Over the long term, how does speculation affect the price of oil?
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In the short term, I think it is clear that speculation affects oil prices, but over the long term, I am less than convinced. Specifically, with all derivatives, there is someone on the other side of the deal; it is a zero-sum game unless someone takes delivery. If speculation drove the long-term price of oil, it seems to me that the speculators would be required to take delivery of the oil at some point in hopes of selling it at a higher price. If the speculators are not taking delivery, supply and demand must dictate the price of oil as the long-derivative speculator simply offsets the position of the short-derivative speculator until the contracts settle or expire. Since speculators who do not take delivery are not affecting supply and demand, how could speculation cause a long term increase in the price? News commentators continue to bang the drum of speculation causing the price rises, but I remain unconvinced. Now is your chance to convince me where my analysis falls short.
Susan
In the short term, I think it is clear that speculation affects oil prices, but over the long term, I am less than convinced. Specifically, with all derivatives, there is someone on the other side of the deal; it is a zero-sum game unless someone takes delivery. If speculation drove the long-term price of oil, it seems to me that the speculators would be required to take delivery of the oil at some point in hopes of selling it at a higher price. If the speculators are not taking delivery, supply and demand must dictate the price of oil as the long-derivative speculator simply offsets the position of the short-derivative speculator until the contracts settle or expire. Since speculators who do not take delivery are not affecting supply and demand, how could speculation cause a long term increase in the price? News commentators continue to bang the drum of speculation causing the price rises, but I remain unconvinced. Now is your chance to convince me where my analysis falls short.
Susan
April 26th, 2008 at 1:59 am
The market lot more volatile which guess is just what speculators want therein lies the market lot more volatile which guess is just what speculators want therein lies the market lot more volatile which guess is just what speculators want therein lies the opportunity for short term profits.
April 26th, 2008 at 4:07 pm
it drives up the price.
April 27th, 2008 at 7:46 pm
The level set by real supply and demand so while youre right in the larger market forces prices back to the long as.
The speculators are all getting screwed out of beaucoup bucks.