Big Oil Not the Villian in Rising Oil—Blame the Expanding Commodity Market

Concerns over the turmoil in the Middle East and North Africa is keeping the price of crude at the century mark.

You can bet that when the oil companies start reporting record profits for the current quarter, they will be blasted by the Obama Administration and painted as villains. But should the blame of the rising price of oil and the profit taken on the backs of the consumer go beyond big oil?

I decided to sit down and speak with oil trader veteran Dan Dicker. Dan was an oil for trader of the New York Mercantile Exchange for 25 years and is the author of the forthcoming book, "Oil's Endless Bid: Taming the Unreliable Price of Oil to Secure Our Economy".

LL: How would you rank the blame game when it comes to the rising price of oil?

DD: I would put the investment banks first. They have created and sold the instruments for retail investors and institutional investors to easily bet on the price of oil. The three largest investment banks trade in oil as well and make a couple of billion dollars each trading oil a year, which directly comes out of the pockets of consumers.

The investor is next to be blamed. They have fallen to a large degree for indexes and commodity ETFs. These new participants are exclusively buying; no one is selling and Everyone wants to hold. They understand the importance of crude in the global economy. The oil market was relatively stable until the commodity market was allowed to expand with the passage of the Commodity Futures Modernization Act in 2000. We have seen enormous swings both up and down since then, and barring intense intervention, we will continue to see very volatile moves.

LL: What about big oil?

DD: The oil companies of course also trade oil but the truth of the matter is it is the expanded commodity market and the day traders, hedge funds and ETFs that are driving the price of oil far more today than the oil companies.

LL: Where do you see the price of gasoline going as a result of the rise in crude?

DD: It's a very good possibility we will see four dollars come this Summer’s driving season. There is nothing I see to slow down that trajectory down. Last time it took the threat of a global melt down to stop the price rise. We don't have that now. We will see a steady rise.

LL: What about crude. Will we go back to 75-80 a barrel if and when this turmoil subsides?

DD: No. Even if it quiets down we will not go back to 75 to 80 a barrel. There is an underlying layer of money that has found oil as a useful long term investment, and its not leaving the market so soon.

A Senior Talent Producer at CNBC, and author of "Thriving in the New Economy:Lessons from Today's Top Business Minds."

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