Oil speculators driving up prices?

Question

wall street says they're not. congress says investors ARE indeed pushing up prices with all the speculating on oil futures.

I agree with congress. what do you all think.

Answer 1

The actual buyers are the refineries, etc.

They need to sell a given future contract and buy another one in the future - or buy one in the far future (say December 2009).

So, when they sell, if there isn't enough buyers, the price will go down. So, if the price are really too high, then it is the refineries buying too much of it at this price which they will realize when people don't buy as much (conserve, which is what  happened in the US so far, a reduction in demand), they will have more in stock to get rid of and won't need to buy as much the following month...

But if it is supply and demand, the following month there is even less oil to sell, hence, price is going up.

Prices do goes up and down on speculation (like those days with more than $5  in a day) but they are trying to figure out what will be the actual demand/supply ratio at the end of that given month.

If congress starts to act like it is a communist country with price control and anti-free market, we will have other side effect.

First of all, this is a global market and dubai also has an exchange over there.

2nd, if you remove the liquidity that the speculators brings, it will be more difficult for the market.

Liquidity = read that has how long and difficult it is to sell a house (not liquid) versus stocks.  Futures allow for oil to be as liquid as stocks rather than as houses. A maybe not perfect analogy but nevertheless appropriate enough I believe.

Answer 2

To me, there is no doubt that the futures market is driving up the price of oil.  These investors are looking for a quick buck and are not worrying about the long term consequences of their actions.

It's like the housing boom and bust.  Investors got in while the market was hot and drove up the prices of houses until they became unsustainable.  The same scenario will play out for oil prices.

Yes, Congress needs to step in and create laws to curb this unbridled enthusiasm which cannot persist without economic chaos ensuing.

Answer 3

Informed investor take calculated risk. If there is oil speculation, it is based on real world events, supply and demand ect. The same congress people have been there for decades, they saw it coming, but refused to address the situation. The biggest political joke ever is ethanol, and that is what congress gave us. Congress will not even allow a bill on offshore drilling go to vote.

Answer 4

Well it's a little of that and also a bit of scapegoating.  There were 83 million barrels of oil produced a day in the world as of 2006.  Which at current prices is a little over 11 billion dollars a day and around 40 trillion a year.  Now not all of that goes to market, but a good deal does.  So speculators have alot of money, but I don't the kind of money needed to exert such a significant market power over the pricing as we've seen recently.  Even if they were moving 5 or 10 trillion dollars of extra demand into the futures market the price would only climb an extra 10 to 20 percent tops.