Wikinvest Wire

Guilty, until proven innocent

Sunday, July 13, 2008

There's a new website available for those who prefer to "shoot first and ask questions later" when it comes to speculation in crude oil futures markets. Like many other complex issues of the day, simplistic Bill O'Reilly solutions seem to be the most popular.
As is the case for many others who desperately want to "ban the speculators" so we can all go back to life as we once knew it, which consisted of an endless supply of cheap energy, the organizers of this website exhibit a fundamental lack of understanding about how commodity markets work:

Speculators in these markets are increasingly buying and selling commodities such as oil to sell again, rather than to use. As largely unregulated speculators pocket billions of dollars at your expense, the price of commodities has increased out of proportion to marketplace demands.
As speculators continue to dominate the market, the volume of oil traded “on paper” has been as high as 22 times greater than the volume of oil consumed.
Today, as many as 90 percent of all commodities trades occur outside of the traditional marketplace exchanges. In these so-called “Swaps trades”, parties secretly buy and sell commodities with absolutely no one watching. This means speculators can manipulate oil prices and corner the market without anyone knowing.
If only it were that simple.

Hopefully, saner heads will prevail and perhaps some enterprising young economist will follow in the footsteps of the popular book Freakonomics to expose the extraordinarily high correlation between IQ and the zeal with which individuals want to ban speculators from oil markets.

See this Wall Street Journal story($) for a more balanced reaction.


This week's cartoon from The Economist:
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little larry sellers said...

It's interesting to see the O'Reilly-esque talking heads overtly targeting wealthy investors. When did regular attacks on the rich become part of the playbook?

As for oil, how could anyone be surprised that investors use it as a hedge against Fed insanity? Earlier this year, the Fed slashed rates and pumped huge liquidity into the economy again. No sane investor would want to hold dollars in that environment, and other commodities like gold can be risky since central bankers are able to manipulate it to some extent. Voila, oil becomes the most logical shield to ward off dollar inflation and central bank interference.

The picture used in this ad cracks me up... you can almost hear the director yelling at the woman in the green shirt on the left to look more hurt. Is that the saddest face she can muster?

Dan said...

Blame Canada.

Anonymous said...

I adblocked that image before I knew it was the subject of a post. Silly me. It's not the speculators, world consumption is increasing twice as fast as demand destruction in our USA. That, coupled with depletion, pretty much seals our fate. Buy a scooter.

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