I will weigh in on this subject.....IMHO....I truly believe that speculators in the oil futures have everything to do with this price movement......lets just go through some quick examples.... Lets assume that the spot price is 140.00 currently and you are a short in the crude pits that day......And since the market currently is very bullish most days you are in the minority speculative position and you are the one with "pricing power"....Now a smart short knows that amateur long investors in crude oil are going to hit the "ask" all day with their orders as they don't want to miss the boat off the open...So Naturally The short is going to be supplying that asking price in an area that he feels is above the days trading range......Traders keep hitting the ask in these extended moves as he slowly keeps increasing his size while providing higher and higher ask quotes waiting for the mean reversion correction to occur....."This is the example of a Normal Functioning futures pit" Now lets add in a layer of Investment Players that have roughly and unlimited size of capital and have been hording long biased futures positions in crude oil.....Now these guys are smart and they know that 5 contracts don't move the price, but 50 to 200 contracts stir up the pot a little.....Lets also assume that PLAYER A, B and C are all long 100K contracts of crude oil......A, B and C are all colluding with one another to move the price that day.....B throws up and ask to close 200 of his long contracts out at 141.00 (by going short to offset).....Player A snaps up that big print at 141 and offers to close it out at 141.20...Well here comes player C to snatch it up at 141.20....Now this get the "herd" paying attention to the 2 large orders that just moved the price to the upside fast......Now Player C need to get the 200 contracts back to player B...So he offers it at 141.40 and player B snatches it up.....All 3 Players are back to their 100K contracts each (Only loosing slightly on the 200 contract positions, while the other 99,800 contracts are up nicely for the day) and have successfully started the herd to the bullish side and forced are Smart short seller to scramble to close his positions faster, because of his new increased margin requirements!!!!!!!!!! Just one man opinion on how easily it would be for "The Big Swinging D!CKS" of the oil pits to move the price in their direction.... Manipulation maybe, or price discovery maybe....It doesn't really matter, just know that these people hardly ever get caught for doing things like this and they all have a good case for being long crude oil if a case were to be brought up against them.....Now if a few players are just passing it back in forth at higher prices...Yes the Government should crack down on that aspect of the trading pits.....I mean I guess Morgan Stanley owning 1/3 of all the heating oil that Massachusetts needs this year is a good thing and that they don't have any impact on the going spot price....Nor do they trade that position around to make it go higher...YEA RIGHT $COSTAverageMAN
========================== Mainly the latter, but frankly both; enough raindrops make a flood. As far as the logic, most traders could make a case for either side; but when an elephant jumps in a bath tub , fine, but if he drowns some, not good. They raised margins on wheat,Ander, didnt change the trend, but price was lowered.
================== Trendlover; Excuse the slow reply, like a turtle,LOL And note how the market place solution is already starting to fix the oil problem; gas hawgs are not selling much, LOL Sounds like you got it right,Trend lover.And i certainly meant no disrespect to speculators, investors; investors.com, Investors Business Daily proves the investors, traders are the solution, not problems in markets,cool Food & fuel are uptrending surely; & i like what they called ''victory gardens'' in the World WarIII, i mean World War II. Homegrown vegtables, venison is ''dirt cheap'', thank the LORD
Interesting to see this discussion - especially on a message board of speculators (largely). Even if you do buy in to this, you must acknowledge that speculators provide a vital function in the market economy: they help to set market prices. These aren't arbitrary numbers, they're agreed upon by buyers and sellers and based upon legitimate sentiments, such as supply and demand concerns. It's offensive that the news media and many corporate executives think speculation is a way to pat each other on the back and get rich together. That is not at all the case. edit: unless you traded energy for Enron
Some of them do, LUV is the best at it: http://www.zimbio.com/CEO+Gary+Kelly/articles/2/Southwest+Airlines+Time+Morph+Model "Southwest Airlines is famous for being a profitable low cost carrier. A huge part of their profitability has been their skill at aggressive hedging of oil futures to protect against a rise in the price of jet fuel. In the last 15 financial quarters SWA claims that in eight of those quarters, Southwest would not have been profitable without hedging. All carriers hedge but some do it better than others. Alaska Airlines is also very good at it."
yes, kdmundrick that is sort of how I was thinking as well, but I know little about the bigger picture. Seems to me like this is another case where they need to use more precise language about "speculators" lest we start referring to islamofascist terrorists as just "muslims" again. I've been learning a bit, but one thing still confuses me...do oil contracts not roll over? If so, aren't speculators selling off their paper at expiration? I would think that would come into play at determining fair price somewhere along the line... Secondly, what's wrong with just offering some kind of liquid account designed to hedge individuals just as these airlines are doing...something like a money market that grows with the price of oil etc....I heard of some kind of gas card you could buy that gave you a fixed price on gas for a year, like a call option. Banks could do the equivalent of this in your own savings account for a fee, effectively adding oil price increases to your interest rate...just an idea...
Murray T, I did not think you meant any disrespect to speculators. I wanted your feedback on this speculaters/ supply and demand debate. Many people agree it is not speculators driving the price, but think its all supply and demand. Confusing to me. And yes I see what you mean how the oil problem is being corrected in some ways by market solution (downtrend of big suv sales) (victory gardens) solution to high food prices. Good insights Murray T.