15184Re: [LandCafe] Re: 70% of oil price is speculation
- Feb 27, 2013On 27 Feb 2013, at 15:11, "mattbieker" <agrarian.justice@...> wrote:
>I agree. And oil is regarded as a pretty strong form efficient market, which implies that, other than for day (noise) traders who never expect physical delivery anyway, you can't generally make profits over the longer term with pure speculation.
> --- In LandCafe@yahoogroups.com, "John" wrote:
> > By the time the oil get to the retail outlet that sells you the refined oil, speculators (economic freeloaders) have driven up prices to extortionate levels. That is obvious. Geoism will tackle that but Georgism, concentrating wholly on LAND, will not.
> > Bank are the biggest oil speculators, keeping tankers outside the limits until the can make a gain and bring them in.
> I'm not sure I buy this. It's pretty basic economic theory that speculators in commodities smooth out prices, thus mitigating sudden shocks. The same is not true of land, of course.
In fact I'd suggest that most opportunities for arbitrage in oil are caused by governments managing their strategic stocks.
And in such an efficient market I'd expect that a tactic as crude (pardon the pun) as holding up physical delivery by keeping ships offshore would soon be rendered ineffective by the Baltic Exchange increasing the cost of holding your speculative stock on board. Most ships actually in the process of delivering stock are not the subject of currently open spot-market trades in any case. And in the futures market they're not relevant.
I could believe, however, that one could say that 70% of the profit taken in crude oil markets goes to speculators, but that's not the same thing as saying that 70% of the end cost is speculation. That would be a spectacularly inefficient market IMO. NOt even weakly efficient markets could give that much power to the noise traders!
> George says it well in P&P (Book V, Ch. 1)
> "When, with the desire to consume more, there coexist the ability and willingness to produce more, industrial and commercial paralysis cannot be charged either to over-production or to over-consumption. Manifestly, the trouble is that production and consumption cannot meet and satisfy each other.
> How does this inability arise? It is evidently and by common consent the result of speculation. But of speculation in what?
> Certainly not of speculation in things which are the products of labor —in agricultural or mineral productions, or manufactured goods, for the effect of speculation in such things, as is well shown in current treatises that spare me the necessity of illustration, is simply to equalize supply and demand, and to steady the interplay of production and consumption by an action analogous to that of a fly-wheel in a machine.
> Therefore, if speculation be the cause of these industrial depressions, it must be speculation in things not the production of labor, but yet necessary to the exertion of labor in the production of wealth—of things of fixed quantity; that is to say, it must be speculation in land."
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