I honestly don't believe that oil speculation is a significant portion of the price, rather, I think it is mostly due to supply and demand imbalances.
However, I do have to point out a fallacy in this article's assumptions:
The truth is that speculation in oil futures adds almost nothing to the price of oil because futures trading is a zero sum game. It is like a poker game in which money is won only by others loosing. At the end of the game the same amount of money is on the table; it has merely changed hands.
Although, he is correct is stating that oil future trading is a zero sum game, he then goes on to jump to the conclusion that "the same amount of money is on the table". That is incorrect. Actually, we have seen tremendous money flows out of other sectors and into commodities trading over the last 8 years. Specifically, money flows into oil futures has increased. What props up stock prices is in part a money flow demand for futures measured against futures supply, which is anchored to the underlying supply of the commodity. As such, when we see alot of money moving out of other sectors to buy up oil futures, then that actually DOES lead to large price increases in the price of oil futures. His article seems to ignore this impact.
Now, I don't have the data to calculate the percentage of the current oil price that can be attributed to net money flows into oil futures markets, but I would bet there is a statistically significant impact, even if it is a small one. |
