Oil speculators: Taking heat and getting the gas face
Everyone wants to blame high gas prices on someone or some group…OPEC, oil companies or the government. The latest group coming under scrutiny: oil speculators. They are catching the gas face from all angles, but do they deserve it?
Exactly what are they doing? Here’s a brief tutorial on oil trading:
There are two groups of people trading commodities: hedgers and speculators.
A hedger is actually concerned with oil, because they use it or make it themselves for business. As such, they may try to avoid risk by locking in a price today for a transaction that will take place in the future. A speculator, on the other hand, does not need the oil and welcomes risk. They may assume huge risks betting on the price of oil in hopes of earning huge profits.
Many people think that speculators are manipulating oil prices for that very reason.
Despite the risk that speculators bring to the derivatives market, the market could not function without them. For every hedger who wants to avoid risk, a counterparty must be there to assume risk.
Congress is now heating up the tough talk with commodities regulators in hopes of identifying the role of speculators in oil’s dramatic rise. It is very difficult to determine exactly which parties are responsible for the run-up and to what extent.
While I do not believe that speculators are entirely to blame, I can not say I believe they are blameless. I am far removed from the trading pits, but it seems as if there has been too much day-to-day volatility without suficient supply or demand changes to back it up.
Would love to see Congress get out of the tough talk phase and actually produce some form of transparency in this market…
BTW, last year BP reached a $300+ million settlement on federal charges of fixing propane prices.
Tags: Commodities, gas face, hedgers, oil prices, speculatorsRelated Stories
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2 opinions for Oil speculators: Taking heat and getting the gas face
Chris McBride
Jun 17, 2008 at 12:44 pm
Forget hedgers and speculators and start turning to the United States government. It has been well known about oil in Alaska, which we won’t tap into. But even forget about that for a minute. The United States has oil in North Dakota as well. How much you ask…how does an estimated 413 billion barrels of crude oil sound? Not to mention this oil needs little refining.
The Bakken, unlike Alaska, is not off limits. Why won’t our government start acting on this and working on a way to retrieve this oil buried 2 miles below the surface? Probably because they are waiting for the rest of the world’s oil to run dry. If you ask me I believe this isn’t going to happen for decades and decades longer then recent estimations have been reported, such as 4 decades. The U.S. Government basically wants to control the world and feels this is there key to the driver seat. I say forget it, it will never happen that way and we need to start acting in the best interest of U.S. citizens and the rest of the world. Start acting to curve oil prices now–not when the rest of the world “runs out.”
Hedgers and speculators may play their role along with oil companies themselves. However, when considering to the oil we sit on in the U.S. their roles are minuscule. The government has the means to fix and control the oil problems the world faces. Blame them for not acting on it.
Mallory Houghton
Jun 17, 2008 at 4:35 pm
I understand that the Hedgers need the Speculators and vice versa but I feel like the speculators are winning. Every business is going to have competition which causes prices to fluctuate, but gas prices are have only been going up. Personally I think the government should help the economy by putting a ceiling on gas prices. They also should spend more time and money researching alternative fuel methods.
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