Right On Cue

As if responding to the protests against speculators (see Tuesday's post), the International Energy Agency has announced that "Oil markets are better supplied for the first time since 2009," according to a Bloomberg article.  OPEC is also signaling that supply is meeting user demand.  Both organizations blame the 12% increase in the price of crude oil on speculation related to geopolitical unrest and the related Iranian embargo.  Supplies are increasing slightly faster than demand, resulting in a decrease in the number of days of demand in inventory to 59.6.

So, even though production has not caught up to demand, that gap is narrowing,  largely due to weakening demand factors.  However, the market is subject to additional risk, partly identified with one participant and partly more amorphous.  This risk is not well defined right now, so speculators have stepped in to help the market find its price.

Note that the speculators are responding to market conditions, not to the availability of an investment vehicle.  Any speculator using ETFs today, would find another vehicle with which to take his positions if ETFs did not exist.  Banning ETFs would have little effect on the price of oil, or any other commodity.