Oil and the Commodities Market 0
Andrew Cassel had a fascinating column in Wednesday’s local rag about the commodoties markete as it affects oil prices. Since all of us are feeling the pinch (or pincers) right now, I recommend it for the light it sheds on how the oil markets work:
Yesterday, such futures contracts were trading about $74 a barrel. Of course, the hedge fund has no intention of actually buying 13,500 barrels of crude (roughly $1 million worth) – the fund is betting that by next month, the price will be even higher and it can sell the contract at a profit.
As more investors bring more money to the table, prices can tend to rise – not just in the futures markets, but at your neighborhood gas station. That’s what has some critics calling for curbs on “rampant” speculation.
(snip)
The point is that markets don’t make prices rise or fall – rather, they make it possible for prices to move quickly, in either direction.
In other words, the market reflects what is going on in the larger world; it does not create what is going on in the larger world (assuming the marketers are honest, of course).
He supplemented it yesterday.
