Last week we explained the connection between rising gasoline prices and the Federal Reserve’s “quantitative easing” programs. On the same day as our post, Time ran a piece entitled, “Is the Fed to Blame for Soaring Global Oil Prices?”

Since the article reinforces our own points, it’s worth quoting extensively. In particular, note the differences between our current run-up in oil prices, versus the simple market-driven expansion in 2008:

Fatih Birol, Chief Economist of the International Energy Agency

Fatih Birol, chief economist at the Paris-based International Energy Agency…warned…that oil prices are expected to reach $100 per bbl. again soon, threatening the economic recovery…Birol warns that the rising price “is a wake-up call.”

But what exactly should we be waking up to this time? The 2008 price surge was explained by simple supply and demand: not enough oil was being pumped to meet the voracious appetite of Asian economies, particularly China and India, whose high-speed expansion oil suppliers had failed to anticipate. Today, however, there is enough spare oil warehoused, and demand remains relatively weak after two years of recession. Even if supplies tighten, some specialists believe that more oil could be brought to the surface fairly quickly. Saudi Arabia, the world’s biggest producer and the powerhouse of OPEC, which produces about 40% of the world’s oil, is pumping well below its capacity. And as international oil companies revamp Iraq’s giant fields after years of stagnation, growth in that country’s output in the next few years will boost global supplies. “There is space capacity in OPEC,” says Olivier Jakob, managing director of PetroMatrix, an energy-analysis firm in Switzerland. “The financial picture is very different from 2008.”

So if oil’s incredible surge—recall that crude prices have tripled since their trough in December 2008—isn’t to be explained by a recovery in the global economy, who or what is responsible? Back to the article:

The current spike in oil futures, say Birol and Jakob, is a product of excess supply — of speculative dollars, billions of which are flowing into U.S. commodities markets. “The investors are using their cards to their benefit,” Birol told TIME…”The way they’re reading the market, they feel that when the U.S. recovers, there will be a strong demand and a tightness” in oil supplies. Commodities investments in general have soared since August, when Federal Reserve Chairman Ben Bernanke announced the quantitative-easing program to boost the supply of investment capital. “Before the Fed announcement, net interest in crude oil was fairly neutral, but it has now climbed to the highest level ever,” says Jakob. “The U.S. Fed is injecting about a trillion dollars into the economy in six months, and that liquidity has to go somewhere. Some of it has gone into commodities.”

Although Birol’s comments are correct as far as they go, he is leaving out the element of investors using oil (and other commodities, especially gold) as a hedge against potentially high price inflation.

As we explained in our original post, in times of economic uncertainty—coupled with large bouts of new money-creation—investors aren’t sure where to turn. The stock market is risky, because of the weak economy which many fear could collapse again. But bonds are also are risky, in the eyes of investors who expect rising inflation and interest rates down the road. And the real estate market is hard to read as well, as it is on government life support.

In this environment, many flee to commodities as the least dangerous storehouse of “real” wealth. Markets are very complex, and of course there are millions of factors ultimately determining the price of crude oil. But surely Ben Bernanke’s injection of more than $1 trillion into the credit markets is playing a large role.

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