They are a new breed of investors that speculate on oil futures, believed to be a large part of the reason that oil prices have been climbing over the past year.

Currently 71% of all oil futures are being held by entities that neither produce or consume the fuel being produced. In 2000, only 37% of oil futures were held by this type of speculator.

Needless to say, oil speculation is currently being scrutinized by the Government as fuel prices continue to skyrocket into the 4th of July holiday. Higher fuel prices are also being blamed as a factor
in rising food costs, as well as natural disasters in the Midwest.

The prices of fuel affect everyone and all of the companies in the stock market. We’ll keep you updated with news.

Inflation is not quite as bad as 1923, but it’s getting worse

The headline consumer price index jumped by 0.6 per cent in May, the biggest monthly increase since November, and more than economists’ forecast for a rise of 0.5 per cent.

However, traders were relieved that core consumer prices, which strip out volatile food and energy costs, remained contained last month. The core index rose by 0.2 per cent, in line with the consensus forecast.

Over the past year headline prices have risen by 4.2 per cent while the core prices have climbed 2.3 per cent.

One reason that people are taking more notice of the inflation rate is because Fed Chairman has been making more comments about that very issue this week. According to Bernanke, you can now expect the Fed to “strongly resist an erosion of longer-term inflation expectations”. I guess they plan on doing something about it, although details have been scant.

The big problem remains high energy costs. In the dead of Summer for most of the world, it’s doubtful that energy costs will drop anytime soon. Since transportation costs are passed on to all businesses, costs everywhere will likely continue in the interim.

What will be interesting is if we see any strong initiatives by the Fed to reduce inflation. I myself am amazed the United States and other big Western countries who rely on oil have just began to talk about releasing oil from their strategic reserves..

“IEA member-states are required to hold oil stockpiles equivalent to no fewer than 90 days of the prior year’s net imports. The agency calls on countries to release emergency reserves of oil if supply is threatened.”

Certainly flooding some of the strategic reserves into the open market would have an immediate depressing effect on oil and gas prices. In fact, it might even send speculators heading for the exits, precipitating a further decline.

We’ll see what move comes next now that inflation fears are increasing.