John Mauldin's Thoughts From the Frontline issued last Friday had a very interesting analysis on the price of oil and what's causing it. I highly recommend that you read the full article, but in the meantime, here are my thoughts on his thoughts.

According to Michael Masters, one of the biggest reasons for the increase in oil prices is the recent increased interest in commodity index funds by large institutional investors such as pension funds and sovereign wealth funds. In a statement John Mauldin calls "inflammatory", Masters was quoted as saying:

"Think about it this way: If Wall Street concocted a scheme whereby investors bought large amounts of pharmaceutical drugs and medical devices in order to profit from the resulting increase in prices, making these essential items unaffordable to sick and dying people, society would be justly outraged."

I don't know if I think it's quite that intense, and I don't think John Mauldin does either. He seems to point toward good ol' supply and demand as an explanation for oil price increase.

Speaking of supply, one of the most interesting parts of the letter to me was the report that the supply of oil tankers is very low, due to many countries, esp. Iran, leasing tankers to store oil until prices are higher and they can make more. Apparently the same thing happened in the 80's to disastrous results and lots of lost profit.

So what's the lesson here? Maybe I should invest in a fleet of oil tankers? Maybe not. Maybe I'll stick with that dependable friend, real estate, where even in the down times, if you can hang on to what you've got it's sure to get better with time. For more on that, see Saturday's post!

Cyara Pott - Market Specialist