Bill G. from Kansas

Raising Margin Requirements May Spike Oil Prices Higher

The idea that increasing margins will raise prices does not pass the common sense test. People are bidding to control a barrel of oil, either to sell it at a later date for some profit or to refine it into a consumer product. At a 6% margin the speculator controls a barrel of oil for about $9 while a consumer must pay the full market price, who will control more barrels? If the price does up $10 per barrel the speculator makes 100% profit thus it is in their intrest to control as much oil as possible, if the margin were increased to 50% they would only make about 15% profit on the same price increase thus lessening their desire to control oil the reward has been significantly lowered while risk remains the same. Thus the investment is no longer as benificial and thus less desireable. Net effect is less people bidding to control oil so price goes down.