How does energy speculation affect the price of oil?

Question

It doesn't seem like trading oil futures should have much affect on the actual price of oil that changes hands. Thats still governed by supply and demand, right? If speculators drove the price above what the consumer was willing to pay then the demand would drop, prices would follow, and the speculators would be out a lot of money.

hmmm.... but then again I'm no economist. maybe someone here can explain it to me.

Answer 1

You *are* some sort of economist - you have it pegged right.

Speculators are simply educated betters gambling that the price of oil will continue to rise.  

The real reason for most of the increase is not speculators, it is partly tightening supply, but mostly the world (in this instance the oil producers) are no longer willing to risk accept our collapsing dollar for the same value.  The Fed is certainly not helping with it's expansion of the money supply!

Answer 2

speculators are the people who speculate on where they think the oil price will go.

usually, they speculate irrationally, because of  occurances that they think could have an impact on oil production, even if they don't. So, for example, if there was an attack in arabia, (where most oil comes from), specualtors would (basically) bet that the prices of oil will increase, due to a possible shortage, because of the attack. (like if the attack was on a refinery, where raw oil is turned into gasoline, fuel, etc)

Oil companies usually look to speculators to help them price their oil (so they aren't selling it too cheaply if there's going to be a possible shortage). There price of oil, in a few weeks, then becomes the price you see at the gas pump.

And this is how speculators affect the price of oil.

(basically, they buy tankers of oil, and when prices fluctuate, they either sell the oil in the tanker, or let the price rise to increase profit... that's more of what you were asking I believe)

i hope this helps you! :-)

Answer 3

Also, I think, that to be able speculate on something in the US exchanges you had to be the user of the thing you are speculating on, e.g., if you speculate on the price of oil, you had to be the final buyer of the oil. Recently, there has been oil speculation on unregulated foreign exchanges which have led to speculators buying and selling oil futures that have no use for them other than buying and selling, which leads to price increases. There is a lot of risk for speculators too though. I think I heard in the news the US is trying to pressure countries to regulate their markets more.