Speculators are the Cause for High Oil Prices?

Discussion in 'Economics' started by Matt8200, Jul 15, 2008.

  1. I am getting tired of hearing politicians who must have very little understanding of economics and how futures markets work blaming high oil prices on speculators.

    Unless these speculators are taking delivery of the oil and stock piling it their garages how they possibly be driving oil prices higher? Every contract a speculator buys, they must sell before expiration. It is not a stock that you can buy and hold. Sure speculators can drive the price of contracts up that still have a lot of time before expiration but do you know what effect this has? Higher futures prices encourages increased production because now oil produces can hedge their production and lock in the higher prices. More production equals lower prices when these contracts finally come to expire. If the speculators are fundamentally wrong, they will get burned when it comes time for the futures contracts to expire.

    If you are looking for the real cause of high oil prices then look no farther than supply and demand issues and the devaluation of the US dollar.

    If anyone can explain to me how speculators buying futures oil contracts increases the price of gas at the pump, I'm listening.