It takes two to contango

Aside from being irritated and inconvenienced by the high price of oil, I've also been curious about it. We've all heard over and over again that it's caused by the unrest in the Middle East combined with increased demand from China, and the interruption in supply caused by Katrina and the leaky pipeline. I'm no economist, but those factors just don't seem to be enough to account for either the magnitude or the duration of the increase. After all, there's been unrest in the Middle East forever, and China's economy has been growing for years.

Well I'm no expert, but Ben Dell is an analyst at Sanford Bernstein. According to a report on NPR, Mr. Dell believes that the current price of oil is caused in part by investors. Oil futures are selling for substantial premiums over the current price of oil - a market condition that is apparently known as "contango" - so large investment banks and pension funds are gobbling up oil in order to sell the futures for hefty short-term profits. Mr. Dell goes so far as to say that the impact that these investors are having on the price of oil is equivalent to "the whole of Chinese incremental demand."

So it appears one reason for the high price of oil - and the effects that it's having on the economy as a whole - is a phenomenon that has always been with us: simple greed.

When a man worships mammon, he's not very well able to love his fellow man, so it's not surprising to see greedy people eagerly making their money without regard to how their behavior hurts others. However, it might be helpful if the greedy fellow could realize that he is destroying his own life as well; perhaps that would give him some motivation to reorder his priorities.

Gordon Gecko lives. Let's pray he lives to see the error of his ways.