This time speculation DID drive up oil prices

Paul Krugman made some outstanding contributions to the fascinating blog debate on oil speculation about a year ago (which, incidentally, catalyzed my interest in the economics blogosphere). Then, he argued speculation wasn't a major factor because oil inventories weren't rising; this week, he asserted with scintillatingly simplicity that speculation drove the recent run-up in oil prices because - you guessed it - inventories are rising.

Hard to argue with that. I'm not always a fan of Krugman's argumentative style, but moments of brilliant clarity like the above attest to his Nobel-worthiness.

Further kudos to Paul for a healthier reaction than the CFTC and various European heads of state:

Now, “speculation” isn’t a synonym for “bad”. If the underlying assumptions that seem to have been driving oil markets were right — namely, that a vigorous recovery is just around the corner, and demand will shoot up soon — then it would be perfectly reasonable to accumulate oil inventories right now. But those assumptions are looking less reasonable by the day.

There's no nefarious market manipulation here - just people betting (unfortunately, probably wrongly) that an economic recovery is around the corner.

Via Greed, Green and Grains; the referring post is good in its own right and I'll post on it some time soon.