ACapitalist

Economics of Oil Futures Trading, Part II

I agree with Muddling. This issue is not speculators; they clearly help keep markets rational just as Mr. Perry argues. The issue is index fund commodity investors which have been very large net buyers of futures for a number of years. This is simply supply and demand at work, except that this is a paper market and not the delivery market. More and more investors coming to the futures market as buyers only. Sure they have to close their positions before they expire, but as soon as they do, they reestablish new ones with even more money. The futures market was never set up to handle this kind of influx of one sided activity.
Muddling is right, if they, the index fund investors start exiting the market in droves, we might see the reverse happen with prices. What will happen if congress forces the federal overseers to limit the index fund buyers? I do not see congress being smart enough to figure this out so nothing will probably happen and this bubble will reach a natural popping point at some higher price.