Last week, Marketplace had an interesting report on the growing trend of “contango” in the oil industry. For those of you who are not familiar with the practice, contango occurs when investors sit on a commodity because the future price is higher than the spot price. In this case, that results in full oil tankers sitting offshore, waiting for the price to rise before they unload their 50 million barrels onto the market. So a quick buck is made by those holding the inventory on the high seas, but what happens when those barrels eventually reach a port ? We’ve got a glut of material again, which forces prices down. This type of profit-taking merely adds to the volatility of the market, but has little influence on macroeconomic fundamentals.

Frankly, it seems as though the oil/energy sector has the most interesting bag of tricks when it comes to speculation, rhetoric, and other market manipulation. But all the headline grabbing stories aside, oil is just like other commodities in that pricing is governed by supply and demand. While contango, Somali pirates, and accounting tricks can be a source of market volatility, these games don’t have a long term impact on pricing.

In an effort to cool rising gas prices last week, Congressional regulators took steps to curtail overseas oil speculators. The move will force some overseas exchanges, which trade US oil, to share data on a daily basis and report any violations to authorities. The AP video report on the move is here.

Dow Chemical (DOW) made a lot of headlines last week when they very publicly announced price hikes of up to 20% on their products. Most of Dow’s customers were left scratching their heads as to why this made any news. After all, it’s not as though buyers aren’t used to Dow and other suppliers raising prices, particularly at a time of soaring commodity prices. But, I think that largely misses the point of this “news” story, which was actually aimed at Washington and Wall Street more than their customer base.

Dow has been very outspoken about the lack of a cohesive US energy policy, which most experts agree has helped exacerbate inflation in the energy markets. And since the Fed’s core inflation rate doesn’t fully capture the increasing price at the pump and grocery store (arguably the consumers’ “inflation index”), Dow’s move sends a message - loud and clear - that spiking energy prices are fast becoming a critical economic concern.

You didn’t have to look very hard last week to find evidence that times are changing in Detroit. Ford (F) lowered expectations for ‘09 and is (finally) moving towards a smaller, more fuel efficient lineup. And although it didn’t gain a great deal of national attention, the dissolving of Plastech signals a major shift in the way American automakers will need work with, rather than against, their suppliers. Plastech, a leading maker of plastic auto parts and assemblies, filed for Chapter 11 earlier this year. Unable to turn things around, they peddled their various divisions to former competitors and auctioned their remaining pieces this week.

There were several factors that brought Plastech down, such as their lack of a diversified customer base and soaring prices for raw materials. But like a lot of Detroit suppliers, Plastech’s true Achilles heel was their long term fixed pricing agreements with the Big 3. Detroit auto makers’ ability to squeeze their suppliers is legendary. But the days of long terms fixed pricing agreements are likely over for any input that relies on volatile commodities. Those agreements may have looked good on paper, but they are unrealistic in the days of $130 oil and double-digit inflation in metals and plastics raw materials markets.

The massive run up in commodity prices followed by last week’s sudden sell off has everyone wondering … are commodities the next bubble to burst? In fact, typically cool headed coverage in journals like the Financial Times warned of a looming “big fall” in commodities. But let’s not get too far ahead of ourselves here.

Relatively high prices for commodities - or at the very least oil and the other commodities it impacts - are here to stay for quite some time.