In contrary to what you read, see and hear, higher oil prices has little to do with “Speculators” and here’s why: Oil trading is a zero sum game (one winner, one loser). Let’s assume I am convinced that oil prices will go higher. In fact I’m so sure that I’m willing to bet my own money on it. Unfortunately I won’t make a dime unless I find a someone willing to take my bet, also known as a contract. The only party willing to enter this contract is also a “speculator” …..but one who doesn’t believe oil prices will rise. At the expiration of the contract there will be one winner and one loser (a zero sum game).
The more important question is why? Why are brokers, traders, and hedge funds so bullish on oil? Simply put; monetary policy and Middle East tensions. Monetary policies in the US, Japan and Europe are simple: Print More Money. Printing money keeps interest rates low, helps stocks rise but also makes commodities more expensive. Remember, when more dollars are available to buy the same good, the price (demand ) for the good rises, aka oil, gold, and others. Add possible supply disruptions from the Middle East and who wouldn’t be bullish on oil. No one knows how high prices can rise and I’m not saying that speculators do not impact current prices….they do…but speculators tend to drive the prices only slightly higher on the way up and slightly lower on the way down. Bottom-line, remember that one way to ease the pain of higher prices at the pump is to invest in oil.
As always I expect plenty of attacks and insults from the usual suspects, all I ask is you keep it clean.