If the smart money is right, the price of oil is going down. According to Bloomberg "Hedge-fund managers and speculators reduced bets on higher oil prices by 80 percent since July as crude futures rose to records and U.S. regulators started investigating trading."
If the movement out of crude continues, firms with long bets in oil may start to lose money. As they sell out of their positions, prices should start to move lower.
The falling interest in betting that oil will go higher should expose the extent to which real global supply and demand are supporting crude. OPEC continues to insist that prices are unnaturally high because of speculation. Their theory is about to be tested.
Those who support the "fundamental" theory of oil price movement believe that crude is at $130 or so because supply is dwindling in places like Mexico and Russia. Oiler fields pump less. More oil is kept "in country" for cars, trucks, and infrastructure building.
On the other side of the coin, the demand for oil is not dropping much in the US and it is still rising in big countries like China and India.
As financial players move out of the market, OPECs theory gets tested. It may be found wanting.
Douglas A. McIntyre
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