Spring is in the air, and as usual at this time of year, the talk turns to oil prices, and specifically why they are high. While the various GOP Presidential candidates are furiously blaming the President for the level of oil prices (and in doing so demonstrating their complete lack of understanding of how oil markets work), the media is blaming nasty speculators. Today's Mcclatchy piece in my local paper has the bold headline "Markets to blame for oil prices". Well duuhh, of course markets are to blame - they are to blame when prices are high and when prices are low, because markets set prices. It's like saying the weather is to blame for the rain. But dig into the article a bit further and we find that apparently it is actually evil speculators that are to blame - something that I seriously doubt.
But I won't go into the arguments as to why it is unlikely that speculators are to blame, because about a year ago, Srini Krishnamurthy (my colleague) and I wrote an op-ed piece explaining just that. I discuss this piece in more detail in a blog posting back then.
In the meantime, I suggest blaming supply and demand.
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