How Hot Money Inflames Oil Prices

Hedge funds and other investors may have helped push oil prices up. Now, they're helping push them down—and fast

There's been an ongoing debate since energy prices began their steep rise four years ago: Was the money pouring into the oil patch from mutual funds, traders, hedge funds, and other financial players pushing up the prices that consumers pay to heat their homes and fill their gas tanks? In other words, was hot money behind the sharp rise in energy prices?

Well, now the hot money is moving out of energy, and it seems clear that it's adding just as much volatility to prices as they move down as when they were moving up. Without any major changes in supply or demand, the price of oil has been tumbling, dropping below $59 on Oct. 3. That's 25% off the peak of $78 in July. Natural gas prices have fallen even more sharply, to $5.80 per million Btus from $15 last December, a drop that likely precipitated the $6 billion blowup at hedge fund Amaranth Advisors

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