Lost On Oil: False Reality Or Inflation Dynamics In Play?

This is another evidence on how regulators and the public seems lost on what has been happening in the markets and the real economy.


According to the Economist, ``THE oil market is behaving like a bucking bronco again, and politicians are once more blaming speculators for careening prices. It is difficult to assemble a definitive explanation for the rally: a weak dollar helps oil prices, but evidence for improving supply and demand remains thin. Positions held on NYMEX, the New York commodities exchange, have indeed soared. In 2008 America’s Commodity Futures Trading Commission (CFTC), which regulates NYMEX, examined how the changing positions of hedge funds affect prices. It found correlation, not causation, but its investigations were hampered by the fact that it could not examine intra-day trades. Nor could it monitor certain derivatives, such as those traded via London’s InterContinental Exchange (ICE), in which Wall Street dealers are particularly prominent. But in a sign of things to come in the oil market, on June 12th the CFTC said it had launched a public investigation to see whether the biggest natural-gas contract traded on ICE was moving prices around in the more regulated futures markets." (bold highlight mine)

Essentially regulators as much as the mainstream can't find sufficient answers to the conundrum of rising oil prices and weak fundamentals.

Instinctively, regulators always blame such predicament on speculators, when in the contrary, "speculation" has signified as direct responses to the policies imposed.

We have been saying repeatedly that this has been mostly monetary forces dominating both the financial markets and the real economy or inflationary dynamics in motion.

As we earlier quoted Ludwig von Mises in his Stabilization of the Monetary Unit? From the Viewpoint of Theory, at an earlier post, Our Mises Moment Answers Mainstream’s Conundrum of Market-Fundamental Disconnect

``If people are buying unnecessary commodities, or at least commodities not needed at the moment, because they do not want to hold on to their paper notes, then the process which forces the notes out of use as a generally acceptable medium of exchange has already begun. This is the beginning of the “demonetization” of the notes. The panicky quality inherent in the operation must speed up the process. It may be possible to calm the excited masses once, twice, perhaps even three or four times. However, matters must finally come to an end. Then there is no going back. Once the depreciation makes such rapid strides that sellers are fearful of suffering heavy losses, even if they buy again with the greatest possible speed, there is no longer any chance of rescuing the currency. In every country in which inflation has proceeded at a rapid pace, it has been discovered that the depreciation of the money has eventually proceeded faster than the increase in its quantity.”

All these constitute an evolving process known "demonetization". Where sooner or later a seemingly "benign" environment may turn into mayhem, if the inflationary process isn't halted.

And additional regulations won't be enough to curtail this process as the public has virtually been responding only to inflationary policies being effected.