Speculation and Oil?

Question

Can someone please explain how speculation works, and more specifically in the oil industry.

thanks

Answer 1

I buy oil for 100$ because I think it will sell for more later. I put the oil in storage till the price rises. I keep doing this, lots of people do this - there is less oil. The price rises.

I sell the oil. After a while the price goes down, but not before I've made a profit.

This is basicly how speclation works. You can also speculate that prices will fall, and make money on that.

Answer 2

I'm not sure if this is what you are asking, but one simple example is when 9/11 happened. Within the very next hours oil prices jump through the roof. Gas stations had lines and lines of cars. Drivers paranoid that we were going to a WWW.

After the skies were open again, the prices went down.

I hope this helps