What are the differences? What are the similarities?
In the recent debate about whether the rise in the price of oil is due to speculation or fundamentals, I'm in the a bit of both camp. This puts me into J. Hamilton's camp. Mark Thoma has a nice summary of the debate so far and has even responded to the question: Why isn't there a similar argument on speculation in agriculture here. (Older posts by Brad Setser and Econbrowser here.)
Much of the arguments have been centered on why there hasn't been any increase in inventories and whether there are alternate ways of hoarding without us seeing a rise in inventories. The other part of the argument is if speculators foresaw an increase in demand why did they not speculate on the price earlier, i.e. why did prices rise now rather than earlier? Speculators hence would have played a role in damping the price increases.
I've been trying to digest this post on the reason for the rise in global food prices and have been wondering whether it is part of the explanation for oil as well:
1. The increase in wealth has made consumers less willing to substitute away from the good that has risen in price.
2. A series of unanticipated supply shocks has also decreased global supply of the good.
3. There is no speculation because shocks were unanticipated.
4. Inventories are drawn down thus increasing pressure on demand as consumption stays the same because of high inelasticity of demand as wealth increases.
5. Since demand continues to be strong prices continue to stay high.
This argument is persuasive but seems to be an argument as to why prices stay high but does not explain the daily volatility of the good. Nor does it explain why the price keeps rising in the apparent (?) absence of any news of supply shocks.