I've prepared this primer for those that look at the price of gas -- and by association, the price of groceries, utilities, i.e. the cost of living -- and shake their heads.
The current bet is the unrest in the Near/Middle East, especially in Libya, from which we get about 2% of the oil we use in the world.
I offer this "what if": what if we all carpooled as a nation, and - for say, 4 drivers - drive our cost of gas to 1/4 the price we pay? The actual timeline of the Montgomery Bus Boycott was three years.
Unfortunately, in a mircowave "I want it now" society, I wonder if we'd have the organization or the patience to see such an action through?
Like the buslines of a bygone era, the speculators will relent when they start losing money...
***********
What speculators do is bet on what price a commodity will reach by a future date, through instruments called derivatives. Unlike an investment in an actual commodity (such as a barrel of oil), a derivative's value is based on the value of a commodity (for example, a bet on whether a barrel of oil will increase or decrease in price). Speculators have no hand in the sale of the commodity they're betting on; they're not the buyer or the seller.
By betting on the price outcome with only a single futures contract, a speculator has no effect on a market. It's simply a bet. But a speculator with the capital to purchase a sizeable number of futures derivatives at one price can actually sway the market. As energy researcher F. William Engdahl put it, "[s]peculators trade on rumor, not fact."
Investment firms that can influence the oil futures market stand to make a lot; oil companies that both produce the commodity and drive prices up of their product up through oil futures derivatives stand to make even more. Investigations into the unregulated oil futures exchanges turned up major financial institutions like Goldman Sachs and Citigroup. But it also revealed energy producers like Vitol, a Swiss company that owned 11 percent of the oil futures contracts on the New York Mercantile Exchange alone [source: Washington Post].
As a result of speculation among these and other major players, an estimated 60 percent of the price of oil per barrel was added; a $100 barrel of oil, in reality, should cost $40 [source: Engdahl]. And despite having an agency created to prevent just such speculative price inflation, by the time oil prices skyrocketed, the government had made a paper tiger out of it.
Link: How Stuff Works - How Does Oil Speculation Raise Gas Prices?
No comments:
Post a Comment