World demand for oil has increased over the last 12 months by approx. 1%. Canada has a vast oil field in Alberta waiting to be tapped and Venezuela has huge reserves. Thus the price increase is due to manipulation of the market to favour the producers and by extension the speculators. But in a capitilist society this is to be expected and indeed welcomed.

Mr. Mcentee states that there are large oil reserves in Canada and Venezuela. Oil comes in various grades depending on sulfur content. Oil with high sulfur content is much less useful for transportation, such as for refining gasoline. Hence the cost of processing this very tar like substance is much higher than using light or low sulfur oil from such places like Texas or Saudi Arabia. Canadian tar sand oil may even not be worth using all the natural gas and water required to extract it. So, while there may be some larger reserves of heavy oil in Canada and Venezuela the cost of using this oil is much higher. Hence, it should be more expensive. Additionally, using this substance releases much more in the way of greenhouse gasses.

Speculating on oil (or commodities) is different from speculating on stocks or real estate. With commodities, you have to take delivery at a certain point or sell to someone who can take delivery. Thus the price you ultimately get is what the end user is willing to pay for the oil. The buyer of the futures contract is a middleman who provides the cash to the producer and receives cash from the end user and makes money if the price goes up. For agricultural products it is clear that prices go up or down due to the crop size versus market demand. There is no reason to think oil is any difference except that the political and economic climate play a larger role. We have seen significant increases and decreases in the price of oil in the past and will in the future. So far it has been a good bet that governments will not do anything about energy policy (witness the drive to lower gasoline prices guaranteeing future oil consumption) and you should bet on oil. Many people have done that to help fund their retirement since they have reasonable concern that they cannot rely on Social Security. If Mr. Mcentee feels oil profits are too high, he is free (since it is a capitalist society) to work hard and invest in oil company stock, natural resources LLP's, or other financial instruments. Of course he will then become an evil person whose profits should be taxed away by the government.

The speculators are mainly hedgefunds. When it comes to oil, the law of 'supply and demand' is grossly distorted. It takes 5 years to develop an oil field, and another 5 years before it'll reach maximum output. A drop in demand also takes time, as it takes time for people to buy new cars with better fuel economy.

The unique window for speculators to profit can be attributed to the massive subsidy which the various government which subsidize the price of oil, especially China. The distortion in pricing signal is what make hedgefund rich.