Oily Speculations(newyorker.com)
newyorker.com
Oily Speculations
http://www.newyorker.com/talk/financial/2008/07/07/080707ta_talk_surowiecki/
3 comments
What really stuck out to me was how pleasant it was to read a news story about oil that wasn't alarmist. I kept waiting for the "Burn the witches!" segment that never came.
Wouldn't speculators "punish" themselves if their price expectations were unwarranted (= big losses for speculators)? What logic could lead to laws to curb speculation?
Yes. Futures speculation is a zero sum game. There's a loser for every winner, so blaming speculators for price movements in the spot market is absurd. What about the speculators who have lost? Spot prices are well above the delivery price of most maturing futures contracts.
If politicians want to pillory traders and suppliers the charge should be keeping prices too low in prior years and being foolishly shortsighted. The price should have risen much higher much sooner to encourage conservation and inventory. Current market conditions should have been more broadly foreseen and the increase should have been more gradual and sooner. Current prices are clearly justified by supply and demand, future expectations thereof, monetary policy, and geopolitical concerns.
If politicians want to pillory traders and suppliers the charge should be keeping prices too low in prior years and being foolishly shortsighted. The price should have risen much higher much sooner to encourage conservation and inventory. Current market conditions should have been more broadly foreseen and the increase should have been more gradual and sooner. Current prices are clearly justified by supply and demand, future expectations thereof, monetary policy, and geopolitical concerns.