Oil price spiral, interrupted: Rex Tillerson, the CEO of ExxonMobil, said this week that the purely economic value of oil is $60-$70 a barrel, or about 29 percent lower than the price at which it closed Friday. Tillerson (pictured at right above) was talking about the cost of producing new crude oil, not the stuff that is already in tankers headed to refineries or in storage. You'd add reasonable profit on top of Tillerson's estimate, but he doesn't claim that this explains the divergence of the price to above $100 a barrel in the last couple of months. He is mystified along with the rest of us.

He was speaking at a Senate Finance Committee hearing that was just one tick in a highly newsy week in oil. The CME Group, which owns the Nymex exchange where speculators trade U.S. oil futures, took some air out of the market by significantly raising the cost to bet on oil -- by a whopping 25 percent (while that's a lot, it's nothing compared with an 84 percent increase this week in the price for betting on silver). Why did CME act? One reason is that speculators are pushing the oil price all over the place. Traders became so overheated Wednesday, for example, that CME actually called a temporary halt to the betting action.

One factor that's played havoc with the market has been two years of government stimulus. Governments around the world -- in Europe, Asia and the United States -- have so feared a catastrophic and prolonged depression that they have lavished public spending on their economies, and maintained super-low interest rates. The U.S. Federal Reserve has even engaged a trick called quantitative easing, which does the same thing as stimulus by putting more cash into the system. All this money staved off the worst for a while, but it had to go someplace, and guess where that is? A lot of it has become "hot money," sizzling up developing markets around the world -- and commodities such as oil. To make things much simpler, the money has gotten into the hands of traders, who have driven up the price of oil (among other commodities including silver). Don't ask me how specifically it got into their hands; that's one of the tricks of speculator types -- they somehow, in every period of economic bubbles, end up at the delivery end of cash faucets.

What importantly isn't often taken account of is that robotic traders are sitting right next to the live players at the casino. These really are robots -- not the kind with artificial intelligence that futurist Ray Kurzweil forecasts will take over our lives in a few short decades, but computerized traders: robotic robots that automatically buy or sell when certain price thresholds are crossed. That was the major cause of the huge price dives over the last 10 days or so. As Reuters reports, there was a perfect storm, and the robots went wild.

As a coda, I have often wondered why this type of what I think is fairly sensible talk makes some people uncomfortable, and I think I've discovered why -- they think that if you point out the role of speculators, you are calling for their abolition. But why would that be so? If one suggested for example that the presence of wild quantities of trout results in a spurt in the issuance of fishing licenses, would you fear the eradication of fishing? I think the speculation deniers should relax. We all know that trading (speculation) has a healthy function in markets. Yet we also know that it can move markets. It is the latter factor that is under discussion.

For those who want it from the horse's mouth, here is a video of Tillerson at Thursday's Senate hearing.

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