I m wondering if anyone can explain to me how these long "only" index commodity funds that are being blamed for the push up in oil price futures get around the delivery function of the commodity at the end of the future contract. I m one who does not believe that commodity prices are being pushed higher by speculators. I believe the price rises are down to... 1. No meaningful way to increase daily supply due to inability of the to bring new supplies online fast enough. By the time the new supplies have been brought online, then the existing fields will be past peak production. So yes maybe there is alot of oil, however, this doesn t mean the daily production can meet daily demand 2. I believe that the trends in future demand in the medium and longterm are rising. Some analysts tout the reason that demand destruction will occur. However, I believe that for countries like CHina the yuan will increase 4 or 5 fold which will increase to higher spending power per capita. Oil will become relatively cheaper in the future as the yuan appreciates which wil increase demand. I also believe this to be the case when the rest of the dollar pegged countries los faith in dollars and let their currencies appreciate. 3. A monetary phenomenon, by the FED and Mr Bernanke. They talk a game of a strong dollar, but one only has to read his economic works that exist at the FED. His academic papers suggest he will do anything to prevent deflation...So, I think the perception of Bernanke as someone who will not credibly raise interest rates is leading to cash flowing into tangible assets such as gold and commodities which act as a store of value. 4. Inelastic pricing of oil. Small increases in demand or small reductions in supply lead to proportionally larger moves in price. Example, a 1% reduction in supply can lead to a 7% price increase. as an example, this is what Bernanke wrote in an academic paper in 2002... "The conclusion that deflation is always reversible under a fiat money system follows from basic economic reasoning. A little parable may prove useful: Today an ounce of gold sells for $300, more or less. Now suppose that a modern alchemist solves his subject's oldest problem by finding a way to produce unlimited amounts of new gold at essentially no cost. Moreover, his invention is widely publicized and scientifically verified, and he announces his intention to begin massive production of gold within days. What would happen to the price of gold? Presumably, the potentially unlimited supply of cheap gold would cause the market price of gold to plummet. Indeed, if the market for gold is to any degree efficient, the price of gold would collapse immediately after the announcement of the invention, before the alchemist had produced and marketed a single ounce of yellow metal. What has this got to do with monetary policy? Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation." To me this is someone who has nutbar monetary policies. This seems like someone who will try to inflate the debt away. So my qustion is this, to all you guys who really understand the pricing and contract terms in futures. How do the index speculators avoid taking delivery of the oil. My reasoning would be that they would sell the oil near the end of the contract leading the price to revert back to a lower price. This is not happening which leads me to believe that speculation is not the culprit in the price rises, and if it is the price would fall when they sell to the hedgers who are taking real delivery of the oil and actually consuming it. Can anyone explain to me how index can hold commodity future contracts without taking delivery? Would love a good answer to this. Thanks inadvance.