Hello:

I'm an oil speculator. How does what I do raise oil prices?

excon

There is only one way. If you are bidding on a fixed qty then the prices can rise and fall on your bid... or if you are betting on the possibility of a supply disruption ,and the evidence suggests there will be ,then the price could rise on your bet .

But you have no direct control of the market .You are just a player . If the supply isn't fixed ,and the supply is replenished to meet demand ,then all your up bidding wouldn't raise the price . You would just lose your money on the speculation.

So the way to offset speculators is to ensure the supply meets demand .

The truth is that this 'blame the speculator 'excuse has never lived up to scrutiny . Yet politicians constantly have photo ops in front of gas stations blaming everyone but themselves for the rise in prices .

If they want to do some good when they get tired of gum flapping would be to allow the permitting process to continue . Then they could address the effect that cheap money policies by the Fed is having on price inflation around the world

I assume Ex you are a "player" on the futures market, purchasing contacts for future delivery. Obviously if you think the price will move up you might purchase contracts at a higher than today's price with a view than the price will be less that the price at a future date as long as the price moves in the right direction you will hold that contact and so influence the market. As this market works on you only actually committing a small percentage of the delivered value of the contact you can have a large slice of the market for a small outlay. Some years ago the Hunt Bros ran the price of silver up in this manner until they had a large percentage of contracts under their control at a very high price. The price moved against them, they couldn't meet calls and the price collapsed but it illustrates the method and the impacts that traders can have.

Hello again, tom:

If I bought 10's of 1,000's of contracts at once, it COULD affect the market, but probably not... Speculators don't try to MOVE the market, they try to ride the moves the market makes all by itself. As noted, the Hunts DID try to corner the market, and they HAD zillions, and they still weren't able to do it. They LOST their zillions..

excon

Ex the reality is it is a gamble, the market moves because of pressure of both speculators, producers and refiners. If speculators have forced the price to move up, refiners have to protect themselves so they seek to fix the price with forward contracts, producers do the same so it the price has risen it can get locked in at a new level, the only thing that will vary this is fluctuations or perceived fluctuations in supply or demand. At the moment Iran is a factor, refiners are seeking to buy from other sources so you might sell Iran supply short because there will be an oversupply of Iran oil whereas the Saudi's are increasing supply so refiners will be seeking contracts for Saudi oil and the price might rise. Tapis is high at the moment probably from pressure because of the Iranian situation

The Hunts lost out because others decided the price was too high and either stayed out of the market or wrote contacts for a lower price forcing the price down. Once you get a call on a contact the odds have been reversed and you either ante up or close out

It's a fools gamble . The amt of oil on the market can only be controlled by nations in collusion ,or natural ,or geopolitical events . The other part of the equation ,the demand side fluctuates... mostly with the price.

Hello again,

It's ALL those things.. What it ISN'T, is a way to RAISE oil prices.. What I want to know, is WHY some people think it is.

excon

This is the correct answer.

That's easy... political expediency. It's like Chucky Cheese Schumer standing in front of a gas station ,pointing to the posted price ; accusing them of price gouging ;saying that releasing oil from the strategic reserve ,or saying he'll pressure the Saudis to bring the prices down ;or slap the oil companies with a windfall profits tax will be the remedy .

It appears that most of the recent noise on this came because some Federal Reserve clowns in St Louis accused speculators for driving up the price as much as 15% over the past decade (which by my poor math means that 85% of the price increases are from other factors ).
Economic Synopses - Research Publications - St. Louis Fed

It's nutty . Doubly so since the Fed report says nothing about the effect of a devalued currency on the market.

This is a global economy. The days when someone could corner the Dutch Tulip market are over .

Hello:

If speculators can be blamed for RISING prices, then they should also be credited for LOWERING them..

What I DON'T think left wingers get, is that if there's a MILLION people betting that the price of oil will RISE, there's a MILLION people on the OTHER side of the trade betting that the price will FALL. For the life of me, I can't see how either of those trades effect the price of the underlying commodity.

excon

I've heard some of them say things like shorting the market should be illegal... or even better... some have said that if you purchase futures you should physically take delivery of the commodity.

I like that one Tom but nothing stops a speculator from having back to back contracts and delivering elsewhere, its called a market for a reason. What is needed is to remove the speculator from the market by requiring that you be either a producer or a processor to participate, and regulating the market so you can't just drop the contract

Because it's easy to blame the 1%, and speculators are typically in that 1%.

I believe it's true that speculators can influence the market in the short term, but over time it washes out. There are inefficiencies in the markets that can be gamed, and that can cause short term fluctuations. Short sellers can cause a short term panic, and in the case of stocks a short term panic can wreak havoc. But it's wrong to blame the short sellers for other people's stupidity. Over time you can't beat the system unless you own the system (witness Enron and their ability to drastically alter the markets for electricity in California - they owned the producers and the distributors, and could blackmail the consumers, but I digress).

Of course no one complained of the influence of the traders when the prices were dropping .

You have to question who these speculators are, these aren't day traders, they are well healled hedge funds with deep pockets who are interested in making a fast buck and don't worry about whether they are hurting the economy in the process so they might be "1%" in that they are few in number but the percentage of the market they control is much larger. They also have the ability to offset the risks they take by making compensating investments in other commodities or in currencies.

Hello again, clete:

All true, and so what?

excon

So I expect this isn't you, so you should be concerned if these people are increasing the price of oil and gas and other commodities, the capitalist economic model never envisaged the manipulation of markets on this scale

Hello again, clete:

The whole point of this thread is to demonstrate that speculators, even BIG speculators, CANNOT move markets.. It LOOKED like you understood it, and then it became clear that you don't.

excon

I understand that this is a pointless thread, hedge funds as speculators have the ability to affect markets, so I don't see why you are defending them

This is where we disagree. We don't believe that speculators (or hedge funds) have the power to affect the market, at least not as individuals. Collectively of course all the people who play in a market create movement in the market - that's Adam Smoth's "invisible hand" at work. When the majority of investors believe the market is going a certain way they will behave accordingly, which can have the effect of creating a herd mentality that forces prices to move - sometimes up, sometimes down. History is full of how herd mentality can lead to bubbles and crashes - from tea prices in the 1700's to tulip prices and railroads in the 1800's to telecom companies in the 1990's to mortgage derivatives 4 years ago. There will always be short term fluctuations in prices, and if you're a wise investor (wiser than me) you can take advantage of them. That's what investments are all about. So why single out hedge funds, and not the rest of us who have investements in the stock market (or commodites)?