WikiLeaks: Saudis think speculators helped cause oil bubble

Matt Taibbi writing in Rolling Stone (my emphasis):

When oil prices surged to a ridiculous $147 a barrel in the summer of 2008, conventional wisdom held that normal supply and demand issues were the cause. ... [T]hanks to Wikileaks, we now know that when the Bush administration reached out to the Saudis in the summer of '08 to ask them to increase oil production to lower prices, the Saudis responded by saying they were having a hard time finding buyers for their oil as it was, and instead asked the Bush administration to rein in Wall Street speculators.

"Speculators" means the so-called "Global Pool of Money", the monster pile that global investor were trying to find a home for after the crash of the derivatives market, the Global Pool's previous home. (Click that link and listen; you won't be sorry.)

Where do Goldman and DeutscheBank and Paribas put billion- and trillion-dollar investors after the housing crash? Treasuries (which are safe but pay nothing) and commodities.

The issue here, which I covered somewhat in Griftopia and in "The Great American Bubble Machine," revolves around the influx of speculative money into the commodities markets. Because of various changes to the way commodities were traded -- including a series of semi-secret exemptions handed out to commodities speculators, allowing companies like Goldman Sachs to popularize commodities speculation -- there was, by the summer of 2008, a cascade of investor money pouring into commodities, mostly all betting on a rise of commodity prices. ... The Wiki documents show that the Saudis had long ago concluded that this increased investor flow was a threat to disrupt the markets. An embassy cable from 2007 recounted a meeting U.S. officials had with Yasser Mufti, an Aramco planner. "The Saudi analysts indicated a link between higher oil prices and the influx of investor funds into the oil markets," it read.

The cables also show that the Saudis urged the Americans to enact reforms to rein in Wall Street, calling for speculative limits and other changes. It also showed that some Saudi officials believed that speculation added as much as $40 to the oil price during the height of the bubble.

Some economists have argued that commodities like oil aren't subject to price shocks due to speculation. Clearly the Saudis, whose business it (literally) is to know, disagree. Looks like the problem is back.

GP