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Over the long term, how does speculation affect the price of oil?
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.
4 Answers
- YardbirdLv 51 decade agoFavorite Answer
You're right about the long term, but short term can be a lot longer than you think! As long as the speculators are making money, they will keep speculating, but at some point the larger market forces prices back to the level set by real supply and demand.
So while you're right, in the short term we are all getting screwed out of beaucoup bucks!!
- ?Lv 45 years ago
I'm always curious why Americans are so quick to embrace "government regulation" as a solution instead of the problem. In stead of viewing the regulation of yet another business sector as the solution, in the case of oil prices and the prices of almost everything, perhaps it is government regulation which is the problem. It is a fact that increased regulations increase the cost of doing business, and in many instances has forced businesses out of the United States, which results in passing those costs on to consumers. So NO, I would not regulate oil speculation because speculation is just that, it is not a driver of prices. Regardless of how badly people want to change the fundamental principles of economics, i.e. Supply & Demand, dictate prices.
- Anonymous1 decade ago
I tend to agree with you - I do think that speculation makes the market a lot more volatile which I guess is just what speculators want - therein lies the opportunity for short term profits.
- Anonymous1 decade ago
it drives up the price.
