Niel Cavuto oopsie on speculation on commodities

[RGacky3]

http://www.huffingtonpost.com/ed-schultz/the-truth-about-commodity_b_833561.html

I love this, he's expecting these people to rail against taxes as the reason for price hikes, yet the people in the know realize its speculation, and Neil just ignores it, this is what happens when fox screws up its great to see.

[Skooma Addict]

Well ultimately oil prices are going up due to the events in the middle east. However, obviously speculators are driving prices up. Everyone should know this. However, this is healthy and it is good that speculators are doing this.

Want to lower oil prices today? If the government simply announces that it will allow drilling in areas currently forbidden, that will lower today's prices.

Taxes don't help though.

[RGacky3]

Want to lower oil prices today? If the government simply announces that it will allow drilling in areas currently forbidden, that will lower today's prices.


would it really? How? If the oil companies don't have to lower prices they wont.


However, obviously speculators are driving prices up. Everyone should know this. However, this is healthy and it is good that speculators are doing this.


Whats healthy about it? How is this good?

[Skooma Addict]

would it really? How? If the oil companies don't have to lower prices they wont.

Speculators are anticipating the future price of oil to rise, which is why they are raising today's prices. Were such an announcement as I described made, the anticipated future price of oil would lower, thus lowering today's prices.

That is how speculation works. If people think commodity X will be worth a lot in the future, they will pay higher prices for it today, in the hopes of making an even larger profit in the future.


Whats healthy about it? How is this good?


They hasten the market towards equilibrium.

[RGacky3]

Speculators are anticipating the future price of oil to rise, which is why they are raising today's prices. Were such an announcement as I described made, the anticipated future price of oil would lower, thus lowering today's prices.


Speculators are not only anticipating the price to raise, they are MAKING the price raise, by creating fake demand.

Oil production is at an 18 year high, so suppply has nothing to do with it. People speculating are CREATING the price hike, its what happened with the food market, the prices were inflated artificially.


That is how speculation works. If people think commodity X will be worth a lot in the future, they will pay higher prices for it today, in the hopes of making an even larger profit in the future.


With the amount of money these guys are throwing around the speculation is not just speculation, its market control.


They hasten the market towards equilibrium.

Are you high? What equilibrium? Its not even real demand, look I'm looking at this from a market pespective (where demand is measured by dollars not people) even then, speculation does'nt move toward market equilibrium (which is a bullshit concept anyway).

[Skooma Addict]

Speculators are not only anticipating the price to raise, they are MAKING the price raise, by creating fake demand.

Oil production is at an 18 year high, so suppply has nothing to do with it. People speculating are CREATING the price hike, its what happened with the food market, the prices were inflated artificially.

Yes, speculators are "creating" a price increase. This is good as it lowers price fluctuations in the long run. Also, as I said, it hastens the market towards equilibrium.



With the amount of money these guys are throwing around the speculation is not just speculation, its market control.

Most speculators are just day traders operating on their computers with small sums of money. Also, the vast majority of speculators end up losing money (which is why I sell options to speculators and play the odds to my advantage). So there is no market control going on.


Are you high? What equilibrium? Its not even real demand, look I'm looking at this from a market pespective (where demand is measured by dollars not people) even then, speculation does'nt move toward market equilibrium (which is a bullshit concept anyway).

It isn't that hard to understand.

[Revolution starts with U]

This is only "good" in "the margins." That's why market theory pisses me off. Because that margin actually means something, usually somehow fucking the poor in favor of the rich.
It's only "good" to create artifical prices if one can afford the cost at (nearly) any price. For the rest of the world (the other 90% [top [email protected] in america starts in the 100s of thousands) it sucks.
For 5 years now gas prices have sky rocketed over the summer merely because of speculation (BTW, I personally have known, and my local radio stations have been saying that gas prices would shoot up to over $4-5 since long before the situation in the mid east... which we dont even get much of our gas from FFS... that whole explanation is completel BS). When will this "in the long run" happen?
That's what the market apologists have been saying for years; in the long run, at the margins, blah blah... but it never pans out. The rich get richer, the poor get poorer. Society slowly sinks back into the dark ages.

[ÑóẊîöʼn]

Yes, speculators are "creating" a price increase. This is good as it lowers price fluctuations in the long run. Also, as I said, it hastens the market towards equilibrium.

Clearly you live in a fucking bubble of some kind, since my cost of living has only been increasing, never decreasing. This is mainly due to increases in the price of food, which is affected by oil prices, which incidently have also been on a constantly upward trend since 2000, despite hiccups:

http://1.2.3.12/bmi/upload.wikimedia.org/wikipedia/commons/thumb/0/0f/Brent_Spot_monthly.svg/1000px-Brent_Spot_monthly.svg.png

Speculation is just one in a long line of economic and financial hatfuckery where people with the money to spare treat the markets like their own personal fucking slot machine, while people with real jobs or genuinely useful skills struggle to adequately feed themselves.

These parasites don't make or build anything, they don't provide a service that would make sense outside the context of the capitalist price system, in short they are a bunch of besuited leeches, living off the manifold loopholes and side-effects of the current socio-economic system.

They should burn alongside the bankers!

[RGacky3]

Yes, speculators are "creating" a price increase. This is good as it lowers price fluctuations in the long run. Also, as I said, it hastens the market towards equilibrium.


HOW DOES IT LOWER PRICE FLUCTUATIONS??? How does it hasten the market towards equilibruim???

YOur just making shit up.


Most speculators are just day traders operating on their computers with small sums of money. Also, the vast majority of speculators end up losing money (which is why I sell options to speculators and play the odds to my advantage). So there is no market control going on.


Most speculators are not the issue, the most powerful speculators are, the big ones, they are the ones that can control the market. Hell, Goldman sachs pretty much created the food crisis of 2007.


It isn't that hard to understand.

Then it must'nt be to hard to explain, go ahead, how does it lead to equilibrium?

[Skooma Addict]

To quote Rothbard


Suffice it to say, in summary, that, in so far as
the equilibrium price is anticipated correctly by speculators, the demand and
supply schedules will reflect the fact: above
the equilibrium price, demanders will buy less than they
otherwise would because of their anticipation of a later
drop in the money price; below that price, they will buy more
because of an anticipation of a rise in the money price. Similarly,
sellers will sell more at a price that they anticipate will
soon be lowered; they will sell less at a price that they anticipate
will soon be raised. The general effect of speculation is to make
both the supply and demand curves more elastic, viz., to shift
them from DD to D′ D′ and from SS to S′ S′ in Figure 37. The
more people engage in such (correct) speculation, the more
elastic will be the curves, and, by implication, the more rapidly
will the equilibrium price be reached.
We also saw that preponderant errors in speculation tend inexorably
to be self-correcting. If the speculative demand and
supply schedules (D′ D′ – S′ S′ ) preponderantly do not estimate
the correct equilibrium price and consequently intersect at
another price, then it soon becomes evident that that price does
not really clear the market. Unless the equilibrium point set by
the speculative schedules is identical to the point set by the
schedules minus the speculative elements, the market again
tends to bring the price (and quantity sold) to the true equilibrium
point. For if the speculative schedules set the price of eggs
at two grains, and the schedules without speculation would set
it at three grains, there is an excess of quantity demanded over
quantity supplied at two grains, and the bidding of buyers
finally brings the price to three grains

I can't find a graph on the internet but basically d', s' (the post speculation demand/supply curves) are more elastic than d, s and they all intersect at the same point.

Also this short article is pretty good

http://frank.mtsu.edu/~jee/pdf/volpefall04.pdf

From the article...

Speculation is a calculated business risk with the expectation of profit through the exploitation of price volatility. Professional speculators are essential in providing liquidity and efficiency to financial markets. They help allocate economic resources to their best uses through the art of buying and selling financial assets and, by their volume of trade, provide liquidity to the markets. This allows firms to hedge away risk and helps to lower the cost of capital, thereby facilitating economic growth and improving the capital formation process. It is the speculator who warns investors of weaknesses in markets and provides financial discipline throughout the world by forcing financial law and order through pricing. Perhaps the most positive impact speculators have on the capital formation process is the ability to place checks on governmental policy through the buying and selling of currencies and bonds, thus preventing inflationary excesses. Speculation does not come without dangers. Proprietary traders with large sums of capital can engage in trades so complex that it is possible to bring down entire economies as well as their own empires. Therefore, it is the responsibility of professional speculators, who claim to be regulators of fair pricing, to monitor their actions and be cautious not to wreak havoc on themselves and other
members of society.

[Skooma Addict]

Clearly you live in a fucking bubble of some kind, since my cost of living has only been increasing, never decreasing. This is mainly due to increases in the price of food, which is affected by oil prices, which incidently have also been on a constantly upward trend since 2000, despite hiccups:

http://1.2.3.12/bmi/upload.wikimedia.org/wikipedia/commons/thumb/0/0f/Brent_Spot_monthly.svg/1000px-Brent_Spot_monthly.svg.png

Speculation is just one in a long line of economic and financial hatfuckery where people with the money to spare treat the markets like their own personal fucking slot machine, while people with real jobs or genuinely useful skills struggle to adequately feed themselves.

These parasites don't make or build anything, they don't provide a service that would make sense outside the context of the capitalist price system, in short they are a bunch of besuited leeches, living off the manifold loopholes and side-effects of the current socio-economic system.

They should burn alongside the bankers!

The vast majority of speculators hold other jobs. The service provided by speculators would still be something a non capitalist would want to be provided in a different economic system.

I also make money off speculators, so that is another reason not to get rid of them.

[RGacky3]

Heres why thats bullshit:

When speculators make their bets their bets affect the market, which in turn effect the supply and demand, when prices rose in the food crisis, they did'nt go back to some magical "market equilibrium," because the "market" at that point was set, by the speculators.

Your assuming supply and demand are the ultimate deciders of price, its not, when speculators raise the prices so will suppliers, for a thing like food demand is basically consistant, same with oil, infact most comodities are like that.

When Speculators buy futures then hedge against them they are basically insuring a financial collapse.

What speculators do is drive up prices even when supply and demand are static, which then distorts both of them.

I'm not talking about a dude with an e-trad account, I'm talking about goldman sachs, morgan stanley, citigroup and so on.


The vast majority of speculators hold other jobs. The service provided by speculators would still be something a non capitalist would want to be provided in a different economic system.

I also make money off speculators, so that is another reason not to get rid of them.

THe vast majority of speculative money is not held by the vast majority of speculators, its held by big time investment firms, not dudes with day jobs.

In a non capitalist world they'd call that economic planners.

Everyone that has money in a bank is making money of speculators (not really but in theory).

[RGacky3]

Do you get why its easy to bluff someone when you have a huge stack of chips BTW?

When you bluff someone your creating artificial value.

Its almost assured in capital markets.

[inyourhouse]

Speculation is efficient because it smoothes prices, production and consumption over time. Indeed, I think that because of speculation the current price of oil is actually lower than it would otherwise be. For speculators to increase the spot price of oil requires the accumulation of oil inventories in order to sell oil for a higher price in the future. For speculators to decrease the spot price of oil requires the opposition: drawing down oil inventories in order to avoid having to sell oil for lower prices in the future. What has actually happened? Well, the spot price of Brent crude oil (http://tonto.eia.doe.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RBRTE&f=D) hit a trough of $33.73 in late December, 2008, but the price had risen by 233% to $112.20 as of February 28th, 2011. To calculate what happened to world oil inventories I used the data provided by the EIA in their Short Term Energy Outlook (http://www.eia.doe.gov/emeu/steo/pub/cf_tables/steotables.cfm?tableNumber=6&loadAction=Apply+Changes&periodType=Monthly&startYear=2008&endYear=2011&startMonth=12&startMonthChanged=true&startQuarterChanged=false&endMonth=2&endMonthChanged=true&endQuarterChanged=false&noScroll=true) publication. I simply subtracted total world consumption from total world production, which by definition is the change in world inventories. I graphed the results:

http://img683.imageshack.us/img683/1263/oilinventoriesmonthly.png

http://img859.imageshack.us/img859/7043/oilinventoriescumulativ.png

The first graph shows the monthly change (millions of barrels) in crude oil inventories. A positive number means production was greater than consumption, so inventories increased. A negative number means the opposite. As you can see, in some months inventories increased (ie. speculation led to a higher a price of oil than would otherwise be the case), while in other months inventories decreased (ie. speculation led to a lower price of oil than would otherwise be the case). The second graph shows the cumulative change (millions of barrels) over the whole period - that is, the change in December 2008, plus the change in January 2009, plus the change in February 2009, etc. What we see is quite interesting. From June 2009 to May 2010, speculators were accumulating inventories and thus pushing up the price of oil (relative to what it would otherwise be), but from May 2010 to the present, speculators have actually been drawing down inventories and thus decreasing the price of oil (again, relative to what it would otherwise be).

The implication of all this is that the large increase in the price of oil since December 2008 has been driven by current consumption growing faster than current production. More importantly for the purposes of this topic, it seems that speculation has been beneficial in that it has helped smooth price fluctuations and is at this moment depressing the price of oil, contrary to what many people have been suggesting.

[Revolution starts with U]

You're forgetting one key thing in their that holds back production; OPEC, which deliberately holds back production in order to maintain artificially high prices. In light of that, you need to redefine your relationship of production to consumption.
I also don't see how you're saying it "smoothed prices out in the long run."


From June 2009 to May 2010, speculators were accumulating inventories and thus pushing up the price of oil (relative to what it would otherwise be), but from May 2010 to the present, speculators have actually been drawing down inventories and thus decreasing the price of oil (again, relative to what it would otherwise be).


This sounds like they were making prices more chaotic, rather than smooth. Higher at high times, lower at lower. Sure that seems smooth if your an oil futures trader. But the avg person buying gas, this is not "smooth" at all. Unless I misunderstand you on how the price fluctuating more wildly is actually smoother.... :rolleyes:

[inyourhouse]

You're forgetting one key thing in their that holds back production; OPEC, which deliberately holds back production in order to maintain artificially high prices. In light of that, you need to redefine your relationship of production to consumption.

I'm not sure I understand what you're saying. Yes, OPEC artificially limits production and thus increases the price of oil relative to what it would otherwise be, but what does that have to do with speculation? OPEC does this with the aim of getting a monopoly current price (or as close to it as it can get). This is not the same as speculation, although OPEC does speculate too. In any case, OPEC is a government cartel so I'm not really sure that it can be used as a criticism of free markets.


I also don't see how you're saying it "smoothed prices out in the long run."

This sounds like they were making prices more chaotic, rather than smooth. Higher at high times, lower at lower. Sure that seems smooth if your an oil futures trader. But the avg person buying gas, this is not "smooth" at all. Unless I misunderstand you on how the price fluctuating more wildly is actually smoother.... :rolleyes:

I think you have misunderstood what I mean. If we take a look at actual oil prices it might be a bit more clear:

http://img6.imageshack.us/img6/2613/oilspotprice.png

Now, as I said, over the period June 2009 to May 2010, speculators were accumulating inventories and thus pushing up the price of oil relative to what it would otherwise be. In other words, in the absence of speculation the price would have been lower in this period. Since May 2010, speculators have actually been drawing down inventories and thus decreasing the price of oil relative to what it would otherwise be. In other words, in the absence of speculation the price would have been higher in this period. If in the absence of speculation the price would have been lower in the previous period and higher in this period then mathematically the change in price in the absence of speculation would have been higher over both periods. In other words, speculation smoothed the price. The graph below illustrates this with a hypothetical price of oil (black line) absent speculation and you can see that the absolute change from trough to peak is larger over the combined period:

http://img846.imageshack.us/img846/269/oilspotpricehyp.png

I hope that explanation makes more sense.

[Revolution starts with U]

not sure I understand what you're saying. Yes, OPEC artificially limits production and thus increases the price of oil relative to what it would otherwise be, but what does that have to do with speculation? OPEC does this with the aim of getting a monopoly current price (or as close to it as it can get). This is not the same as speculation, although OPEC does speculate too. In any case, OPEC is a government cartel so I'm not really sure that it can be used as a criticism of free markets.



A market doesn't exist outside the legal and cultural norms in which it takes place. Let's talk about "free" (i.e. expensive and discriminatory) markets when that happens, and "free market capitalism" as it exists and has existed.
I think it's fallacious not to take this variable into account in your relationship of production/trade. I'm sure the speculators take it into account.


, as I said, over the period June 2009 to May 2010, speculators were accumulating inventories and thus pushing up the price of oil relative to what it would otherwise be.
So.. If A and X then >B (A = presence of speculators, X = rising price of oil, B1 = natural price)

Since May 2010, speculators have actually been drawing down inventories and thus decreasing the price of oil relative to what it would otherwise be. In other words, in the absence of speculation the price would have been higher in this period.
If A and Y then <B (Y = falling price of oil)

If in the absence of speculation the price would have been lower in the previous period and higher in this period then mathematically the change in price in the absence of speculation would have been higher over both periods. In other words, speculation smoothed the price.
Therefore, If not A and X/Y then >B
That logic seems a little fuzzy.
(A + X > B
A + Y < B
-A + X or Y >B)
Even mathematically I don't see how it follows.
1. You're using smooth wrong. You're clearly saying the price was more chaotic because of speculation, yet smoother. What you're trying to say is the price (possibly) remains lower over time despite the chaotic jumps. But that's not "smoother."
2. Your premise/conclusion is a false equivalency. Even if your conclusion is true, your premises do not lead to it.
3. A + X >B = -A +X >B

A is the presence of speculators, -A the absence, so it can be negative. But it can't be zero. In fact it has to be 1, as it denotes only 1 thing; speculators.
B is the natural price. There has to be a price, and it has to be positive... there not just giving the stuff away.
X/Y entail an existing market so they cannot be zero. X and Y have to be seen from their own perspective (Y != -X; the amnt risen is not necessarily equal to the amnt fallen) so neither of them can be negative.
None can be zero and A=1.

The math can work out, tho it is a little fuzzy. But what it is saying is that the price will always rise regardless of speculators. That makes sense if we take into account another variable you're leaving out; inflation. If you want to say that speculators keep the price lower over time, that may be true. But it doesn't follow from your premises.

[ÑóẊîöʼn]

The vast majority of speculators hold other jobs.

So do most other gamblers. If somebody wants to gamble, fine, but they should do it with stuff that is exclusively their own, and not be adding their own spin to the economy which we all have to live in, like it was some fucking roulette wheel at Monte Carlo.


The service provided by speculators would still be something a non capitalist would want to be provided in a different economic system.

Nonsense. When the concept of wealth is re-centred around actual resources rather than imaginary units with a fiat value, it would be foolish and immoral to allow some greedy fuckers to treat the resources of society as their personal casino.


I also make money off speculators, so that is another reason not to get rid of them.

No surprise there. Capitalism is a racket.

[inyourhouse]

A market doesn't exist outside the legal and cultural norms in which it takes place. Let's talk about "free" (i.e. expensive and discriminatory) markets when that happens, and "free market capitalism" as it exists and has existed.

Okay, well I would define a market without a government cartel as freer than one with a government cartel. Perhaps you disagree. Regardless, I find arguing over definitions and such to be fruitless because there is no objectively correct answer.


I think it's fallacious not to take this variable into account in your relationship of production/trade. I'm sure the speculators take it into account.

I'm still not sure how I'm supposed to "take it into account". The relationship I suggested was merely that production greater than consumption implies an increase in inventories and that consumption greater than production implies a decrease in inventories. Further, an increase in inventories raises the equilibrium price, while a decrease in inventories lowers it. This is all that's necessary to reach my conclusion. The actions of OPEC do not change the fact that speculators have been drawing down inventories and thus pushing down the price of oil over the past few months.


So.. If A and X then >B (A = presence of speculators, X = rising price of oil, B1 = natural price)

If A and Y then <B (Y = falling price of oil)

Therefore, If not A and X/Y then >B
That logic seems a little fuzzy.

I'm not even sure what you're saying to be quite honest. I'm saying that the change in price over the period is lower with speculation. Suppose there are two periods, 1 and 2. Period 1 is equivalent to the period June 2009 to May 2010. Let the price of oil in this period be A1. Let the hypothetical average price in the absence of speculation in this period be represented by H1. My argument was that by accumulating inventories in this period, speculators pushed up the price of oil relative to what it would otherwise be. In other words, A1 > H1. Now, period 2 is equivalent to the period May 2010 to present. Let the price of oil in this period be A2. Let the hypothetical price of oil in the absence of speculation in this period be represented by H2. My argument was that by drawing down inventories in this period, speculators pushed the price of oil down relative to what it would otherwise be. In other words, A2 < H2.

Now, the percentage change in actual price over the period is ((A2-A1)/A1)*100, while the percentage change in the hypothetical price in the absence of speculation is ((H2-H1)/H1)*100. Now, we know H2 is greater than A2 and we know that H1 is less than A1, so H2-H1 must be less than A2-A1. The numerator is therefore higher in the hypothetical price equation. Given that A1 is greater than H1, the denominator is lower in the hypothetical price equation. If the numerator is higher and the denominator is lower, then the actual value of the hypothetical price equation must be higher. Therefore, the percentage change over the whole period is higher in the absence of speculation. Do you understand what I'm saying now?

[Revolution starts with U]

Okay, well I would define a market without a government cartel as freer than one with a government cartel. Perhaps you disagree. Regardless, I find arguing over definitions and such to be fruitless because there is no objectively correct answer.

We're talking about speculation in the market; whether or not it is free. And you don't see how it's fallacious to disgard the existence of quasi-government cartel's effects on said market?
However you define "free market" IS irrelevant. That's what I'm trying to say to YOU. The market exists now with a government cartel, the same market the speculators act in. And you don't think the speculators are taking OPEC into account when they make their speculation? You don't think OPEC is taking the speculators into account?
You're basically just denying a fundamental part of the existing market because it's not oppressive enough for your liking. Do you not take the minimum wage into account when looking at unemployment rates?




I'm still not sure how I'm supposed to "take it into account". The relationship I suggested was merely that production greater than consumption implies an increase in inventories and that consumption greater than production implies a decrease in inventories. Further, an increase in inventories raises the equilibrium price, while a decrease in inventories lowers it. This is all that's necessary to reach my conclusion. The actions of OPEC do not change the fact that speculators have been drawing down inventories and thus pushing down the price of oil over the past few months.

It belies the deeper issues at work. OPEC does have an effect on the speculators, and they on OPEC.
Like I said, it's hard to comprehend your argument (speculators make the price more chaotic, therefore speculators make the price smoother). The conclusion that you're really trying to draw is not the above argument. Your conclusion is that speculators keep the price lower, but your coming at it from the argument that they make it smoother.


I'm not even sure what you're saying to be quite honest. I'm saying that the change in price over the period is lower with speculation. Suppose there are two periods, 1 and 2. Period 1 is equivalent to the period June 2009 to May 2010. Let the price of oil in this period be A1. Let the hypothetical average price in the absence of speculation in this period be represented by H1. My argument was that by accumulating inventories in this period, speculators pushed up the price of oil relative to what it would otherwise be. In other words, A1 > H1. Now, period 2 is equivalent to the period May 2010 to present. Let the price of oil in this period be A2. Let the hypothetical price of oil in the absence of speculation in this period be represented by H2. My argument was that by drawing down inventories in this period, speculators pushed the price of oil down relative to what it would otherwise be. In other words, A2 < H2.



Now, the percentage change in actual price over the period is ((A2-A1)/A1)*100, while the percentage change in the hypothetical price in the absence of speculation is ((H2-H1)/H1)*100. Now, we know H2 is greater than A2 and we know that H1 is less than A1, so H2-H1 must be less than A2-A1. The numerator is therefore higher in the hypothetical price equation. Given that A1 is greater than H1, the denominator is lower in the hypothetical price equation. If the numerator is higher and the denominator is lower, then the actual value of the hypothetical price equation must be higher. Therefore, the percentage change over the whole period is higher in the absence of speculation. Do you understand what I'm saying now?

I've understood what you were trying to get at from the beginning. What confused me was how you got to that conclusion. This makes far more sense. But again, this argument is saying speculators keep the price lower, not smoother.

Once again, again though; to the average person a more chaotic price is more destructive than a steadily inflating price as most of your expenses go into necessities; things you're always going to be spending the money on, despite the price. So regardless of the speculators possiblity of keeping the price lower, it still only works in the favor of those at the top.

[inyourhouse]

And you don't think the speculators are taking OPEC into account when they make their speculation? You don't think OPEC is taking the speculators into account?

Undoubtedly, but I still don't understand how I'm supposed to "take this into account". It doesn't affect my conclusion in any way at all as far as I can see.


Do you not take the minimum wage into account when looking at unemployment rates?

If I was making a model of unemployment, then yes, of course I would. However, if I was just giving a qualitative explanation of the effect of, say, a change in payroll taxes on unemployment then no I wouldn't "take into account" the minimum wage. All that matters for that explanation is the effect of a change in payroll taxes. The minimum wage doesn't come into it. In this case I'm looking at the effect of speculation because speculation is what we're analysing. If I was making a model of oil prices I would obviously look at all sorts of other things (total nominal spending, consumption/production of alternative energies, taxes, etc.), but these things are not relevant when I'm just giving a qualitative explanation of the effect of speculation itself.


Your conclusion is that speculators keep the price lower,

No, it isn't. The price may be lower than it otherwise would be in one period and higher than it otherwise would be in another period. The average price over the two periods could be identical under speculation and without speculation. All I'm saying is that the change in price over the period is smaller under speculation.


I've understood what you were trying to get at from the beginning. What confused me was how you got to that conclusion. This makes far more sense. But again, this argument is saying speculators keep the price lower, not smoother.

It's not, though. Average prices could be identical. All I'm saying is that the change in price is smaller under speculation. I don't care what you call this; maybe I was wrong in referring to it as smoothness - I really don't care. It's the substance of what I'm saying that is important.

[Revolution starts with U]

No, it isn't. The price may be lower than it otherwise would be in one period and higher than it otherwise would be in another period. The average price over the two periods could be identical under speculation and without speculation. All I'm saying is that the change in price over the period is smaller under speculation.


It's not, though. Average prices could be identical. All I'm saying is that the change in price is smaller under speculation. I don't care what you call this; maybe I was wrong in referring to it as smoothness - I really don't care. It's the substance of what I'm saying that is important.


That's not what you're saying. The change in price over any kind of short term period is GREATER under speculation, you say this yourself in your premises. Speculators drive the price higher under a rise, lower under a fall. The change would have been 3-5, instead it was 2-6. How is that a smaller change in price?
WHat you are saying is over the long-term the change in price is lower... ergo, the speculators keep the price down over the long-term.

I mean, if logic isn't a substantial part of your argument, then I just don't know what to say.

[RGacky3]

Inyourhouse, thanks for the charts, and the explination, here are a few problems I noticed.

The speculators, when prices drop buy high, which drives up the price and "evens it out" and vise versa when prices raise.

Your also looking at inventories which is'nt neccesarily the best indication, many derivatives don't require any inventories, its just a product derived from the price.

To me actually buying commodities, is a different ball game than buying products tied to commodities.

Nowerdays though speculation is so advanced that people can and many times do pump the price way above the natural price then short it.

Your example of oil prices would be very interesting to look at adjusted for inflation, the problem with this is that the vast majority of derivatives are not on the open market, so its very difficult for us to get accurate pictures.


All I'm saying is that the change in price over the period is smaller under speculation.


Your making some assumptions, one that speculators wait for the market to move before they make their speculations, speculators make their money when the prices are way off the natural price, when your a big time speculator, you can make price hikes and drops to make money off, you don't need to wait for the market.