Oil futures markets are not dissimilar to bookmaking.
You have some bets on one team, and some bets on the other team. The bookmaker’s job is to try to even out the betting between the two, so he doesn’t lose money no matter the outcome, and then he makes his money on the vig, the vigorish, which is the percentage he charges all bettors to handle their bets.
He attracts bettors to bet on one team or the other by changing the point spread as needed. If he has too many bets in one direction, he changes the point spread to attract bettors to bet the other way, which tends to even out the betting.
Now, I recognize the comparison breaks down because the bookmaker is essentially betting against all bettors, and the market isn’t, but the point is that the bets are supposed to be even between both sides of the bet.
In the futures market, that means that there can be just as much money earned by investors (bettors) when the commodity is going down as when it’s going up. Couple that with the concept that investors only need good reasons (good in their minds) to bet that the commodity is going down in value, and it’s easy to see that they don’t care which direction the valuation is going, as long as they’re betting the right way.
That’s why the oil futures market can be turned around on convincing news, or convincing rumors, that the U. S. is serious about increasing oil exploration and production. That would get investors betting the other way, that the value of oil would go to go down, rather than up.
The corollary to this is that there are two ways a group of people could control the oil futures market:
1) Control enough capital investment in oil futures to influence enough investors to move the market in their direction (extremely difficult, and some would say impossible)
2) Control the convincing rumors or convincing news that oil at a future time will have a significantly higher (or lower) value (not nearly as difficult)
My frendzsh, we need vigorish trading!
“Oil futures markets are not dissimilar to bookmaking.”
The main difference is that most investments in energy have long lead times between the initial investment and the revenue stream that it produces. To have a liquid market where both producers and consumers of energy can have both price discovery and the ability to lock in a future price provides an enormous economic benefit to everyone. Traders and speculators keep the market liquid so that when a producer or consumer of energy wants to lock in a future price someone is there to take the other side of his contract. The energy futures markets are a huge benefit to the economy and the Democrats have decided to try to destroy them for political gain.