The oil speculators are driving up the cost of oil myth
That’s right, it’s a total myth. For those of you who are unfamiliar with how the commodities market works, here’s a primer. If you are a speculator who thinks the price of oil is going up, you have to find a speculator who thinks the price of oil is going down.
Got that? You have to buy oil futures from someone else – another speculator – who thinks the price of oil is going to drop.
What is being experienced here is the laws of supply and demand when it comes to commodities. If the price of oil is going up, there are more people who want to buy it from the people who have it. Those selling, are actually betting the price is going to go down. There is no conspiracy out there to artificially increase the price of oil.
When the price of oil dropped from $145 per barrel in July of 2008, to $50 per barrel in Nov. 2008 (a short four months) did you ever hear the media claiming speculators were driving down the cost of oil?
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Knowledge of “supply and demand” for this administration is limited to how many votes they have and how many they hane to “manufacture” to win the next election.
Oi’l agree with that!
LOL Gillie
Dearest?Steve.?In 2008 when crude oli prices reached their highest levels ever recorded, global demand was low and supply was high. how do you account for that? You can not rule out the effect of speculation in the commodities markets.
In no way did he rule out the effect of speculation. His point was that speculation goes both ways. Up until July 2008 speculators thought the price of oil was going up, right after that, speculators started betting the price would go down and a great number of speculators who bought at $145 lost a lot of money during the next four months. He point is completely valid. When the price of fuel goes up, people and the media question if “speculators” are driving up the cost but you never, ever hear speculators “blamed” for the price dropping.
I was questioning his point,?the laws of supply and demand when it comes to commodities trading in 2008 this did not happen,?speculation did.?I would agrue the relaxing of regulations, smaller government intervention, allowed for the creation of Commodities Index Funds?by Goldmans and other street firms, have driven up costs of all commodities. I further suggest you investigate?who are the buyers of these index funds since they were started.??These?speculators are hedging their gambling?bets?both ways securing their profits if funds move up or down. Increasing commodities costs to us all at our points of purchase. ?
@open – sorry, not sure if this will be in reply to your post. I did not read his post as referencing supply and demand in the traditional way, simply because he qualified the sentence with “when it comes to commodities.” I read that as a reference to supply and demand on the trading floor – more people want to buy than sell .. price goes up.
And subsequent speculation was also responsible for the bottoming out of oil prices a few months later, down to a low of about $50/barrel.
Oi’l agree with that too….very agreeable today
Speculators or others lose/lost money on the way down only if the contract was executed. Then and now they can keep buying and selling w/o having to deliver the oil.
Wrong. They are called “contracts” for a reason. They are legally binding. The vast majority traded are only 3 months and they are universally honored. Only a really long expiration or wacky price remain unexecuted (for good reason). Does this provide volatility? Yes, but not as much as federal policy does by a long shot. Again, the vast amount are traded for risk management and not arbitrage.?
I think I understand now. So speculators drove Obama’s favored solar companies into bankruptcy, too?
I love the current hissy fit over the Chinese dumping panels on our market.? Boo freakin’ Hoo.
Only if you consider common sense?and economic reality, speculation.
@RoBrDona, check again how the future “contracts” are bought and sold.
I found this at InvestorWords.com:
A standardized, transferable, exchange-traded contract that requires delivery of a commodity, bond, currency, or stock index, at a specified price, on a specified future date. Unlike options, futures convey an obligation to buy. The risk to the <a…
Don’t need to. 27 years as a stockbroker and money manager, half of that in NYC.
I notice that the issue of public policy pushing speculative activity remains unanswered. Please check with the Commodity Futures Trading Commission if you wish to understand trading. What I meant is that most contracts do not expire – which means that the market IS efficient.?
Actually I will cut to the chase – a contract would not exist to be traded on the Floor if there was not a buyer to be matched with a seller. The issue of delivery is of great importance not if? it happens or not, but BECAUSE THE RELATIVE THREAT OF DELIVERY IS THE FUNCTIONAL VALUE OF THE CONTRACT.? Obama would have us believe that it is only Mid-East tension, not his policies that are pushing oil prices. I, along with investors, who are rarely “speculators”, are not naive.?
This was my point, and the person with the experience in the industry got my point… “a contract would not exist to be traded on the Floor if there was not a buyer to be matched with a seller.”
Therefore you have “speculators” betting the price goes up and down at the same point in time.
It’s almost like people are saying speculators DON’T have to make-do on a?contract?if the price drops … bull shit, I’ll “margin call” those of you who think so … Find me ONE trader or company that did not have to pony up the difference when the oil price DROPPED so much during that four month period in 2008.
Sorry Steve,you got this all wrong-you sounded like Obama & I wanted to feel your forehead.
Since I don’t subscribe to any political party, just to what?is seen as common sense, truth?and morals, Oi’l add my two cents worth (or $3.85 a gallon’s worth).? Over here, it is now a law that all newly built houses put solar panels on the rooves (archaic, but grammatically correct spelling of “roof”).? They actually do work well, but?perhaps one would say it?is because we have?sun most of the year.? However, to refute that, a relative in the UK also put them on the house, and pays practically NOTHING in electricity bills for the entire year.
It does seem to me that some alternative energy technologies are worth pursuing (NOT wind turbines).? I don’t see a problem with giving tax breaks for putting expensive, new technology to work (IF it works), but also?don’t agree with the government funding?them….especially when it’s proved that the money is mis-managed, embezzled and wasted.
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oops, sorry, posted that under the wrong headline! Should have been under the solar story.
That’s ok Gillie. Your post is the only one I understood. Maybe, because I usually go off the track when I’m commenting, too.? The guys got me stumped, so I liked your story better. Hope you have a sunny day.?
So the cost of oil is driving the speculators?? 😉
Well I’m no expert, but I thought that a speculator with the capital to purchase a sizeable number of futures derivatives at one price can actually sway the market. Speculators often trade on rumor, not fact. A speculator purchasing many futures at higher than the current market price can cause oil producers to horde their commodity in the hopes they’ll be able to sell it later on at the future price. This drives prices up in reality, both future and present prices, due to the decreased amount of oil currently available on the market. I’m sure it doesn’t account for the huge jumps though, or does it? I wish I knew more about the market and speculation, but I just know what I read.