There are two different markets. A) Equity or asset market such as NY stock exchange that deals with companies produce oil or are in some oil related field. B) The commodity market which deals the actual products such as oil gasoline, corn, wheat, sugar, and so on based on supply and demand.
If you buy stock in oil companies then you are buying their risk and rewards. On average, the reward has been only 10% profit.
If you are a “player” in the commodity market then you are only buying and selling the product. Lets say Mobil needs rise money. They need to sell one barrel of oil but that barrel is still in the ground and and it will take three months to get it out. You, as a “player”, buy a contract for $100.00 for that barrel and will take delivery three months now. You, the player, have no intention of taking delivery, you are going to sell your barrel to highest bidder before your contract expires in three months. At this point, due to supply and demand, your barrel could be worth $120.00 or $80.00. Now, Mobil oil makes gasoline and will buy that barrel oil back from you. At $120.00 per barrel, higher price at the pump. At $80.00 per barrel lower price at the pump. For every trade on the commodity market you have “player” making money and a “player” losing money.
So a source of the problem is that people are bidding up the price of oil. So why then, do I as a person, or any other entity have the right to buy oil on the commodities market? This is hurting people that just want to buy gas for our cars and buy oil to consume whether they are a company or an individual.
Why not just have the oil go from the producers to the refinement and distribution companies and then they sell that oil based on supply and demand. The way it is now, we have an unnecessary middle man making money off of us and my question is why do they have that right when this artificial demand is driving up the price of gas?
These speculators are creating a market that is separate (ie, artificial demand that has nothing to do with how much oil people need for energy). Isn’t it easy to speculate that the prices will go up when the commodities trader himself is the one driving those prices up. Of course it’s going to go up because they are going to make it go up. They are going to ride it out at our expense until they are forced somehow to stop.
Like you said, the speculators could lose money too but they aren’t going to because it’s not real demand (ie.. our demand as a consumer product), but rather their own demand for the oil as a commodity to invest in.
In a scenario where a supplier sells a barrel of oil in 3 months from now for $120 a barrel because there are these commodities investors creating artificial demand, that same barrel of oil could have been sold to the refinement and distribution company for $100 a barrel. So in this scenario, the price at the pump would be 20% less. 20% of the cost of a gallon of gas goes to make the commodities investor rich, not to pay for the actual price of oil). Why??????
Why do these people need to do this? Why can’t they go and invest in something else? Oil is too important both to the overall health of our economy and our national defense. Just consider how much the AF alone uses in jet fuel.
If I as a person went and bought an oil future for 6 months from now for $150 a barrel, I would be hoping that the going price in 6 months is more than $150 per barrel. That would be a risk, but when the people by and large buying the oil as a commodity are buying enough that they can gamble on and then CAUSE the price increase, it’s really not a gamble at all.