User 163933

Should Oil Be Trading at $60 or $150?

In the simplest case, a futures market should have little or no influence on "spot" (real-world) commodity prices, because no actual orange juice or pork bellies change hands when contracts are traded.

During the gold and silver runup of the 1980s, both large investors and the public began to hoard those metals. People's home safes and bank vaults filled up with gold bars, while individuals bought and held bags of silver quarters. Inevitably the result was a drastic increase in prices.

It's true that some unknown amount of hoarding of refined products is surely taking place, and of course such behavior could very well be influenced by the price of futures contracts, but overall I have trouble believing that there is sufficient hoarding to cause such price increases. Building inventories is of course another matter, and could certainly cause significant price increases if every country does it at once. Once inventory growth is factored in, it should be possible to find out how much of the increase in crude prices is due to an imbalance of production rates and consumption rates. I'm not saying it's easy to gather all the necessary data, but at this point, I think we need to stop running on conjectures such as "blame the futures traders" -- !