there still won't be a Bush-symp with the courage to discuss what Ahmed Chalabi did to the United States.

And a side note for the conspiracy-minded: the verdict in Saddam Hussein's much-delayed, dead-defense-attorney-riddled first trial will be announced Oct. 16.

Les, the post you referenced above leads to this post by Raymond Learsy at the Huffington Post (the link to which was posted by Factchecker). Although I respect Learsy's authority on the subject, he contends that BP's illegal manipulation of the market is symptomatic (and causative) of the larger phenomenon of high oil prices. What Learsy doesn't admit is that even an oil giant like BP doesn't have the clout to manipulate an entire global commodities market to any significant long-term degree.

I still contend this is a combination of the imbalance of supply and demand and speculation by arbitrageurs.

Sure, Republicans are currently reaping the political benefits of their petro-industry friends' windfall profits, but the roots of the problem and its solution lie much deeper than partisan politics.

--Socialist With A Gold Card

Could hedge funds manipulate oil prices? I read allusions to a shadow market for stocks and currency trading which produces strange results.

Yes, hedge fund managers could (and do) manipulate oil prices to a certain degree. They control a huge and largely unregulated pile of capital floating around the markets, investing in one thing one day and another thing the next. Hedge funds certainly do invest in oil contracts in a big way, and they take "short" positions on those options as well, whenever they think the price is going to drop. This contributes to the volatility of oil prices, but it's not the only cause.

I want to believe it's just supply and demand and yes the higher prices have reduced demand but why did prices drop so quickly? Some say it's the demand at the margin, as when the demand for seats at Neyland stadium drops below capacity then the secondary market plummets. But oil is something that can be stored, right? Or is it that once gas is in the pipeline it must be sold to make room for more.

I think the recent price drop is due to a combination of the anticipated slowdown in demand after Labor Day, the annual move away from (more expensive) summer blends, and a sudden (but all that big) jump in both crude oil and refined gasoline inventories. This price drop is temporary, and I think it's due to the same seasonal influences we see every year. I also think it's a downward correction from the artificially high prices we've been paying for the last couple of years. The price rise was too high too fast, and the recent drop has been too low too fast.

You're right about the "demand at the margin" causing volatility in prices in the secondary markets; the Neyland Stadium analogy is exactly on point. When producers are able to increase production (usually temporarily) in one spot of the world or another, the global price tends to reflect that. Short-term changes in supply cause the price to overreact.

The oil market is predicated on buying and selling stockpiles, but those stockpiles get depleted fairly quickly. The supply chain in the oil industry has a small amount of flexibility in it, but not much. If all the oil wells in the world stopped pumping today, there would be a couple of months' worth of oil in existing stockpiles. That's a fairly small margin, and it also contributes to price volatility.

Here's an illustration: jumps in the spot price of oil always seem to be reflected in the pump price the next day, don't they? We've all noticed when the price of crude jumps, the price at the neighborhood gas station jumps the very next day, even though the gas in those tanks was pumped out of the ground 12 to 18 months ago. A jump in spot price wouldn't seem to suddenly make the gas at the station more expensive. The spot price of crude shouldn't directly affect the pump price of gasoline instantaneously.

Except, it does in a roundabout way. When the spot price jumps, everybody in the market gets jittery -- refiners start scrambling for alternative sources of oil, distributors start shopping around for better deals on delivery contracts, etc. Very quickly, the distributors get hit with a delivery contract that says "Oil delivered to you six months from now will cost $X per gallon; payment is due in 30 days." The distributors go, "Holy crap. We have to come up with a ton of cash in a hurry." That's why they instantaneously spike the price charged to the wholesalers and gas station owners for oil that was pumped last year. That's why the pump price jumps the next day, and it's also why the pump price doesn't usually drop nearly as fast as it rises.

--Socialist With A Gold Card