Here's how it was reported, for example, in the Wall Street Journal:

Reaction to the Wall Street bailout and frenzied last-minute trading in the oil market sent crude prices soaring by more than $16 a barrel, the biggest one-day jump ever.

The late-day spike, which shoved oil up 16% to $120.92 a barrel on the New York Mercantile Exchange, offered an illustration of Wall Street's hard-to-predict moves amid broad market turmoil.

And here's what really happened.

The most striking thing about yesterday's oil prices was the disparity between different futures contracts. The October contract, which expired yesterday, did indeed settle at $120.92, up more than $16. But oil for delivery in November closed at $109.27, an increase of only $6.62, and longer-forward contracts saw an even more modest increase. Unquestionably what was going on was a short squeeze, in which traders who had sold the October contract short were scrambling

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I normally leave it to folks like Dean Baker to beat up on the press. But I can't resist shining a bright light on today's story about oil speculators in the Washington Post, which has also been discussed by Mark Thoma and Tyler Cowen.

David Cho opens his story in the Washington Post with this bombshell:

Regulators had long classified a private Swiss energy conglomerate called Vitol as a trader that primarily helped industrial firms that needed oil to run their businesses.

But when the Commodity Futures Trading Commission examined Vitol's books last month, it found that the firm was in fact more of a speculator, holding oil contracts as a profit-making investment rather than a means of lining up the actual delivery of fuel.

Let's start with some background. The CFTC issues a report each week that summarizes the number of open futures contracts in

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Article Source Arnold Kling poses a question for Paul Krugman. Here's how I would answer. Kling writes: Early in 2007, the price of oil was $60 a barrel. Recently, it has been above $130 a barrel. Which of the following does Paul Krugman believe: (a) market fundamentals justified $60 a barrel then, and they justify $130 a barrel now; or (b) market fundamentals justified a much higher price in 2007? ...We know that Krugman does not believe that today's oil price is out of line with fundamentals. Krugman's view, in effect, is that if speculators artificially boost the price of oil, then supply will exceed demand, and the excess has to go somewhere. Where are the inventories? This view ought to hold in reverse. If speculators artificially kept the price of oil too low early in 2007, then demand should have exceeded supply and inventories should have ...

Article Source A key reason why oil prices have been going up is that Asia and the oil producing countries are consuming more while global oil production has stagnated. That means Europe and America had to consume less, and a very high price proved necessary to accomplish that. I do believe that speculation has been another factor that contributed to recent high oil prices. However, a key element of the bubble story is that there needs to be a very limited response of quantity demanded to the price increases, which the most recent data persuade me is no longer the case. Some of the estimates I've been hearing of the size of the contribution speculation is currently making to the price are therefore difficult to defend. Here I explain why, essentially elaborating on Paul Krugman's theme. Senator Barack Obama's (D-IL) recent proposal ...

Barack Obama has offered new steps to crack down on speculation in oil markets, saying his plan would help rein in runaway fuel costs. Let's review the details of Obama's plan, which will benefit investors by Shorting DIG and going Long DUG: * The Illinois senator's campaign said he would close the so-called Enron loophole that exempts some energy speculators from U.S. regulations that apply to commodities traded over exchanges. It takes its name from the energy giant that benefited from the law and later collapsed because of massive accounting fraud. * His plan would require ...