honestscop

Watch for Yourself: 60 Minutes Oil Story Was Spot On

I'm going out on a limb here...but while reading this article and the comments, two things occurred to me:

1) Suppose I'm a speculator and it's January when I buy a contract for $40/bbl for March delivery. Then, price goes up 50% to where the spot price of oil is $60/bbl in February. Now because I don't want to take delivery, I can sell the March contract for $50/bbl in February and still make a profit. Wouldn't I be exerting downward rather than upward pressure on the price?

Some may ask, why would you sell for $50 when you can get $60? Well, okay, let's say I sell at $60 -- then I'm merely responding to the market as opposed to influencing it.

2) Despite my previous question I do believe generally that speculation can be unhealthy for the economy as a whole -- I don't want anyone to think I'm defending speculators -- I'm just not clear as to how they can exert such influence over one commodity while remaining entirely within that commodity.

But, I think there's something that many people seem to be missing...What about the role currency speculation played in the oil spike? If we look at the commodities boom, the dollar depreciated rather quickly while the euro gained against it. It seems to me that if one regards this boom as both a cause/effect of a depreciating dollar, one would eventually ask: why was the euro gaining? Wouldn't European companies need to change their currency into dollars in order to buy oil, copper, grain etc. -- thereby depreciating that currency as well?

It seems a likely hypothesis that dollars were converted to euros (perhaps as an inflation hedge) in such great quantities so as to buoy the currency against price fluctuations in the commodity markets. Does anyone know if this has been investigated?