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Obama Makes the Wrong Call on Oil Speculation (Speculator are NOT to blame for rising oil prices)
Fiscal Times ^ | 04/27/2012 | By BRUCE BARTLETT

Posted on 04/27/2012 4:55:28 AM PDT by SeekAndFind

Lately, speculators have come under attack by Barack Obama. The president blames them for raising prices on oil and gasoline, and he has proposed new restrictions on oil traders. But this is a wrong turn on the road to a healthy economy.

Back in 1958, onion farmers were concerned that speculators were taking advantage of them. They were especially concerned about the extreme volatility of onion prices, which could often double in a short period of time and then drop to a level below the cost of production. Farmers aimed their ire at the Chicago Mercantile Exchange, the principal futures market for commodities. They thought if futures trading in onions was banned then speculators would not create so much price volatility and farmers would benefit. At the behest of Congressman Gerald Ford (R-Mich.), Congress banned futures trading in onions—the only commodity for which trading is prohibited by law.

Four years after the ban, Stanford agricultural economist Roger Gray examined the impact on onion prices. He found that, contrary to the farmers’ expectations, onion price volatility had actually increased. Gray compared onion price volatility into four periods: 1922-41, a period in which there was no futures trading; 1942-49, when futures trading was only developing; 1949-58, an era when futures trading was robust; and 1958-62 when futures trading was banned.

GRAY'S ANALYSIS Gray’s analysis showed conclusively that onion price volatility was far greater during the period when futures trading was undeveloped or nonexistent than during the period when it was robust. This is exactly the result predicted by economic theory. As Gray put it, “An organized futures market widens the opportunity to buy a commodity during the harvest surplus and sell it for later delivery, hence the diminution of in seasonal price range was to be expected on a priori grounds.”

This stands to reason. Speculators make their money by anticipating price changes. If they anticipate future shortages, they will buy now and bid up prices. If they anticipate a future surplus, they will sell now and put downward pressure on prices. Thus the whole purpose of commodity speculation is to moderate volatility—raising prices when they would otherwise be lower and reducing them when they would naturally be higher.

As the famous economist Milton Friedman once explained, the only way speculators could possibly increase commodity price volatility is if they are systematically wrong—buying high and selling low, which is the opposite of how they try to behave and make a profit. If they were wrong too often they would lose money and go out of business.

Said Friedman, “Speculation is stabilizing rather than the reverse…. People who argue that speculation is generally destabilizing seldom realize that this is largely equivalent to saying that speculators lose money.”

HEDGING PRICES It’s also worth remembering that those who produce commodities have a legitimate interest in wanting to hedge their prices. They may want to lock in a sale well before harvest so that they are guaranteed a profit. For hedging to work, however, there have to be speculators on the other side of the trade who are willing to buy without knowing for sure what the price will be when the commodities are available for delivery. In some cases, the speculator is also hedging; a manufacturer may wish to lock in the price of a key commodity used in production so that he can estimate his future costs with precision.

Another benefit of futures markets is guiding production. If a farmer wants to know whether to plant one crop or another, he can look to futures markets to see which offers the greater profit. He can even sell his output before it is planted and thus know with certainty whether he will have a profit or loss. Thus futures markets help moderate price volatility by telling producers to bring more or less of a given commodity to market.

high gas prices regulating oil speculationRose Garden event We can't afford a situation where speculators artificially manipulate markets by buying up oil, creating the perception of a shortage, and driving prices higher -- only to flip the oil for a quick profit. We can’t afford a situation where some speculators can reap millions, while millions of American families get the short end of the stick. That’s not the way the market should work. And for anyone who thinks this cannot happen, just think back to how Enron traders manipulated the price of electricity to reap huge profits at everybody else’s expense.

While it is certainly true that at any given moment in time speculators may cause market prices to vary from fundamental values—on either the high side or low side—it is hard to see how they could do so for any extended period without controlling supply. That is, they would have to physically hold commodity stocks off the market to raise the price above fundamentals for any length of time or bring additional stocks to market to hold it down. There is no evidence that speculators do so or even have the capacity for doing so.

BASIC SUPPLY AND DEMAND Many studies by reputable academics have looked at whether speculators are responsible for volatility in commodities markets and found that this is not the case; price swings have overwhelmingly been driven by economic fundamentals. That is, changes in supply and demand. (See, for example, the January paper by University of Muenster economists Martin Bohl and Patrick Stephan; and a just published paper by Oxford economists Bassam Fattough and Levan Mahadeva and University of Michigan economist Lutz Kilian.)

Nevertheless, there is likely to be continuing pressure to restrict or even ban futures trading. This would be a terrible mistake, as the lesson of the onion market proves. Proof can be found in a recent study by University of Michigan economist Mark Perry, who compared the price volatility of onions to crude oil. Although we think of oil as being especially volatile, the fact that it is widely traded on futures markets actually makes its price swings quite modest compared to the price for onions, for which futures trading is still banned.

It’s human nature to look for easy fixes to complex problems. Banning or restricting energy speculation, however, is a terrible idea that will likely make the problem worse.


TOPICS: Business/Economy; News/Current Events
KEYWORDS: bartlett; bhoenergy; blunders; gasprices; oil; oilprices; speculators

1 posted on 04/27/2012 4:55:31 AM PDT by SeekAndFind
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To: SeekAndFind

obama knows that. obama knows what he is doing. The fools that worship and blindly follow him may not know, or care, but obama knows full well what he is doing. He also knows what he has planned for the fools that blindly worship him, follow him, and do his bidding.


2 posted on 04/27/2012 5:09:35 AM PDT by sport
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To: sport

Am I the only one that is getting plain fed up with our side accepting the premises of the left and arguing based on those premises?

Blaming speculators assumes that Obama & his ilk care about high energy prices. False premise.


3 posted on 04/27/2012 5:11:34 AM PDT by MrB (The difference between a Humanist and a Satanist - the latter knows whom he's working for)
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To: SeekAndFind

Good article. Thank you.


4 posted on 04/27/2012 5:13:26 AM PDT by Nervous Tick (Trust in God, but row away from the rocks!)
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To: MrB

Exactly. Obama is engaging in classic Marxism. In a free market economy, we call these people “investors”. They build businesses. They build industries. They hire people. Well, Obama hates “investors”. He uses the Marxist term of “speculators” instead. He wants them stopped. He wants to hurt the economy. High energy prices are central to his overall plan. The guy is doing as much damage to personal and economic freedom as he can.


5 posted on 04/27/2012 5:14:48 AM PDT by ClearCase_guy (Like Emmett Till, Trayvon Martin has become simply a stick with which to beat Whites.)
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To: SeekAndFind

Why is it that we have to participate in the “global market” at all, if we have sufficient potential to provide our own energy with our own domestic market prices?


6 posted on 04/27/2012 5:15:13 AM PDT by ROCKLOBSTER (Celebrate Republicans Freed the Slaves Month.)
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To: ClearCase_guy

The Victor Davis Hanson article today was good.
Obama sees capitalism as “neo-colonialism”, exploiting, all over again, his “daddy who abandoned him”.


7 posted on 04/27/2012 5:18:58 AM PDT by MrB (The difference between a Humanist and a Satanist - the latter knows whom he's working for)
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To: SeekAndFind
Many studies by reputable academics have looked at whether speculators are responsible for volatility in commodities markets and found that this is not the case; price swings have overwhelmingly been driven by economic fundamentals.

What were the 'economic fundamentals' that led to the spike in oil prices in 2008?

8 posted on 04/27/2012 5:39:36 AM PDT by mac_truck ( Aide toi et dieu t aidera)
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To: SeekAndFind
The thing the article fails to mention is buying massive amounts with little to nothing in cash to cover the futures purchase.

That drives up prices on the futures, which are then sold at inflated prices.

That is what is happening today. Even Eric Bollings, who worked in that business, said that.

Require real assets to cover the trades and that problem instantly goes away.

9 posted on 04/27/2012 5:42:33 AM PDT by Beagle8U (Free Republic -- One stop shopping ....... It's the Conservative Super WalMart for news .)
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To: SeekAndFind

The millions of dollars of contributions from Oil Interests to the DNC and The Messiah’s Re-Election coffers are used to keep additional oil off the market (Keystone, Offshore Drilling, ANWAR, etc.). Follow the money, as always.


10 posted on 04/27/2012 5:44:52 AM PDT by traditional1 (Don't gotsta worry 'bout no mo'gage, don't gotsta worry 'bout no gas; Obama gonna take care o' me!)
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To: SeekAndFind

But regular unleaded is down about 13 cents in this area since he did it.

Victory lap commencing in 3......2.......1.......


11 posted on 04/27/2012 5:58:59 AM PDT by Buckeye McFrog
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To: ClearCase_guy

>>In a free market economy, we call these people “investors”

If it was their own money, BUT...

http://www.zerohedge.com/news/guest-post-hard-evidence-bailed-out-banks-take-more-risk

...it’s not.

“Gee, Moses has been up on that hill an awful long time, He and his God must be dead; so hey, screw them and their moral “Law” we’ll just throw everybody’s gold into the fire and worship what comes out, again.”

It’s a Ba’al out, get it? {badumpump}


12 posted on 04/27/2012 6:01:56 AM PDT by LomanBill (Animals! The DemocRats blew up the windmill with an Acorn!)
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To: Beagle8U
The thing the article fails to mention is buying massive amounts with little to nothing in cash to cover the futures purchase.

That drives up prices on the futures, which are then sold at inflated prices.

Apply your logic to the Natural Gas Futures traded on the same rules.

Not to mention far more oil is traded in markets outside the US than on the NYMEX.

13 posted on 04/27/2012 6:08:58 AM PDT by thackney (life is fragile, handle with prayer)
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To: mac_truck
You ask: What were the 'economic fundamentals' that led to the spike in oil prices in 2008?

There is a 17 year cycle in oil that has repeated itself many times [1974, 1991, 2008]. Every 17 years we see a spike in oil followed by a rejection of the high by 50-75%. I have traded oil and I will tell you that I was looking for a high in oil prices in 2008. And it was the day that Goldman Sachs came out and said [with prices at $140] that oil was going to $200.00. I knew that was the key statement to the high in price [never go with what Goldman says]. That week [July 7, 2008] we put in a doji on the weekly oil chart [sell signal] and oil fell to $39 by year-end. Nobody blamed me for causing prices to drop $100.00

Now here is the real culprit .. State Gasoline taxes. The average profit for Exxon on a gallon of gasoline is about $0.02, and the average state tax on gasoline is $0.48. The scariest thing is that the average American is too stupid to realize the media and administration has this all wrong ... even O'Reilly has drunk the Kool-Aide.

http://thespeechatimeforchoosing.wordpress.com/2011/04/29/the-truth-gasoline-taxes-vs-evil-exxons-profits-plus-why-oil-prices-are-so-high/

14 posted on 04/27/2012 6:16:27 AM PDT by Why So Serious (There is no cure for stupidity!!!)
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To: mac_truck

I would guess they were the same “economic fundamentals” that caused the price of gasoline to plummet from over $4.00 a gallon to about $1.50 basically overnight.

I always suspected speculation was a major factor in oil pricing, but after Bush signed the executive order to expand offshore drilling and the price collapsed so quickly - with zero change in the actual supply OR demand for oil - I no longer have any doubts.

As another has said, Eric Bolling, a former “oil man” and solid conservative, will tell you that speculation has a huge effect on the market and people who do not actually consume the oil control a majority of the market. I’m not sure why this is considered “investing” by some because it isn’t. Imagine what the prices of food, clothing, and housing, etc., would be if 75% of the perceived demand for those items came from people who didn’t actually use them.


15 posted on 04/27/2012 6:16:56 AM PDT by flintsilver7 (Honest reporting hasn't caught on in the United States.)
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To: MrB

Nope. And I believe I know why the Establishment Republican Party sabatoged and eliminated our [Conservative[s] candidate[s] early on, thus enabling , barring a miracle or accident, obama to be re-elected.


16 posted on 04/27/2012 6:31:17 AM PDT by sport
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To: thackney

I’m glad you mentioned natural gas. If we are to run around blaming speculators for the high price of oil, we have to blame them for the record low price of natural gas.


17 posted on 04/27/2012 6:44:50 AM PDT by 1rudeboy
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To: SeekAndFind

The way that government interferes is by raising margin requirements. This is what they did last year with Silver futures and it collapsed the price.


18 posted on 04/27/2012 6:57:56 AM PDT by chopperman
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To: SeekAndFind
Thus the whole purpose of commodity speculation is to moderate volatility

If commodity trading is used by someone to moderate their exposure to volatility, then it is not speculation. If someone is using it to try and make money it is speculation. But you need both to keep the market going.

If a farmer and an onion buyer are standing by the road negotiating a price for the farmer's onions and two guys are standing on the other side of the road betting on the outcome of the negotiation, how does their betting influence the negotiation on the other side of the road? I think it does not.

19 posted on 04/27/2012 7:04:33 AM PDT by super7man
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To: SeekAndFind
There are three factors at play here, IMO:

1) Japan is having to use oil for much of its electrical generation to make up for the shutdown of its nukes, therefore offsetting the large drop in gasoline consumption in the US as of late,

2) The Obama Administration's actions have helped increase the tightness of supply by cutting back on American exploration and development, and

3) In market conditions where supply and demand are tightly aligned as we see now, the high leverage for speculators allows them to drive up prices well beyond what we have seen in the past for such conditions - namely in 2007-2008 and 2011-2012 - the bubble is generally short-lived but very profitable for those who can also short it on the way down, and it is painful for the consumers having to pay the higher prices at the pump.

There is no one factor causing these price spikes, several factors have to be in alignment. Unfortanately, too many involved want to point at other culprits and not realize the culpability across the board nowadays.

20 posted on 04/27/2012 7:12:25 AM PDT by dirtboy
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To: SeekAndFind

So... What happens if all of the speculators decide to move their business off shore?


21 posted on 04/27/2012 7:16:08 AM PDT by dearolddad
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To: Beagle8U
The thing the article fails to mention is buying massive amounts with little to nothing in cash to cover the futures purchase. That drives up prices on the futures, which are then sold at inflated prices. That is what is happening today. Even Eric Bollings, who worked in that business, said that. Require real assets to cover the trades and that problem instantly goes away.

Your understanding of the futures market seems very thin. Futures trades actually smooth out the irregularities that would develop in any commodity due to seasonal, political, weather, transportation anomalies etc. When you take on a futures contract you own the product. You may make a profit or you could take a big big loss depending on the fluctuations. Since most commodity contracts are held for minutes, maybe a couple of hours, they are traded actively and the prices stay in a very close range. Go spend a day at the Chicago Board of Trade or the Merc or any of the active commodities exchanges and learn how the system works. You'll be glad you did.

Former trader

22 posted on 04/27/2012 7:31:28 AM PDT by Don Corleone ("Oil the gun..eat the cannoli. Take it to the Mattress.")
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To: Don Corleone

Perhaps you should talk to Eric Bollings about it.

If you know more about it than he does you could get your own TV show.


23 posted on 04/27/2012 8:50:02 AM PDT by Beagle8U (Free Republic -- One stop shopping ....... It's the Conservative Super WalMart for news .)
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To: flintsilver7
... after Bush signed the executive order to expand offshore drilling and the price collapsed so quickly...

I agree.

.

.

.


24 posted on 04/27/2012 8:58:20 AM PDT by Cobra64 (Common sense isn't common anymore.)
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To: 1rudeboy; thackney
“I’m glad you mentioned natural gas. If we are to run around blaming speculators for the high price of oil, we have to blame them for the record low price of natural gas.”

There is no way to compare oil to NG.

NG has sales value limited by pipelines or underground storage space, which is limited.

Oil can be transported by truck from the wellheads, to tanker ships and sold anywhere in the world.

25 posted on 04/27/2012 9:14:55 AM PDT by Beagle8U (Free Republic -- One stop shopping ....... It's the Conservative Super WalMart for news .)
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To: Beagle8U
NG has sales value limited by pipelines or underground storage space, which is limited.

Oil can be transported by truck from the wellheads, to tanker ships and sold anywhere in the world.

The difference between the two equates to supply and demand. You cannot successfully speculate an increase in price if there is an abundance of supply relative to demand.

Speculation is not the source of high prices. Limited supply relative to demand is the source. Speculation is only one of the pricing steps given the supply and demand conditions.

The only lasting way to lower price is to increase supply relative to demand (or decrease demand relative to supply or both). Far more oil is traded in markets outside the US. To make the NYMEX more restrictive only pushes more traders to operate in foreign markets. To think that we will be priced separate of those is naive, especially considering that most of the crude oil we use is imported.

Also natural gas is shipped by tanker, even LNG is shipped by truck in some locations. It is only a matter of price; the transport costs are greater than compared to oil, but not prohibitive in many markets.

26 posted on 04/27/2012 10:14:12 AM PDT by thackney (life is fragile, handle with prayer)
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To: flintsilver7
speculation has a huge effect on the market and people who do not actually consume the oil control a majority of the market.

Control a majority of the market? Not unless they take delivery and sit on it, otherwise how would they control any of it?

27 posted on 04/27/2012 4:30:26 PM PDT by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: Toddsterpatriot
Control a majority of the market? Not unless they take delivery and sit on it, otherwise how would they control any of it?

Wall Street financial companies Goldman Sachs, JP Morgan, Citigroup and others all had sizable oil storage operations in 2008. They didn't even have to move the oil, they just traded futures contracts off it and let 'contango' do the rest.

28 posted on 04/27/2012 5:45:34 PM PDT by mac_truck ( Aide toi et dieu t aidera)
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To: mac_truck

How sizable?
How does ‘contango’ let them control the market?


29 posted on 04/27/2012 6:45:46 PM PDT by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: Toddsterpatriot
When a financial institution goes out and buys an oil storage facility or rents a fleet of oil tankers for the express purpose of holding oil out of the market while 'betting' that the price will increase, they are speculating pure and simple.

It's been estimated that close to 10% of the available oil was being held off the market this way in 2007-2008, certainly enough to drive prices higher and ensure these players won their 'bets'.

30 posted on 04/27/2012 7:08:30 PM PDT by mac_truck ( Aide toi et dieu t aidera)
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To: Toddsterpatriot

Oil futures contracts are for future delivery. This isn’t like they are just gambling on Intrade - they are buying contracts for oil delivery. The fact that they don’t take delivery doesn’t mean they don’t control the market. As much as 80% of the contracts for future oil delivery are held by speculators. Sure, they can default and not take delivery - after all, the margin requirements are so low that they risk little by doing so. However, speculation has an enormous impact - even the CEO of Exxon has said that as much as 40% of the price of oil is due to speculation. That might be current, but if past history is any indication it can be much higher than that.


31 posted on 04/27/2012 8:37:10 PM PDT by flintsilver7 (Honest reporting hasn't caught on in the United States.)
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To: mac_truck
It's been estimated that close to 10% of the available oil was being held off the market this way in 2007-2008

10% would be about 8 million barrels a day. Nearly 3 billion barrels a year.

Where did you find that estimate?

32 posted on 04/27/2012 9:23:13 PM PDT by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: flintsilver7
The fact that they don’t take delivery doesn’t mean they don’t control the market.

If you don't touch the oil, don't store the oil, don't consume the oil, how do they control anything?

As much as 80% of the contracts for future oil delivery are held by speculators.

So what?

Sure, they can default and not take delivery -

Default? What does that mean in reference to an oil futures contract?

after all, the margin requirements are so low that they risk little by doing so.

Yeah, they could lose their margin deposit. How little do you think that would be?

even the CEO of Exxon has said that as much as 40% of the price of oil is due to speculation.

And why wouldn't he say that? Anything that gets the idiots attacking Exxon to attack someone else is a good thing. It's easier than actually educating the idiots.

33 posted on 04/27/2012 9:28:36 PM PDT by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: Toddsterpatriot
First..the question of whether speculation plays a role in the rising price of oil has been answered in the affirmative, and that Wall St. financial houses are major players in the speculation.

I'd like to see you acknowledge that before delving into the question of 'how big' a bunch of greedy whores they are.

34 posted on 04/28/2012 5:01:19 AM PDT by mac_truck ( Aide toi et dieu t aidera)
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To: Toddsterpatriot

They hold a contract for delivery. If the oil producers don’t have it reserved for them, then it isn’t a contract. This is in no way a difficult concept to understand. They purchase a contract for future delivery with the sole intent of reselling it, though several large banks HAVE taken delivery - this time with the sole intention of stockpiling it to prevent losses.


35 posted on 04/28/2012 5:35:23 AM PDT by flintsilver7 (Honest reporting hasn't caught on in the United States.)
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To: Cobra64

Didn’t I read that Zer0 started tapping the SOR this week or last?

We can be assured that gas prices will stay below the $4/gal. mark until after the election.
That seems to be the price that perks the naysayers.


36 posted on 04/28/2012 6:43:23 AM PDT by Vinnie (A)
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To: mac_truck
First..the question of whether speculation plays a role in the rising price of oil has been answered in the affirmative

When the market thinks something is going to increase future usage or decrease future supply, the futures market turns that into rising prices.

When the market thinks something is going to decrease future usage or increase future supply, the futures market turns that into falling prices.

And it has nothing to do with greedy whores.

37 posted on 04/28/2012 6:54:47 AM PDT by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: flintsilver7
They hold a contract for delivery.

Who? The nasty speculators? What about the speculators who are short a contract?

If the oil producers don’t have it reserved for them, then it isn’t a contract.

You don't think all contracts are sold by oil producers, do you?

They purchase a contract for future delivery with the sole intent of reselling it,

When they buy the contract, it makes prices rise? When they resell it, don't prices go down?

38 posted on 04/28/2012 6:59:33 AM PDT by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: sport

Food aid, if their lucky. US communities will cheer the arrival of UN food trucks. /sarc off


39 posted on 04/28/2012 7:11:17 AM PDT by Son House (The Economic Boom Heard Around The World => TEA Party 2012)
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To: SeekAndFind

The leftist aka progressive blame high gas prices on every thing but them. No new refineries. Epa laws mandating more then 20 different blends of gas for the nation.


40 posted on 04/28/2012 7:18:42 AM PDT by DMG2FUN
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To: DMG2FUN

Speculators have an easy bet with Democrats in charge of any of the 3 parts of the legislative branch of government, gas supply will be down, making prices go up.


41 posted on 04/28/2012 7:25:34 AM PDT by Son House (The Economic Boom Heard Around The World => TEA Party 2012)
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To: Toddsterpatriot

I think you need to go back to square one and learn how speculation works. Here’s a good start:

http://money.howstuffworks.com/oil-speculation-raise-gas-price.htm

People who deny that speculation raises the price of oil beyond its actual worth are basically living under a rock.


42 posted on 04/28/2012 9:32:27 AM PDT by flintsilver7 (Honest reporting hasn't caught on in the United States.)
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To: flintsilver7
I think you need to go back to square one and learn how speculation works.

That's funny. Beyond it's actual worth? That's even funnier.

43 posted on 04/28/2012 11:01:56 AM PDT by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: flintsilver7
Man, that link is hilarious!

The CFTC was established by Congress in 1974 specifically to prevent speculation from artificially inflating the price of commodities.

No it wasn't.

The CFTC's mission is to protect market users and the public from fraud, manipulation, abusive practices and systemic risk related to derivatives that are subject to the Commodity Exchange Act, and to foster open, competitive, and financially sound markets.
Source

In fact, at that source, the words inflate, artificially and inflating aren't even there.

But a speculator with the capital to purchase a sizeable number of futures derivatives at one price can actually sway the market.

But a speculator with the capital to sell a sizeable number of futures derivatives at one price can actually sway the market.

A speculator purchasing vast 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.

Or it can cause oil producers to sell their commodity now in the fear they'll have to sell it later on at a lower price.

If they want to sell it in the future, at the "futures price", all they have to do is sell a future.

As a result of speculation among these and other major players, an estimated 60 percent of the price of oil per barrel was added; a $100 barrel of oil, in reality, should cost $40 [source: Engdahl].

I don't know about you, but if I have a product that is "only worth $40" and it's selling for $100, I'm going to go all out to produce more now and I'll be selling those ridiculously priced futures contracts by the tankerful. In reality, I'd clean up.

Thanks, I needed a good laugh.

44 posted on 04/28/2012 11:42:04 AM PDT by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: Toddsterpatriot

I’m sorry, are you under the impression that there are an equal number of long and short positions being held in the oil futures market? The reason speculation has such an effect is because closed long positions, which should theoretically drop the price of oil, are immediately replaced with new long positions.

Yes, it is theoretically possible that speculators could drive the price down. The problem is that history does not show that speculators have ever done this. The speculation market by definition is a zero-sum game. Its effect on the spot price of oil, however, is *not* a zero-sum game.

Global oil demand and global oil supply have mirrored each other for more than 30 years. The oil-producing nations now are as unstable as they have been. The instability, in other words, is nothing new. Yet we have seen massive fluctuations in the price of oil despite this. If speculation has no role, how do you explain this?


45 posted on 04/28/2012 1:01:53 PM PDT by flintsilver7 (Honest reporting hasn't caught on in the United States.)
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To: flintsilver7
I’m sorry, are you under the impression that there are an equal number of long and short positions being held in the oil futures market?

I’m sorry, are you under the impression that you can be long a futures contract without a short on the other side? LOL!

46 posted on 04/28/2012 1:13:18 PM PDT by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: flintsilver7

“People who deny that speculation raises the price of oil beyond its actual worth are basically living under a rock.”
I would rather see the price of gas go up because of speculation. Then by leftist aka progressive epa laws.


47 posted on 05/04/2012 10:32:22 AM PDT by DMG2FUN
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