Tanner

There was a good article in the paper yesterday about this.

Ryan in T.O.

commodities. Institutional investors are chasing returns and pouring money into commodities, which drives the price up. Once the next bubble comes along, money will flow out of commodities and the prices will drop.

Omega

The price of oil with the current demand should be around $60.

If they are not manipulating the price then why did the CTFC just start a probe:

http://www.latimes.com/business/la-fi-oilprice30-2008may30,0,4595533.story

S4sposeur

commodity traders buy and sell, hence the "traders" part. Commodity traders do not ever take possession of the commodity, some customer does. For every sale there is a buyer somewhere who wants that oil on a specific delivery date.

The only commodity traders who buy without selling asap, preferably before they buy, are ex commodity traders. Most of those are simply amateurs who know about as much as you appear to about the business. The most famous of these was the rock group ABBA who wound up with a tanker load of oil in the 70's market crisis.

S4sposeur

However, passing along the increased costs of fuel only works if everyone has the same problem. The usual response to higher costs is reallocation of resources to spread the additional cost across as many of the cost bases. Not all of the cost can be passed along to the ultimate customer. That's what elasticity is about.

Ultimately, more efficient fuel consumption results from the increased prices.

For environmental reasons alone the rise in oil prices is beneficial. For too long the oxygen in the air has been a free good resulting in everyone consuming as much of it as they wish without regard to anyone else (tragedy of the commons exemplified). Air pollution and CO2 "pollution" result from inadequate 9ie non existent) pricing of the air consumed by use of the hydrocarbon fuel. The only ways to price the air are regulation of emissions or taxing of carbon (Actually, the "fuel" needs to be taxed unless it is nuclear, for example hydrogen has not been the issue it ought to be as so far water vapour has not been fingered in the supposed looming environmental crisis which it ought to be as it is many many times more aggressive as agreenhouse gas than CO2.).High oil prices are a good thing for all of us, apaprently, environmentally speaking anyway.

S4sposeur

Q.E.D.

amiro

doesn't the amount of futures bought at a certain price and short selling affect the price too?

S4sposeur

the price is the price. Oil is not a rigged market, at least by the traders. OPEC has very little influence in reality at the moment. There are still too many suppliers for OPEC to influence the price too much.

Demand exceeding supply causes the price to rise. Commodity traders are actually smoothing out the wild price fluctuations that would occur without their influence. That's how they make their living.