crisis is part of why the price of oil has fallen so much: some businesses can't afford it (either strapped for cash or the credit lines are frozen), and with the high prices enormous numbers of consumers are likewise strapped for cash, facing frozen credit lines, AND are punishing suppliers who charged such high prices by continuing the forced frugality in transportation and heating. Were oil prices manipulated? Absolutely, that is what the OPEC cartel was formed for. The oil futures market had an enormous spike in activity while it marched upward. Stories I've been hearing were that the fat cats in places like Saudi Arabia and Dubai were bidding the prices still higher. They made a mint trading oil futures AND selling oil from long-amortized oil fields.
3. Oil is priced by the marginal barrel. That is the price is based upon the last person to sell a barrel. When prices were $145, not every barrel being refined was at that price, due to longer term commitments. Likewise, not every barrel being used is at $55 now. But when you think about it, if we really had a drop of 20% in demand, that is just HUGE. In terms of the marginal barrel, it does not take much of a shift to change prices dramatically. this has been magnified by the "long only" funds out there, including ETF's for Joe six pack. Commodities stay in balance because of market makers willing to be long OR short. When the buyers got out of balance, so did the market. Add in governmental meddling that caused many speculators (the short people) to withdraw from the market, and there was even less restraint on prices rising too rapidly. On top of it all, you had some OPEC nitwits who thought the bubble would last forever and trash talked the market even higher (Russia, Venezuela, and Iran). But meddling implies a master plan. there was no master plan, just a series of blunders by ETF companies, small investors, and governments. Now the pendulum swings again. Solar companies are toast (again).
4. When ever supply is manipulated then the price is manipulated as well. Look at Canada it is a supplier of oil to the United States (yes central Canada does import oil from the United States but overall Canada is a supplier to the US) and yet the Canadian dollar has fallen against the US dollar significantly as the price of oil dropped. So not only does the supply of oil affect the price but it also affects a the value of a national currency in relation to the currency of the largest consumer of oil in the world--the US.
5. Not at all. Oil has always been volatile. Its fallen about 75 percent twice in the last twenty years. It does this about every decade it seems. Its a cyclical business. Commodities are mean reverting. And the low dollar was a big reason for the commodity bull market. Speculators drove up the price on expected supply and demand. It wasnt true supply and demand. But that doesnt mean its manipulated. It just gets overbought and oversold like any other asset. Now the real supply is catching up with the real demand.
6. No. Markets are made up and buyers and sellers. You should offer your proof of manipulation to the world.
7. It wasn't manipulated but pushed artificially high by futures traders, there was never such a surge in demand to push the price all the way to 147 nor was there lack of supply, it was just that ever one went long in futures. That is why it has not been able to hold even 50 % of its value after the financial mess and the long positions been unwinded.