Redstate

Freedom of Religion NOT Freedom from Religion

Speculators perceive that there is going to be an imbalance of supply and demand in the future. They "bet" on that imbalance, thus changing current supply/demand and future supply/demand so that there are supplies in the future.

I'm sure there is someone here who can explain this concept farm more ably than I, but I still hold that speculation is a positive despite it's play in raising prices.

simpson

If the game gets skewed by say having the margins necessary to play set too low (the situation now), markets can get goofed up, which is what we are seeing now. I'm all for raising the amounts that must be put down on a contractor to cut back on some of the excesses that are warping the market place right now.

I'm no econ major, so maybe someone who is more hip to that sort of thing would care to comment.

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NObama...no way!.....McCain '08 !

Steve, there are plenty of stories out there, and this one ("It's the speculators' fault") is the current favorite of Bill O"Reilly after he found he couldn't get any traction for his campaign to blame it all on "gouging" by American oil companies. If I were a speculator, I would put my money on the side opposite wherever O"Reilly is.

I learned about speculating in commodities about 30 years ago when I lost $500 dollars or so on one cattle futures contract. It was a cheap lesson: Don't play if I don't really know what I'm doing. Bill hasn't yet learned that lesson.

The argument that speculators are responsible is akin to the argument that the market will always go up, because after all, when prices go down, those speculators lose. It's just that It's pretty likely that the price of oil will continue to rise, because supply isn't increasing but world demand is.

Put very simply, the person buying oil futures at an ever-increasing price is betting on an even higher price. The person selling the contract is betting on a lower price. If nothing else, that's why the contracts go up relatively gradually, not in multi-dollar jumps. (This is not the case in times of international crisis--then the price can jump around wildly.)

Can a market be controlled by speculators? Maybe, but I mention the Hunt brothers. They attempted to corner the silver market, or at least they thought they could outfox the market.

The margin requirement (amount put down) can be adjusted to cut down on the number of participants in the commodity market, but it won't necessarily reduce its volatility. And if it's raised too much, it could put some airlines out of business and cause a significant increase in ticket prices for those that remain, simply because they'd have to include a larger premium to compensate for the uncertainty of jet fuel spot price at flight time.

What would actually help would be for a major producer (OPEC) to start offering oil futures at a lower price. They have no incentive to do this as long as there are buyers willing to pay more and more. Because the world demand is so much bigger than ours is, it wouldn't even help if all American bidders bid lower--we just wouldn't be able to buy, and we need oil every bit as much as we need oxygen.

If you ask how drilling at home could help, I think the economics are that increased income for the American oil industry increases our national wealth, which should strengthen the dollar, greatly improve our balance of trade, and reduce or perhaps even eliminate the deficit. It would be a huge boost to a home-grown industry, and it would create thousands of jobs that can't be exported. This is especially important if it is true that we have more oil reserves than does all of the Middle East.

Also, commodity prices tend to have inertia--they keep going for no apparent reason. If the direction of prices can be reversed, they might go down quite some distance. If we began to develop and expand our own industry, that could be a catalyst toward lower prices, even before the capability exists.

Even if I'm wrong on some details, the fact that we have two Presidential candidates who are unwilling or unable to even contemplate the facts, whatever they are, and instead thoughtlessly continue to kowtow to the environ-mental cases, is perhaps the most depressing aspect of this campaign. This could be our country going down the drain. And more regulations restricting trading in oil futures will no more save us than will a vow to never buy gas on Mondays!

What I really want to say is that either John McCain is dumb as a post or his advisors are, and either way it doesn't reflect well on him.

Pluto, the Ninth Planet - Forever!

Much better explained than I ever could have.