Paul Krugman has been double checking some of the claims from the folks at the National Review who have blamed speculators for the high price of oil since even before the invasion Iraq. For example, Frederick P. Leuffer was saying oil prices were too high back in early 2003:
Extraordinary events are now holding oil prices high. The uncertainties of potential war with Iraq and the Venezuelan oil workers’ strike have put a premium on oil prices of more than $10 a barrel (the barrel price at this writing was $36.06). In addition, colder-than-normal temperatures this winter and severe storm activity in the Gulf of Mexico last fall worked to wither commercial petroleum inventories to low levels, particularly in the U.S. All these factors have helped ratchet prices upward … Following Desert Storm, oil prices plunged, the stock market soared, and oil stocks underperformed. There’s no reason to think that same scenario won’t play out in 2003.
OK – this fool thought the Iraq War was going to be quick and easy – sort of like the fool named William Kristol. But what about the fool known as Lawrence Kudlow who wrote two years later, the following:
When I put a $55 barrel of oil on the table and look at it from all angles, there’s no way the current price can be justified. As a free-market disciple, I am compelled to accept the market’s verdict: $55 a barrel. But that doesn’t mean it’s going to last … The fact that oil has increased so much more than these commodity and financial-asset prices is important. It suggests that the oil sector is way out of line. Increased China demand cannot alone explain it — over-speculation is also a culprit.
We have provided a graph of oil prices since early 2003 to see how well their forecast of falling oil prices has panned out.