The financial economy ceding control of crude oil prices back to the real economy?

This Bloomberg piece reports a growing sentiment among energy traders that further price declines are likely because, as one analyst described it, "commodities have fallen out of fashion with investors." Nate Hagens over at The Oil Drum reports here that Ospraie, a $4 billion commodities hedge fund run by Lehman Brothers, lost 26% of its value in August alone and is closing its doors. His long post also describes the "animal spirits" of the energy futures markets and how relatively cheap it is for investors to take positions that dwarf the quantity of underlying commodities to which the futures contracts nominally relate. If several big investors fail, or otherwise greatly reduce their exposure to energy futures, it may become as hard to see a bottom for crude oil prices as it was to see a top two months ago.

Update on Wednesday, September 3, 2008 at 07:48AM by Skeptic

One analyst quoted in this LATimes article says, "I do not think oil in the triple digits is safe."  Another says he wouldn't be surprised to see prices drop to $50 to $60, where they were a year ago. 

Update on Thursday, September 4, 2008 at 10:54AM by Skeptic

Here is another report that financial players are disinvesting in crude oil and other commodities, and another prediction that crude oil prices are headed below $100. 

Update on Monday, September 15, 2008 at 03:51PM by Skeptic

Lehman Brothers filed bankruptcy yesterday (Sunday) and is liquidating its positions to pay creditors.  Today crude oil prices have fallen off a cliff, trading under $94 on NYMEX at 18:09 EDT.