A hurricane tore through open sea and walked right up the inland waterway to Houston, the US oil capitol. Open sea oil and natural gas platforms were in harms way and inland refineries have been shuttered. What’s the commodity price doing?

For oil it’s falling to $92 on NYMEX as I blog, right in the face of these supply squeezing events. Natural gas pricing is flat, right where it belongs in the $7 - $8 range and not budging against any hurricane story. And only last month the Kuwaiti oil minister proclaimed that the day of oil below $100 would never happen again.

What gives? For the last 4 years, a simple rumor of supply troubles have sent oil & gas to the moon. And now, with a real event knocking out real supply, oil drops? Gas is flat?

The anecdotal chaff that recessive global economies are now expected to consume less supply and that’s why oil has shed nearly half its recent value, in a month, is more nonsense. Just like the nonsense that was calling the price ramp to $150 the effect of supply and demand working its natural order. When Goldman did its best Henry Blodgett and called $200! Imminent, the top was reached and the unwind had begun.

To believe oil’s march to $150 was physical supply and demand of the commodity operating is to believe the commodities markets accurately and professionally modeled a forward price curve out of rigorous global supply and demand analysis and updated it hourly. It would have been a curve with attributes of expertise, measured probabilities and sage insight that had not been in evidence by the bond markets re: mortgages and equity markets re: technology stocks before that. This belief comes with a bridge in Brooklyn and a putter that shaves strokes off your golf game.

The commodities run is leaving a footprint suspiciously like the one found in Silicon Valley in March 2000 and the one currently tattooed on the foreheads of Bear, Lehman & Merrill. Spec trading, with a shortage story routinely being run out ahead of it, followed by floods of “chase money” from institutions desperate not to be left out of the party, that squeezes price higher. The end comes when the debt funding quits and there’s no more momentum buyers with any cash left to chase with.

Traders exit swiftly and take up a short position, while institutions gag and wheeze from the whoosh of air that was sucked out of the room on the traders exit. Given the on-its-knees state of the US monetary system, there has to be some concern that the late-to-the-party crowd of institutional investors that swept into oil at $110 and up (i.e. pensions) may stand to add more weight to the problem.

Oil at $65 to $85 barrel is reflecting physical supply and demand. At prices beyond that, a playbook for trading is in use that Washington does not have the lens to see.