High Oil and Speculation

Suddenly, Congress and the presidential campaigns are all over the effect of speculation in the oil markets. Maybe half the price of oil is now the work of speculations, one hearing on Capitol Hill heard yesterday.

Obama and McCain have weighed in. New restraints are on the table. No one wants hedge fund billionaires skimming puffed-up profits off the money we pay at the pump. But are they?

Listen to an On Point discussion about the speculators and the price of oil.

Do you believe it's supply and demand that's put gas prices over $4 a gallon, or something else? Is the threat from speculators a distraction or an outrage?

Comments: 7

♠~Dnbuster~♠ ~. Jun 24, 2008, 12:20pm EDT

104u

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Gary Gentry Jun 24, 2008, 2:37pm EDT

Speculation can run up the price of oil for a relatively short period of time, but the resulting bubble is fragile. The ability of the oil supply chain to store oil is VERY limited. Once that capacity is filled, speculators' ability to withhold oil waiting for a higher price disappears. They must get rid of it. Competition sets in & the bubble bursts. Fears of shortage (e.g. war on Iran) can artificially extend high prices, but not forever.

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Gary Gentry Jun 24, 2008, 2:39pm EDT

My conclusion: prices were headed up due to increasing demand. Speculation drove prices above where they would have settled, and soon they will come down, but not to last year's level.

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Sheryl O. Jun 24, 2008, 3:13pm EDT

I believe it's a combination of issues - speculation, increase in usage, decrease in refining, and no reign on the profits that oil companies can make. Why doesn't anybody ask why the oil companies are making record profits? I own my own business - profits are revenues minus expenses. The oil companies are taking in record revenues - doesn't that tell you something about what they are charging for their "product" over their actual expenses?

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The Militant Moderate Jun 24, 2008, 7:21pm EDT

Thanks for the link. A very balanced presentation.

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Richard B. Jun 24, 2008, 7:46pm EDT

Most of the large pension funds like CALPERS invest billions in the oil futures on margins of 6 -8 % as a hedge against the sinking dollar.

The problem is that 6 - 8% margin. If that were to be changed to 50% for those firms that don't take delivery then this all would change.

Pension funds are not speculators, they are investors.

Understanding what's going on is important.

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Gary Gentry Jun 26, 2008, 9:11pm EDT

Good points, Richard, and a good idea for at least a partial fix, easily implemented.

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High Oil and Speculation

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