Algorithms, Not Demand, Driving Oil Prices Sky High?

If crude oil's relentless march higher leaves you shaking your head, you’re not alone.

Analyst David Greenberg of Greenberg Capital thinks the moves are about more than supply and demand. Much more.

In a live interview on CNBC’s Fast Money he says “oil is $20-$25 too high. The $80 range is fair.”

Although oil probably deserves some premium because of Mideast unrest he says the fact of the matter is, markets have not experienced significant supply disruptions. And he adds that even during the Gulf War “we didn’t see a spike like this.”

If supply and demand aren’t moving the oil markets, then what is?

According to Greenberg, “The speculators have taken control of the market and it’s now out of control.”

It’s a complicated issue but essentially he thinks that electronic trading has infused the oil market with more money than it can handle. “So it’s very easy for any fund that needs a position to go one way or another, to slam it with algorithms. That’s what’s moving the markets,” he says.

That’s a bold and somewhat controversial call; and one that’s likely to draw a lot more attention especially after crude oil closed above $110 on Thursday, a level widely considered problematic for the stock market.

And so there's no confusion, Greenberg does not think speculators alone are driving oil. "Of course there are fundamentals at play," he says. "The problem is that it's not just fundamentals at play."

"And when you have fundamentals on the same side as the specs, when that happens it makes it even easier for them to move the market."

Greenberg also tells us that he went to Washington years ago and warned lawmakers of these kinds of issues but to date regulators have failed to provide the degree of oversight necessary to prevent it from happening.

What do you think? We want to know!

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