Every contract transfers 35-40 times, with almost every trade involves investment companies. Since relaxing of regulations, we have seen oil jump from $30 per barrel to $140 a barrel, with no real oil shortages. Take speculation out and oil prices will decline. No political agenda here, just an observation from someone who is involved in the industry.
All Obama will accomplish is to drive more oil trading out of the US and into more foreign markets. NYSE is not the only place in the world trading oil. With electronic trading, most won’t even notice a difference.
I don’t understand how multiple “contract transfers” can drive the price in any net direction unless there is manipulation (i.e.painting the ticker) going on. Every contract has a winner and a loser seconds after the trade is made depending on whether the next tic was up or down.
While relaxing regulations(whatever that entailed) may correlate to rising prices, that doesn’t mean causation. Oil is generally fungible so if Akmed in Saudi Arabia or Snuffy in Oklahoma refuses to pump oil for his part of the $100/bl, then the price will go up till they turn the pump on. And the price includes delivery costs too no??? So what’s wrong with traders, acting on behalf of their customers, paying a higher price in return for a guaranteed supply? Isn’t that what futures are all about?
I have a memo I wrote to my crew back in the early fall of 1985, think I have the time correct. Attached to the memo was a one page article from “Oil and Gas Journal” reporting that NYMEX would begin trial trades on oil futures. NYMEX was dying because there was so little volatility in their traditional commodity trades. My memo said that this action by NYMEX would be the onset of extreme volatility in oil prices, mark the day when the oil producer would become price takers and not price makers and that prices would be marked by relatively short frequency and high amplitude price swings.
Before this prices were relatively stable save for the embargoes. Other than that oil prices were set by supply and demand determined by people who understood the market.
Once the futures markets were run by and for the advantage of producers, like farmers, not so much anymore. The futures markets are now operated by rich old men with ambitious racket ball playing youngsters on the trading floor. For all they care they could be trading kumquats... the whole thing is about arbitrage and skimming a little as the trade goes by. Nothing of value is produced and it just feels wrong to me. It is a game of risk and not hard work.
The problem is not commodities traders — who merely respond to supply and demand. Speculation makes the market and provides protection from big quick price swings. Raw speculation arises from uncertainty in the future, Having a drudge headline every week about Greece defaulting, Spain, Italy, France having problems, Striking Iran, closing the straights all keep the upward pressure on the market.
There already is regulation and talk of more regulation is only to provide lip service to a problem they [obama] caused but cannot or do not want to fix.
It is not the futures market that drives up the price of oil, it is tightness of supply relative to demand.
The same rules apply to Natural Gas trading that apply to crude oil.
It is a supply and demand issue. Open up more supply in the oil market and the commodity trading rules will drop the price as it has done for natural gas.