Nymex Trader Says Oil Prices Have Gone ‘Just Nuts,’ Blames Goldman: Books
Dan Dicker could be forgiven if he hooted in vindication as crude plunged 15 percent in the first week of May. He concluded long ago that petroleum prices have become “just nuts,” as he says in “Oil’s Endless Bid: Taming the Unreliable Price of Oil to Secure Our Economy
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Oil markets are defying the normal laws of supply and demand, he argues in this timely book, and a large share of the blame belongs to Goldman Sachs Group Inc. (GS), Morgan Stanley (MS) and other banks. A longtime floor trader, he brings valuable insights to bear on a contentious subject that affects us all.
Dicker spent 25 years trading crude, natural gas, unleaded gasoline and heating fuel at the New York Mercantile Exchange. Bit by bit, he saw Goldman — “the devil to be feared,” he says — and its Wall Street brethren muscle into a sleepy market that was once dominated by oil companies seeking to hedge the risks of physical assets.
Soon a flood of “dumb money” from investors was gushing into funds pegged to the Goldman Sachs Commodity Index, he says. This high tide of cash, totaling billions of dollars, exerted an upward price pressure on oil that burdens American business and threatens to derail a U.S. economic recovery.
“We are all invested in oil, whether we like it or not,” he writes.
‘Peak Oil’
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He says he believes in “peak oil,” the theory that petroleum production will inevitably peak, plateau and decline. Yet when he examines this and other explanations for recent energy-price spikes — a falling dollar, for example — he concludes that they amount to “a bad alibi.”
His argument, brutally compacted, goes like this: Oil today is overpriced, driven ever higher by the new flow of money funneled through investment banks, energy hedge funds and exchange-traded and index funds. Feeding the frenzy are bets from the same kind of American investors who moan about paying almost $4 a gallon to fill up their SUVs.
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‘Assetization’
In swaggering prose, Dicker marches us through momentous changes that began rocking oil markets a decade ago. Chief among them is “the assetization of oil,” his infelicitous term for new instruments — think commodity index funds –that make investing in petro prices as easy as buying stocks.
Full article here >
(James Pressley is a book critic for Muse, the arts and leisure section of Bloomberg News. The opinions expressed are his own.)
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Video Interview with Dan Dicker, ETF Daily News (March 22, 2011)
“Trader and author Dan Dicker says ETFs using futures to attempt to track commodity prices are “among the worst investments on the planet,” and he urges retail investors to stay clear.”
