Defending oil speculators from Obama

Beware Of Oil Market Manipulation!

The critics of speculation argue that oil is being manipulated because we are trading substantially more oil contracts than there is oil demand in a day. The look at the flawed thought process and often quoted fact that, “the entire world produces only around 85 million actual “wet” barrels a day, this means that more than 90 percent of trading involves speculators’ exchanging “paper” barrels with one another.” In other words, hedgers have the most liquid efficient market in history. They have the most transparent market in history. They have more people that can offset their risk than ever before in history. And that's precisely because there are more market participants and that's because the speculators are in the market as well.

It is because we have more confidence in the oil market than we do in many other markets. For every buyer there is a seller and ever seller there is a buyer. Speculators go long and short and they assume the risk. Open interest is rising because money is seeking a return and commodities have outperformed bonds and the stock market. It is because oil is more valuable than paper money.

The President is right that wars and the threats of war are a major reason for increased oil speculation. Japan, China and Europe have been hoarding oil and therefore speculating that they might not be able to find supply if a war breaks out and the Straights of Hormuz is blocked. Better get the oil while the getting's good. That hoarding has been reflected in the most liquid, transparent market in history, which has alerted the world to this behavior and helped us avoid a price and supply shock later down the road.

The truth is that it is dangerous proposal to allow the government into the price manipulation business. The government should not be in the business of oil price manipulation.

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

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