Speculators only make money when they are right. How do you think speculators fared when prices plummeted under Reagan in the 1980s? Do you really believe that speculators buy oil futures to drive prices upward or do you think' date=' as I do, that many speculators expect oil prices to continue increasing and invest in response to their expectations? The global oil market is huge, yet the wealthiest individuals in the world are not oil speculators. Please explain that fact if oil prices are as easily manipulated as you seem to believe.[/quote']

 

Don't you know that we're in "peak oil" times? There will always be 100 reasons to keep high. However, only 1 is legit.. Greed.

 

Your theories and philosophies are valid but your leaving out the greed card. Again, this is the cheapest we will see oil until the US has completely converted to electric or hybrid cars.

Don't you know that we're in "peak oil" times? There will always be 100 reasons to keep high. However, only 1 is legit.. Greed.

 

Your theories and philosophies are valid but your leaving out the greed card. Again, this is the cheapest we will see oil until the US has completely converted to electric or hybrid cars.

Were people less greedy during the Reagan years than they were during the Carter years? Are they more greedy now than they were during the Clinton, Bush, and Reagan years?

 

With control of the U.S. Senate being controlled by liberal Democrats who demonize speculators, why have we not seen them featured in nationally televised Senate hearings? Is Obama in the pocket of these greedy speculators? Keep in mind that oil prices have never been as high as they have been under this president. Does that not suggest, following your line of reasoning, that people of today are greedier than they have ever been?

 

Liberals are too eager to see good in big government programs and too quick to assume the worst about individual human beings.

 

Chart showing gasoline prices adjusted for inflation

Mitch, tell us how the speculators make money.

Mitch, tell us how the speculators make money.

Clyde, why not ask somebody who claims that speculators are responsible for high gasoline prices? Surely one of them can explain how easy it is for the rich to get richer speculating on the future of commodity prices. I am not a conspiracy theorist, but I will try to shed some light on the subject if one of the proponents of this conspiracy theory cannot answer your questions.

Clyde, why not ask somebody who claims that speculators are responsible for high gasoline prices? Surely one of them can explain how easy it is for the rich to get richer speculating on the future of commodity prices.

 

I need to pay closer attention, don't I? My apologies.

 

For those that claim this is all speculator driven please tell me how the speculation process works.

I have always wondered about the who theory that speculators and derivatives are the cause of high oil prices. My question is, why do the other commodities which, like oil, are also part of the derivative market, not see their prices rise and be so volatile as oil? Wheat, corn, potatoes, soy, milk, sows, cattle, copper and gold are all products like oil that are commodities and therefore are included in the derivatives market. Why do they not see their price manipulated like oil?

 

My theory is that most people in all honestly don't understand the derivative market or what its purpose is but want some place to blame oil prices on and the derivatives and speculators who buy them sound as good as anything else to blame. I will admit, I am not derivatives market expert but I do know a little. Traditionally I believe derivatives come about because buyers of commodities want some deal of stability in the pricing of their goods to purchase in the near future. To achieve this, they will buy a future (types of deriviatives) which gives them the right to buy a certain amount of the commodities at a certain price at a certain future date. The seller of the future is hoping that price of the commodity does not rise above the amount of the future and they therefore can sell the commodity higher than the price they had to pay for it. Saying that, I am not sure how this can affect the oil market. I know many food companies will use derivatives to make the pricing for buying wheat, corn, beef, milk, etc. easy to predict in the future. Cereal companies use numerous wheat and corn derivatives. So again, not sure how derivatives for oil can be so different. I know plastics companies which use oil to make plastic use derivatives. I have no idea if oil refineries do but it would not surprise me if they do.

I'm trying to follow this discussion but am unclear about what everyone is calling a 'speculator'.

 

Is a speculator a Wall Street hedge fund manager who trades in futures? (I think it's fairly obvious this is a yes).

 

An oil company who sends out a landman to scout properties and with the figures to make offers to individual land owners?

 

Both?

I have always wondered about the who theory that speculators and derivatives are the cause of high oil prices. My question is, why do the other commodities which, like oil, are also part of the derivative market, not see their prices rise and be so volatile as oil? Wheat, corn, potatoes, soy, milk, sows, cattle, copper and gold are all products like oil that are commodities and therefore are included in the derivatives market. Why do they not see their price manipulated like oil?

 

My theory is that most people in all honestly don't understand the derivative market or what its purpose is but want some place to blame oil prices on and the derivatives and speculators who buy them sound as good as anything else to blame. I will admit, I am not derivatives market expert but I do know a little. Traditionally I believe derivatives come about because buyers of commodities want some deal of stability in the pricing of their goods to purchase in the near future. To achieve this, they will buy a future (types of deriviatives) which gives them the right to buy a certain amount of the commodities at a certain price at a certain future date. The seller of the future is hoping that price of the commodity does not rise above the amount of the future and they therefore can sell the commodity higher than the price they had to pay for it. Saying that, I am not sure how this can affect the oil market. I know many food companies will use derivatives to make the pricing for buying wheat, corn, beef, milk, etc. easy to predict in the future. Cereal companies use numerous wheat and corn derivatives. So again, not sure how derivatives for oil can be so different. I know plastics companies which use oil to make plastic use derivatives. I have no idea if oil refineries do but it would not surprise me if they do.

 

I would think that most of the other markets you mentioned are more stable because of the amount of time needed to produce oil & gas (i.e., to get it from an idea of a geologist, out of the ground, and eventually, into the market). Further, something like wheat, cattle, etc. aren't nearly as finite as a resource like oil that is essentially non-renewable. Finally, unlike something like beef, there aren't really suitable substitutes for oil. Overly simplistic, but less beef probably means more chicken, fish, etc. in homes, while the same parallel isn't really there with gas (at least on that level).

 

That's just my guess.

 

Oil just screams high risk, high reward, and even in the best times, you have to figure that they are also making up for/protecting against future losses.

I have always wondered about the who theory that speculators and derivatives are the cause of high oil prices. My question is, why do the other commodities which, like oil, are also part of the derivative market, not see their prices rise and be so volatile as oil? Wheat, corn, potatoes, soy, milk, sows, cattle, copper and gold are all products like oil that are commodities and therefore are included in the derivatives market. Why do they not see their price manipulated like oil?

 

My theory is that most people in all honestly don't understand the derivative market or what its purpose is but want some place to blame oil prices on and the derivatives and speculators who buy them sound as good as anything else to blame. I will admit, I am not derivatives market expert but I do know a little. Traditionally I believe derivatives come about because buyers of commodities want some deal of stability in the pricing of their goods to purchase in the near future. To achieve this, they will buy a future (types of deriviatives) which gives them the right to buy a certain amount of the commodities at a certain price at a certain future date. The seller of the future is hoping that price of the commodity does not rise above the amount of the future and they therefore can sell the commodity higher than the price they had to pay for it. Saying that, I am not sure how this can affect the oil market. I know many food companies will use derivatives to make the pricing for buying wheat, corn, beef, milk, etc. easy to predict in the future. Cereal companies use numerous wheat and corn derivatives. So again, not sure how derivatives for oil can be so different. I know plastics companies which use oil to make plastic use derivatives. I have no idea if oil refineries do but it would not surprise me if they do.

Public utilities that own coal-fired power plants engage in a similar kind of "speculation." When coal prices are low, then they will build large stockpiles of coal and sign contracts to buy coal in the future at what they believe will be a reasonable price. Otherwise, they just buy coal on the spot market while it is cheap. When the price of coal reaches what they think is a price that the market cannot sustain, then utilities will seek to sign longer term contracts at prices that are below the spot market price. It is in producers' best interest to lock in prices that will allow them to operate profitably, even if it means sacrificing some short term profits.

 

Large coal companies will sometimes sell coal at a loss in the short term to minimize losses. There are costs associated with idling coal mines, laying off workers, rehiring workers as prices recover, etc., and these costs have to be considered. Sometimes it is cheaper to lose money in the short term than shut operations - but no company can operate long if it loses money on every ton of coal that it sells. Operating in heavily regulated businesses such as coal carries more risk than running other businesses because sudden changes in the regulatory environment can quickly render a profitable operation into a losing venture.

 

I am certainly no expert in the commodity markets, but I imagine that consumers and brokers dealing in other parts of the energy sector, including oil, share some of the same challenges as the coal industry faces.

I would think that most of the other markets you mentioned are more stable because of the amount of time needed to produce oil & gas (i.e., to get it from an idea of a geologist, out of the ground, and eventually, into the market). Further, something like wheat, cattle, etc. aren't nearly as finite as a resource like oil that is essentially non-renewable. Finally, unlike something like beef, there aren't really suitable substitutes for oil. Overly simplistic, but less beef probably means more chicken, fish, etc. in homes, while the same parallel isn't really there with gas (at least on that level).

 

That's just my guess.

 

Oil just screams high risk, high reward, and even in the best times, you have to figure that they are also making up for/protecting against future losses.

 

I guess. I just always wonder if all the blame on speculation and derivatives really has anything to do with the gas prices we see. I always assumed the risk and reward of derivatives stays primarily between the buyer and the seller of the derivative not so much with the market as a whole.

 

Oil may be high risk and high reward but if you look at the profit margins (margins, not total profits divide net income into total sales) it seems to often fall between 8-12 percent which is pretty steady so maybe not so high risk/high reward.

I guess. I just always wonder if all the blame on speculation and derivatives really has anything to do with the gas prices we see. I always assumed the risk and reward of derivatives stays primarily between the buyer and the seller of the derivative not so much with the market as a whole.

 

Oil may be high risk and high reward but if you look at the profit margins (margins, not total profits divide net income into total sales) it seems to often fall between 8-12 percent which is pretty steady so maybe not so high risk/high reward.

 

When you use 'profit margins' above, are you including the expenses of a well that doesn't produce and/or one that maybe needs to be moved a few hundred feet to maximize production?

I'm trying to follow this discussion but am unclear about what everyone is calling a 'speculator'.

 

Is a speculator a Wall Street hedge fund manager who trades in futures? (I think it's fairly obvious this is a yes).

 

An oil company who sends out a landman to scout properties and with the figures to make offers to individual land owners?

 

Both?

 

Speculators are on Wall Street buying commodities such as oil and driving up the price. How much is the question. Most people figure its $10-20 dollars per barrel. You take out $10-20 per barrel and gas is down 30-45 cents right now.

 

What can we do...?

 

Well, some say to take commodities out of the market, other says the speculators are the only people keeping prices this low.

 

Me.. I say its all crap and its the perfect storm of speculators, big oil and OPEC. If you had billions of people who rely on your product, would you really let it go for $10 dollars a barrel like they did in 2000, or would you ask $50 to $100 for it?

 

Oil is projected to be almost $120 per barrel in 2020... choose your next car carefully my friends.

Speculators are on Wall Street buying commodities such as oil and driving up the price. How much is the question. Most people figure its $10-20 dollars per barrel. You take out $10-20 per barrel and gas is down 30-45 cents right now. What can we do...? Well' date=' some say to take commodities out of the market, other says the speculators are the only people keeping prices this low. Me.. I say its all crap and its the perfect storm of speculators, big oil and OPEC. If you had billions of people who rely on your product, would you really let it go for $10 dollars a barrel like they did in 2000, or would you ask $50 to $100 for it? Oil is projected to be almost $120 per barrel in 2020... choose your next car carefully my friends.[/quote']

 

 

How does an investor buying a commodities contract drive up the price?

How does an investor buying a commodities contract drive up the price?

 

I think you hit the nail on the head. So many people are quick to say that derivatives purchased for commodities are driving prices up but I honestly wonder if they really even understand the derivatives market, the just hear other people talk about it and just repeat it.

 

I just wonder how many can even define what a commodity or derivative is without Googling it or Wikipedia? I say that because investors DON'T buy commodities, they buy futures and other derivatives on commodities such as oil, various grains, various metals, etc..

How does an investor buying a commodities contract drive up the price?

 

They are dumping all their money into oil as a safe bet. They dumped a ton of money into natural gas this past winter when they knew the winter was going to be abnormal.