Soros on Oil Prices

George Soros will throw his considerable weight behind the theory that hedge funds are driving up oil prices in testimony before the Committee on Commerce, Science and Transportation today. According to Soros, allowing large funds to invest in indices is new and their financial heft on the buy side is helping to push markets up beyond what fundamentals justify. If the hedge funds were to switch to the sell side, it could lead to a huge market crash.

Crashing oil and gas prices may seem like a good thing to you and me--but a potential crash is the sort of thing that makes regulators pay attention. The committee is gathering information for the FTC to use in devising rules to prevent market manipulation.

This is not the first time Soros has sounded the alarm on commodities market manipulation which he has said is creating the mother of all bubbles. But in supporting the testimony of Michael Masters in hearings by a different committee, a few weeks ago, he gives additional credibility to the hedge fund theory of skyrocketing prices. Of course the underlying fundamentals, rising demand in Asia and a falling dollars remain supportive of high prices.

Patrick Duffy of the Chicago Mercantile Exchange will argue just that in his testimony. So while Soros' testimony may set some regulatory wheels in motion, it's probably not yet time to short oil.

In other words, keep working on those electric cars, guys... we're going to need them one way or the other.