JREwing

We're Nearing Crunch Time for Oil

I find it interesting, that stocks like Amazon or Apple can have ridiculous P/Es, but when oil costs more then 10 bucks a barrel, folks begin to round up speculators and burn them at the stake, metaphorically speaking.

Folks never see the fact, that speculators are also responsible for low prices, as shown impressively on fridays short covering rally in oil.

First of all, every investor is a speculator. When you are 25 years old and you invest for your retirement you 'speculate', that when you are about to retire your investments will have done well.

Second of all, futures trading, which is used to 'speculate' in oil for example prevents price shocks like in the 70s. By anticipating shortages they drive up the price and give the economy a chance to adjust to higher prices and use oil more effective and give oil producers an incentive and the capital to invest in more production.

The same thing goes for every other commodity.

As for the dollar/oil relationship: Friday showed, that dollar appreciation or depreciation has not as much to do with price of oil, as most people believe.

Oil rallied, because it seems clear, that the economy is not falling of a cliff and has a good chance of a second half recovery. Both the USD and oil rallied. That Turkey/Northern Iraq situation and the pipeline attack in Colombia may have supported a little, but the bulk of the rally was on the back of economic data.

P.S. The article was very interesting. May be we can have an article by someone, who's smarter than me, about wether speculators are more harm than good or, like I believe, the other way around.