Forum Post: Oil speculators cant drive up the cost of oil, huge deficits drive up oil
Posted 12 years ago on March 6, 2012, 7:52 a.m. EST by aflockofdoofi
(-18)
This content is user submitted and not an official statement
Oil speculation is basically gambling. The only way an investor can place a bet (futures contract) on oil is if another investor (gambler) sells a contract. Anyone who sells a contract thinks oil is staying flat or going down.
This post denotes a total lack of experience or understanding of how the markets work, and specifically, how "professional" traders think. The same so-called "experts" also tanked the housing market by bundling prime and sub-prime mortgages into the same vehicles that ratings agencies were paid off to tout. Then they blamed Fannie and Freddie for giving them all that prime paper to cut with their sub-prime powder as though Freddie and Fannie weren't legally restricted from lending to sub-prime borrowers. Treason in a nutshell.
The dollar is up about 6% since a year ago:
http://www.bloomberg.com/quote/DXY:IND
So obviously dollar value is not the primary cause for the recent spike in oil prices.
Ideally, money growth should correspond with the equation of exchange:
MV = PQ
M = the total nominal amount of money in circulation
V = velocity of money (the average frequency a unit of money is spent)
P = the price level, and
Q = the index of real expenditures (on newly produced goods and services)
http://en.wikipedia.org/wiki/Equation_of_exchange
If, for example, velocity of money remained constant, and the index of expenditures were increasing, we would have deflation (so under normal conditions, we need money supply growth in tandem with economic growth). If, however, we have money supply growth without corresponding economic growth, then we get the inverse, inflation.
However, the idea that money growth automatically results in inflation, is not true.
It is mathematically impossible to artificially drive up oil prices thru speculation. On each side of a speculative trade there is a buyer and seller. It isnt an expert at Goldman Sachs selling to Grandma Moses, its a GS guy trading with a Credit Suisse guy who sells to a Deutsche Bundsbank guy who buys from a ChinaBank guy.
they are are experts.
Where did I say a word about speculation? Not that I would trust the guru's at Goldman Sach's when they make comments implying the benign character of things they're making money on, but anyway. What you implied is demonstrably impossible. You implied oil prices are going up because we're weakening the dollar through creation of more money, when I showed that during this period of rising oil prices, dollar value has been increasing (not shrinking).
So what is the cause? In anticipation of oil supply disruption, countries and companies are simply buying more oil; so it's a simple supply & demand issue. However, speculation is a factor. Speculators make future predictions regarding demand, and they attempt to calculate the risk of supply disruption, so naturally they can influence price.
If you want to believe the guru's of Goldman Sach's on this issue, great, I have a bridge in Brooklyn for sale, you interested?
They are experts in the particulars of moving money around large financial institutions. They are amateurs when it comes to geopolitics. They react to every bit of info with wild mood swings. They are emotional and reactionary and hyped up on cocaine. They are not sober experts in the ways of the world. You really have no idea how anything works whatsoever.
2 points by MattLHolck (5563) 1 day ago
I understand oil is up due to speculation
that Iran might close the strait of Hormuz
in retaliation for western economic sanctions
.
Iran haven't
oil has rising due to speculation
[-] 1 points by pewestlake (155) from Brooklyn, NY 21 hours ago
Iran will never, repeat never, close the Straight of Hormuz, for three reasons: 1) they need the money; 2) China and Russia need the oil; 3) they don't have the firepower to sustain a blockade of the entire waterway. The speculators aren't very smart about the geopolitics of the world. They just know a sucker in the making. And that's where the gyrations come from.
Naked Short Selling. http://en.wikipedia.org/wiki/Naked_short_selling
We can now sell stuff we don't even own! The system is a rigged casino. See; http://www.zerohedge.com/
Saber rattling is the trigger. Then people run on emotion and make bad decisions.
Can you say "leverage"? Deficits do drive up the price of oil, too, as well as wars or saber-rattling at oil producing nations (Iran, Iraq, Syria, Libya, Saudia Arabia).
And I thought Obama could fix that. I thought he was powerful.
so do you just pretend to be oblivious to how are system works, or is you really that ill informed? A president in a republic like ours is as powerful as his senators and house members allow him to be, duh. He is a president, not a king. Maybe you need to move to a totalitarian state where the man on top has all the power you believe our president should have.
So when he claims he can do all these things,,, really he lied and he cant do ANYTHING unless congress lets him? Why did he say he could fix the economy if he cant? You think,,,,,, he lies????? Come on,,, not him...
You name a president that has done everything he said he would do, and I'll show you a liar talking out of his ass.
I understand. I guess that is why the economy is STILL in worse shape, GITMO is still open, the Patriot Act was re-signed, there was yet ANOTHER war, on and on and on.
Yeah, I hear you. The average American politician is a blood thirsty capitalist. Are you just now realizing this? I've always thought of Congress as a sample of the American population. And after spending a couple of months on this forum, I have begun to believe my preconceived notions are right. It easy to blame others for our nation's rabidity, but it is our system that creates those blemishes you mention.