...sorry if this thread already exists somewhere else...happy to look up the link if so....I keep hearing this, but am not understanding what the logic is behind it. Perhaps someone can enlighten. I found this today too: http://www.cbs8.com/story.php?id=134115# thanks for your insights.
======================= Ander; Most traders or investors could argue the case for either side, of this issue. The logic is some what similiar to , fewer ''interest only Realty loans'' are made now; & they raised the margins for wheat speculators ,& price fell.Did not really change the wheat trend, but prices fell anyway. In other words you may be skilled enough to use ''imterest only Realty loans''; but too many abused leverage, and too many foreclosures in a neighbor hood is simply undesirable for the responsible business men/others. Elephant has a right to jump in his bath tub; but when an elephant drowns others or simply grinds the faces of poor people, well , changes may be made. And no body is suggesting LUV[ Southwest Airlines,commercial/industrial user] be stopped. Not likely long term trend of oil changes; but it is interesting more traders & investors are calling for more regulation.Mike Masters/hedge fund is. And in fairness to investors & traders; airlines were having a tough time with low priced oil. Position limits/raising margins will help;but not likely change the lomg term trend of oil.
US is obsess with truncated payoffs to the downside. Hard to have an invisible hand with current policy; optionality has its cost. Any offense is deemed speculative.
Murray T, maybe this makes no sense, maybe it does. So I will ask your opinion becasue I know you will not name call. I am no market porfessional. But here is my question. If oil contracts can be bought unregulated on ICE and they are bought by hedge funds and the big players in large quatitiies, then this will decrease the supply ( decrease supply on paper only) When it looks like supply is lower, than the price goes up. True? So hedge funds and big players with huge holdings of oil now have contracts they bought, and also the price has gone up because (it appears) the supply does not meet demand because supply is lower (on paper)(but really the supply is bought but not used by hedge and big players,( no delivery on oil) So price goes up, and this is the law of supply and demand. So now the big players have bought something that is worth more than they paid for it because they have driven the price up by buying huge amounts, and decreasing the supply(on paper) Now they sell some of what they bought at higher prices for a profit. But they do not sell in large quatitities they way the bought in large quatities, becasue if they sold in large quantities, they would create a supply again (on paper) and the price would fall. So they sell in small doses? To retain high prices for a profit?
This topic must have been covered 100 times in the last few months. Is it really so difficult to understand that futures traders do not take delivery and therefore have no impact on the supply/demand fundamentals of oil. By the way, if you believe that speculators have a psychological effect on actual purchasers, then speculators would be causing oil to drop since the futures market is generally in backwardation. It is amusing that these airline CEOs apparently don't understand basic economics, but then again, managerial competence is not the main skill set necessary to climb the corporate ladder. If these CEOs had the slightest bit of sense they would have locked in low prices on the futures market years ago (some did) and wouldn't be whining now. Oh well, they will still get a few million in pay for their brilliant leadership even if their stocks do tank.