As I've noted before, I see a lot of froth in the oil market; and probably in other commodities too. The reason I think this is happening is because traders are beginning to treat commodities futures as assets.

In reality, a future is simply a bet on which way you think the price is going to go. So if I work at Goldman Sachs and I have a billion-dollar position in oil; then I release a press statement that says "Gee, I think oil is going to double," everyone else is going to say "Holy shit, that Goldman Sachs guy must know what he's talking about, so I'm going to fall in line behind his position." And voila, oil prices begin to edge upwards. In this example, supply and demand of actual oil has not effected price. This is what we call a bubble. If you bought a home in 2007 and you're trying to sell it now, you're painfully familiar with this idea, I'm sure.

The story of supply and demand is that it hasn't really changed much over the last three years, yet price has tripled. The real bad news is that Congress is on the job, and they're trying to enlist the help of the FTC and a commodities regulation body to help reign in the traders. I don't like the idea of meddling with the free market, but the situation begs the question: Is this really a free market if the price of a good is decoupled from demand for said good? Either way, with demand plateauing (or declining, if you look at recent numbers); I would expect some volatility in the oil markets in coming quarters. When the price run-up has made it into the forefront of everyone's mind; it's time to sell your position and wait for the bottom.