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15250Re: 70% of oil price is speculation

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  • walto
    Feb 28, 2013
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      --- In LandCafe@yahoogroups.com, "k_r_johansen" <kjetil.r.johansen@...> wrote:
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      >
      >
      > --- In LandCafe@yahoogroups.com, "k_r_johansen" <kjetil.r.johansen@> wrote:
      > >
      > >
      > >
      > > --- In LandCafe@yahoogroups.com, "Scott on the Spot" <ssbaker305@> wrote:
      > >
      > > >
      > > > As for empirical proof, I toss out, again, that oil was $147/barrel in
      > > > the summer of 2008, and just $35/barrel only 7 months later. Demand did
      > > > NOT slack off by 3/4!!! We would have been living in unheated caves and
      > > > bicycling to work if it had...if there was work to go to at all. No,
      > > > this was a result of speculators being forced, or in some cases,
      > > > voluntarily, cashing in their long positions in the price-setting
      > > > futures market, selling their contracts, in other words, or even
      > > > shorting them. That is what speculation is.
      > > >
      > >
      > > A 3/4 reduction in price of oil-futures, doesn't mean a 3/4 reduction in demand does it? Prices in the final consumer market didn't see the same fluctuations.
      > >
      > > Kj
      > >
      >
      > What I meant by that, was that while it may entirely be that the huge fluctuations witnessed indeed is the result of speculation, which makes sense, since the futures market is where the speculators operate, that doesn't prove the claim that 70% of the price of oil when it reaches the consumers, are the result of speculation, as witnessed by the fact that end user prices don't have those erratic movements, even if the long-term price movements correlate exactly. Gas prices certainly didn't drop 3/4.
      >
      > Kj
      >


      Right. It may even be the case (as Matt already indicated) that the speculative activities in the futures markets REDUCE the price variations that would occur otherwise.

      W
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