What is excessive speculation in commodities markets?

Question

What they mean with that. Betting on what? how are the oil traders doing this are they using the new law of deregulation of energy or the loop hole on the ice exchange in London? Many believe that speculation is the main culptrit for high oil prices not the supply and demand like the press and some politians want us to believe.

Answer 1

people gambling.  betting on the direction of the price of oil.  if there was a huge supply, it would not be wise to bet against it would it?

Answer 2

ARE YOU SURE YOU WANT TO HEAR THIS??? Some of this terminology is from stock brokers, so google any words you don't get. (I had to). Good Luck, don't let the anger tear YOU apart. Use it to make you/us stronger... (skip the first BS part if you want).

The "index speculator" is a red herring. That just means you are buying USO or some ETF type vehicle where the fund holds oil futures. However, the fund acts neutrally with regards to purchasing the futures contracts. They don't take delivery and really just ride along with the futures market. That's not the problem either.

The idea that banks are taking possession and holding the supply off the market is very interesting. If that is true, then you really have a case of market manipulation. That seems quite plausible. Basically, it doesn't take much money to buy a few million barrels of oil and store them. Say they invest a billion in oil just to keep it off the market for one month. That drives up oil prices. Oil prices drive down stocks and affect interest rates. Stocks and debt markets are a LOT bigger than the oil futures market, so by using that oil manipulation technique they may give themselves an advantage in the larger markets that they can easily exploit. The key to the whole scheme is being able to store the oil and act like a mini-OPEC and buy one month and sell the next and make bets in the stock market or the debt market based on how you are driving oil prices. It would win my Nobel Prize for Crime if its true.

However, even if that is the case and some oil is taken off the market, it is only going to drive up the price of oil in the month it is removed. Once its gone, then the price of oil would return to "normal" the following month as long as that oil stayed in the tanks of the bank. It is a one-month affect.

If you added 1M barrels to your tanks every month, the price would remain artificially high by a constant amount, but it wouldn't go higher and higher. In other words, without manipulation if price of oil was $80, and with taking 1M barrels off the market each month, it would go to $90, and there it would stay each month that you added 1M barrels to your tanks. When your tanks get full, if you just let the oil stay there, price would return to $80. Then when you sell some of that oil out of your tanks, oil would drop to $70 or whatever. It is still a net 0 effect in the long run.

The only thing that would change from that is psychology. If people think that $100 oil is high, then before buying they will try to wait until it is cheaper to buy. However, if right now today oil went to $100, buyers would rush in to get a bargain. The paradigm effect of the price could eventually drift upward if you could keep your scheme going for long enough and take a lot of oil off the market. Then you could dump it later for more than you paid for it.

It's an interesting theory.