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The price of oil is set in the futures markets by sellers (oil producers) and buyers (airlines, industry, oil retailers, etc.)
That's the way futures markets used to work before investment banks, hedge funds, etc. got involved with commodities. Something like 7 out of 8 futures contracts on the market are financial speculation with no intent of ever buying or selling physical product.
That's the way futures markets used to work before investment banks, hedge funds, etc. got involved with commodities. Something like 7 out of 8 futures contracts on the market are financial speculation with no intent of ever buying or selling physical product.
The majority of oil purchases are used as hedges. My own included. I never plan on buying crude oil, that doesnt mean I dont invest in it.
I am just glad to have filled up my little Elantra last night for about $14. It took over a week to deplete the 8 gallons or so at the $1.79/gal price I paid.
Wednesday I saw $1.75 a gal. Didn't think I would ever see that again. I remember driving in the mid 70's, gas was about .50 a gal. then. It started to go up to .65 to .70 at a local station. I remember saying I wasn't going to pay that much for gas.
That's the way futures markets used to work before investment banks, hedge funds, etc. got involved with commodities. Something like 7 out of 8 futures contracts on the market are financial speculation with no intent of ever buying or selling physical product.
Speculators and hedgers not intending to take delivery don't affect the long-term average price much. (They can cause fluctuations to be larger.)
Wednesday I saw $1.75 a gal. Didn't think I would ever see that again. I remember driving in the mid 70's, gas was about .50 a gal. then. It started to go up to .65 to .70 at a local station. I remember saying I wasn't going to pay that much for gas.
In my area the range for self-serve regular, credit card prices (except membership establishments such as Costco) is $2.21 at Speedway to $2.79 at gouge stations. Even the $2.59 at the Mobil on the Hutchinson Parkway looks like an outlier.
Speculators and hedgers not intending to take delivery don't affect the long-term average price much. (They can cause fluctuations to be larger.)
Big banks, speculators and hedge funds have a HUGE impact on the price of commodities:
When oil went from $60 to nearly $150 from 2006 to 2008, that was nearly all financial speculation. It was not due to a fundamental demand to burn or to make fuel. And then, when the banks failed in late 2008, they had to unwind their positions and -- boom -- the price dropped to $40.
This is exactly why Wall St. and the banking industry need to be regulated. When they take big risks with deposits they are bad for markets, bad for the economy and bad for the consumer.
Big banks, speculators and hedge funds have a HUGE impact on the price of commodities:
When oil went from $60 to nearly $150 from 2006 to 2008, that was nearly all financial speculation. It was not due to a fundamental demand to burn or to make fuel. And then, when the banks failed in late 2008, they had to unwind their positions and -- boom -- the price dropped to $40.
This is exactly why Wall St. and the banking industry need to be regulated. When they take big risks with deposits they are bad for markets, bad for the economy and bad for the consumer.
Actually your graph proves quite to the contrary. When the threat of financial collapse eased the price promptly recovered about $60 of its drop. Its recent drop has been due to fundamental factors such as fracking and increased crude production.
Actually your graph proves quite to the contrary. When the threat of financial collapse eased the price promptly recovered about $60 of its drop. Its recent drop has been due to fundamental factors such as fracking and increased crude production.
This more up-to-date chart makes it far more clear how much excess speculation pre-2009 goosed the price of oil:
A Rice University Study links financial players like banks, hedge funds and index funds to the steep rise in oil prices in 2008. “So, as the market presence of noncommercial traders increased between 2003 to early 2008, the stance of these noncommercial traders has fairly consistently been to hold bullish, long positions that supported rising prices. And, when their market share was highest, so was their net long position, which again roughly coincided..." -- CFTC
"The culprit is Wall Street. Speculators are raking in profits by gambling in the loosely regulated commodity markets for gas and oil. A decade ago, speculators controlled only about 30% of the oil futures market. Today, Wall Street speculators control nearly 80% of this market. Many of those people buying and selling oil in the commodity markets will never use a drop of this oil. They are not airlines or trucking companies who will use the fuel in the future. The only function of the speculators in this process is to make as much money as they can, as quickly as they can." -- Sen. Bernie Sanders 2012
This more up-to-date chart makes it far more clear how much excess speculation pre-2009 goosed the price of oil:
That chart bears out my point that oil recovered most of the way back to its 2008 peak and bounced around near $100 per barrel until the tail end of 2014. Thus most of 2010-2014 was spent close to 2008 peaks. The oil prices touched or exceeded $100 per barrel during 2010, 2011, 2012, 2013 and 2014.
Tension in the Middle East, a lot of it anticipating and in connection with the "Arab Spring" led to these prices. The fact that speculators participated was irrelevant as speculators depend upon end users to take the oil off their hands when the futures or options expire. It was only when fracking and additional crude production threw a wet blanket on top of those prices.
There have been times in recent history where speculators try to "corner" the market. Simplot's attempted corner of potatoes in either 1975 or 1976 (I forget which) and the Nelson Bunker Hunt fiasco in 1979-80 ended disastrously. During either February or March 1980 silver, having been driven over $40 per ounce between 1978 and 1980, collapsed to around $12 per ounce. Financial maneuverings don't work forever.
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