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Archive for April, 2012


Curb Speculation?

Both the Obama administration and Dick Morris want to curb speculation in the oil market. It seems that those damn speculators are causing trouble again.

Speculators actually reduce the volatility in the market. How do they do that, you may ask. They do it by building new information that comes into the market into the prices in that market. They continue to do this until no profit can reasonably be expected from the new information and prices are stabilized (i.e., growing at the rate of interest) until more new information emerges. In the oil market, drilling now will not affect supplies for quite some time . . . but prices will be reduced immediately by the actions of speculators. Similarly, a decision to not drill now will raise prices now and into the future. This is something that anyone who is a member of Obama’s rendition of the Flat Earth Society will recognize, whereas the bright lights who support President Obama apparently do not understand.

Who are these speculators who dare to enter the marketplace, buying and selling oil futures. They are, of course, people who are taking positions which serve their interests while stabilizing markets. They are users of oil who dare to hedge the risks they face in their businesses.  They are sometimes people who are increasing their own risks while decreasing the general risk in the marketplace.