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Uh huh. Ok Dick Morris is a *political* commentator, not an economic one,,and even as such could not get his head out of his rear end with a flashlight and a detailed map.

So that’s a nice wikipedia-like definition, but what does it really mean in terms of reality ? The whole concept of making $X per barrel doesn’t make any sense in terms of futures markets. More likely what he was talking about was that potentially $50-$60 of the PRICE is influenced by speculation, ie, if there wasn’t any speculation it’d be 50% less. Which is an incredible overexaggeration if I ever heard one.

Here’s an example. You’re in a hermetically closed room, and all the air you get is provided in pressurized tanks. The folks that make the tanks can make 100 of them per day. There’s 98 other people in there, and you’re not sure whether there’ll be 101 or 98 or 97 produced for the next day. How much will you pay to make sure you get your tank ? But some guy buys a tank now, holds it until an 10 minutes before tank exchange time, and then sells it. He might have made some money there. But perceptions change and someone figures out they’ll be able to make more tanks that day and that guy could have lost a crapload of money too.

That’s the oil markets today. World output at 86m bpd, world use at about 84-85m bpd. The price is driven exponentially by the marginal number of excess capacity. If we were at 100% capacity oil would be $200. That we’re at 98% capacity means we’re at $130.