Speculation in the Commodity Markets Good or Bad?

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Hey, I am not the one promoting it; and yes, that is what I read - that there was talk in Congress of limiting futures and options in oil to only those who would take delivery.

Whether that would result in a monopoly, I don’t know. The idea was that the people causing part of the spike in prices were speculators as opposed to users. As in, hedge funds, etc. It appeared to me that the end users might have some better idea of what the actual ebb and flow of oil was, is and will be, than someone who is simply playing the market and driving prices up.

I don’t pretend to know and understand the market for futures and options; I am still trying to learn trading stocks.

I am not trying to take anyone on; simply asking.
 
If they are "driving up"prices that helps both producer and end user because the “drive up” results in huge financial losses to the hedge fund. Only if the future is undervalued does the hedge fund make a profit.

Same is true of stocks, the markets works the same. The difference is the stock owner has theoritical ownership of a company, while the futures owner theorically has ownership of a product
 
otjm said:
Hey, I am not the one promoting it; and yes, that is what I read - that there was talk in Congress of limiting futures and options in oil to only those who would take delivery.

Whether that would result in a monopoly, I don’t know. The idea was that the people causing part of the spike in prices were speculators as opposed to users. As in, hedge funds, etc. It appeared to me that the end users might have some better idea of what the actual ebb and flow of oil was, is and will be, than someone who is simply playing the market and driving prices up.

I don’t pretend to know and understand the market for futures and options; I am still trying to learn trading stocks.

I am not trying to take anyone on; simply asking.
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Some one tell me how that would produce a monopoly? We currently have a 640 % increase in oil prices. Yes war, demand from Chinda and India have alot to do with it, but even George Soros and others have said that investment banks such as Morgan Stanley have much to with it also.

So what is wrong having some checks and balances in the system which will prevent hyperinflation which drastically affect the poor.
 
otjm said:
Hey, I am not the one promoting it; and yes, that is what I read - that there was talk in Congress of limiting futures and options in oil to only those who would take delivery.

Whether that would result in a monopoly, I don’t know. The idea was that the people causing part of the spike in prices were speculators as opposed to users. As in, hedge funds, etc. It appeared to me that the end users might have some better idea of what the actual ebb and flow of oil was, is and will be, than someone who is simply playing the market and driving prices up.

I don’t pretend to know and understand the market for futures and options; I am still trying to learn trading stocks.

I am not trying to take anyone on; simply asking.
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Speculators cannot and do not drive up the market. If they could do that, then every speculator would make a profit. But that’s not how the market works – for every dollar someone makes in profit, someone (another speculator) else takes a dollar loss.

Some in Congress are blaming speculators – to deflect blame from themselves.
 
josephdavid said:
Some one tell me how that would produce a monopoly? We currently have a 640 % increase in oil prices. Yes war, demand from Chinda and India have alot to do with it, but even George Soros and others have said that investment banks such as Morgan Stanley have much to with it also.

So what is wrong having some checks and balances in the system which will prevent hyperinflation which drastically affect the poor.
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Precisely what checks and balances are you talking about? Tell us what they are and how they will make things better.

If we want lower oil prices, we have to get more oil – that’s a simple fact.

There is plenty of oil in the US – in places where we can’t drill for it.
 
vern_humphrey said:
Some in Congress are blaming speculators – to deflect blame from themselves.
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To soley blame speculators for this is ridiculous. They are just taking advantage of the market. It is their fault they deregulated that segment of industry! I love how these politicians (Democrat of Republican) go after ONE source of the problem and not look at the entire picture.

Do speculators have some cause of this? Yes, as I pointed out in the article above. However, it is demand versus supply (although our supplies are up and our usage is down over last year). WE all have to blame on this situation!
 
vern_humphrey said:
Precisely what checks and balances are you talking about? Tell us what they are and how they will make things better.

If we want lower oil prices, we have to get more oil – that’s a simple fact.

There is plenty of oil in the US – in places where we can’t drill for it.
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Perhaps certain commodities which are sensitive to the poor such as oil and food should be limited to those who can take delivery not to fund a pension.
 
josephdavid said:
Some one tell me how that would produce a monopoly? We currently have a 640 % increase in oil prices. Yes war, demand from Chinda and India have alot to do with it, but even George Soros and others have said that investment banks such as Morgan Stanley have much to with it also.

So what is wrong having some checks and balances in the system which will prevent hyperinflation which drastically affect the poor.
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The price increase is about 300%, the futures are up 640% leading people to say either price will double or the speculators will loss big money. That is checks and balances. If we restrict the market to only government approved buyers then the largest or a few large approved buyers can at will manipulate the market.
josephdavid said:
here is a good read from reliable source:

bloomberg.com/apps/news?pid=20601109&sid=aboqiSz1AZm4&refer=news
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The article indicates a fall in commodities will probably occur, at no time does it call for government to run the market. It hints at tough times because the (falling dollar) money markets are in trouble, real estate is in trouble, and stocks have been flat so where is a money manager to go?
 
josephdavid said:
To soley blame speculators for this is ridiculous. They are just taking advantage of the market. It is their fault they deregulated that segment of industry! I love how these politicians (Democrat of Republican) go after ONE source of the problem and not look at the entire picture.

Do speculators have some cause of this? Yes, as I pointed out in the article above. However, it is demand versus supply (although our supplies are up and our usage is down over last year). WE all have to blame on this situation!
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“Speculators” play no role in prices. As I pointed out, for every dollar a “specultator” makes in the market, another “speculator” loses a dollar. If “speculators” could drive the market, they’d all be winners.

The people who are driving this market are producers (who aren’t putting enough oil on the market) and consumers (who are bidding against each other for the available oil.) This is compounded by the short-sighted policies of the US Government, in limiting oil exploration and drilling in the United States and off our shores.
 
vern humphrey;3812600........:
.The people who are driving this market are producers (who aren’t putting enough oil on the market) and consumers (who are bidding against each other for the available oil.) …
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Price is where “producers” met “demand”. Producers are really suppliers and have been facing a continuous loss in easily pumped oil. While “demand” (customers) are continuing to desire more oil. Price is the market managing the condition. Speculators believe today’s price will go up or down and put money up to prove it. If they are correct they make money if they are incorrect they lose money.
 
vern_humphrey said:
“Speculators” play no role in prices. As I pointed out, for every dollar a “specultator” makes in the market, another “speculator” loses a dollar. If “speculators” could drive the market, they’d all be winners.

The people who are driving this market are producers (who aren’t putting enough oil on the market) and consumers (who are bidding against each other for the available oil.) This is compounded by the short-sighted policies of the US Government, in limiting oil exploration and drilling in the United States and off our shores.
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The problem is with the word “speculators” is that what the media is talking about is investors in the market purchasing oil and other commidities then selling them at higher profit. Fueling the high prices (not sole reason but part of the reason, there are others for the cause of high commidities).

That is why I posted the Bloomberg report earlier.
 
There are 3 principal applications for the energy derivative markets:
1)Risk Management (“Hedging”)
2)Speculation (“Trading”)
I3)nvestment Portfolio Diversification
 
josephdavid said:
The problem is with the word “speculators” is that what the media is talking about is investors in the market purchasing oil and other commidities then selling them at higher profit. Fueling the high prices (not sole reason but part of the reason, there are others for the cause of high commidities).

That is why I posted the Bloomberg report earlier.
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Ah. What prevents other people from doing what these supposed “speculators” are doing? How is it only** they** can purchase oil and other commidities then sell them at higher profit?

In fact, the United States Government purchases and stores oil in the Strategic Reserve. So does that make the government a “speculator?”
 
josephdavid said:
There are 3 principal applications for the energy derivative markets:
1)Risk Management (“Hedging”)
2)Speculation (“Trading”)
-]I3)nvestment Portfolio Diversification/-]
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Diversification is hedging just on a smaller less direct method.

In a large direct method you have the umbrella manufacture buying sun tan lotions stock and vise-versa. In diversification you simply buy a little of many different things and thus you move with the market not a specific stock. Speculators can only effect the price of the*** future*** by being a supplier (selling) or a demander (buying) they cannot effect the price of delivered oil or gasoline as they do not supply nor demand the product.
 
Texas_Roofer said:
Diversification is hedging just on a smaller less direct method.

In a large direct method you have the umbrella manufacture buying sun tan lotions stock and vise-versa. In diversification you simply buy a little of many different things and thus you move with the market not a specific stock. Speculators can only effect the price of the*** future*** by being a supplier (selling) or a demander (buying) they cannot effect the price of delivered oil or gasoline as they do not supply nor demand the product.
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Exactly!

Only the producer (seller) and the** consumer** (buyer) can affect the prices.
 
Texas_Roofer said:
Diversification is hedging just on a smaller less direct method.

In a large direct method you have the umbrella manufacture buying sun tan lotions stock and vise-versa. In diversification you simply buy a little of many different things and thus you move with the market not a specific stock. Speculators can only effect the price of the*** future*** by being a supplier (selling) or a demander (buying) they cannot effect the price of delivered oil or gasoline as they do not supply nor demand the product.
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Is that not what Speculators doing? Purchasing Oil Futures (thus the term sometimes used Futures Market) at a price. But if everyone is buying into it the price for those futures goes up.
 
vern_humphrey said:
Precisely what checks and balances are you talking about? Tell us what they are and how they will make things better.

If we want lower oil prices, we have to get more oil – that’s a simple fact.

There is plenty of oil in the US – in places where we can’t drill for it.
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I’m not a NIMBY person, I’ve said for years that I want a power plant in my backyard because I hate having my power go out. It wouldn’t offend my delicate sensibilities to see oil riggings off the American coastline. If I really believed it would solve the problem, I’d be all for it.

We have, at most, 2 years supply of oil in ANWAR, and that’s only if we keep all of it within our borders. I believe that to be unlikely, because whichever company takes it out of there is going to sell it for the highest price available-which may not be paid by the US.

Domestic oil is a bandaid-not a solution.
 
josephdavid said:
Is that not what Speculators doing? Purchasing Oil Futures (thus the term sometimes used Futures Market) at a price. But if everyone is buying into it the price for those futures goes up.
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Speculator are buying pieces of paper. That piece of paper entitles them to buy a quantity of a commodity at a specified price at a later date.

If, at the expiration date, the open market price of the commodity is higher than the price the speculator has agreed upon, he can buy at the lower price on his piece of paper and sell at the higher price and make money.

But if the open market price of the commodity is lower than the price the speculator has agreed upon, he must buy at the higher price on his piece of paper and sell at the lower price and he** loses **money.

For every dollar a speculator makes, another speculator loses a dollar. Speculators cannot control prices!!
 
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