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'Index Speculators' Responsible For Commodity Prices?

Markets will always seek an equillibrium. In a capitalist economy though you also tend to get exaggerations on both sides of an equation. If the market for crude demand is X at $75 and supply is willing to supply X then we have a balance. What Masters is arguing is that the legitimate purchasers of this commodity are having to pay more because speculators are bidding up the price. Instead of the bid being for X at $75 they are adding volume to the bid os it may be X+1 and the supplier says that they are not willing to provide the +1 at $75 and so the bubble begins to form.

The bottom line is that this is not going to end well. As we have seen numerous times in the last 10 years or so speculative bubbles eventually run out of steam. The problem is that they have a tendency to expand further than we originally anticipate. The price will move forward until the speculators begin trying to cash out and they all move for the cash register at once.