You still don't get it. The futures market does not affect the price of oil. The price of oil affects the futures market. Speculators do not artificially set the price of anything. If the market does not dictate a price, a person overpaying for a future contract will have a contract that is too expensive to complete. The real culprit is , as you said, the declining value of the dollar along with other external market forces that are causing the market to believe that there supply of oil is less than the demand. Thus, the price goes up as people believe that there is scarcity. This is basic economics people.

THERE IS NO CONSPIRACY BY FUTURES TRADERS. If they guess wrongly about the price increasing/decreasing, THEY LOSE MONEY.

Milky, I see what you are saying. Give me a good explanation on why the price of oil suddenly doubled over the course of a year. Yes, demand has risen. Yes, the dollar is getting weaker. Is that it? I don't think so. You have to admit that speculation is playing a role in this mess. If I am wrong, educate me..

"7 years of college down the drain!"

Milky, answer one question. Can the price of a futures contract be traded multiple times BEFORE the commodity is even delivered? If the answer, which we know, is yes, then it affects the price of said product. And what is the direct byproduct of said trades? It drives the price of the commodity up or down depending on how much futures the speculators buy and THEN buy from each other.

How in the world can you say speculation has nothing to do with the price? If it didn't, as you profess, then NOBODY would give two turds about them. They would be nothing more than commodities "handicappers".

If speculators didn't sell a contract to a commodity they don't even own multiple times, the end user WOULD end up with a fair market value. If all they could do is buy the contract on the futures AND THEN sit on it, that's a risk more of them would not take. Since they know it's going to be bought X times over (currently), there is zero, to minimal, risk locking in futures at $140 a barrel if not more. Because investing in oil from speculators to investment bankers has been so popular the last few years, demand (or perceived demand, to be more exact)has skyrocketed, therefore, driving the market price. Everyone wants to own it so they can sell for X profit.

That's great! Go do that with diapers, poker chips or widgets. Not one of the, if not THE, most needed world commodity.

Again, we have industries and COUNTRIES pleading for and promising speculation change. I guess they don't have a clue either.

From your posts, I'm concluding that you don't see the trading on the futures between speculators as a major driving force thats pushing the price. It's not the simple fact that a speculator buys a future, it's what happens to that future AFTER the initial buy. To me, it's very similar to the "pyramid schemes" in the 80's.

And as far as getting all excited because everyone else is, "clueless", you can check that at the door. We might have other opionions but I, and I'm sure others, have many pieces of paper on the "Hero Wall" to justify the conclusions.

Don't forget that 95% of all oil traded is never delivered. It's just traded hands and each time someone gets a piece of the pie. Make it law that if you trade or buy Oil you have to take delivery. Price will be at $75/barrel tomorrow.

And put all the speculators on the "No Fly List".

Let them drive thier Hummers to LA from NY if they hate the airlines so much.

The other commodities are not nearly as essential to the lifebloods of our economy that oil is.


I don't disagree with this one bit.

"In the letter to consumers and Congress, the airlines say oil speculators are currently purchasing 66 percent of all oil futures contracts, compared to 20 years ago when they acquired only 21 percent. This new balance has left speculators with more control over the end price, and airlines are picking up the bill, the air carriers claim.

"Speculators buy up large amounts of oil and then sell it to each other again and again," the airlines say in their letter. "A barrel of oil may trade 20-plus times before it is delivered and used; the price goes up with each trade and consumers pick up the final tab."

The airlines' CEOs say in the letter that regulatory oversight of market speculation has declined in recent years, and the industry sees a need for reform to ensure speculators do not keep overheating the market to a point that hurts the end consumer."

On several occasions in the past few months, I have written about the impact of skyrocketing fuel prices on airline customers – in their daily lives and when they travel (Final Approach May 1 and Final Approach May 28 ). In the long run, to lower oil prices for all Americans, we need to increase domestic supply, increase exploration, alternative energy sources and conservation. However, one near-term solution to the problem is for government to investigate and rein in oil speculators.

What is the Commodities Market? – Commodities are raw materials purchased by manufacturers of finished products such as food manufacturers, oil refiners or builders. Businesses that are highly dependent on oil – refineries, heating oil dealers, airlines and trucking companies among others – lessen their risk of significant price fluctuations by purchasing future delivery contracts at predetermined prices in what is known as the commodities or futures markets. The two largest U.S. commodities markets or futures exchanges are the Chicago Mercantile Exchange and the New York Mercantile Exchange, where people trade standardized futures contracts; that is, a contract to buy specific quantities of a commodity at a specified price with delivery set at a specified time in the future.

What is the Problem with Oil? – There is a significant disconnect between the paper market for oil (speculators) and the physical market for oil (consumers). In recent years, speculators have taken advantage of actual consumers of oil by bidding up the price for futures contracts. If a speculator purchases a contract for delivery of oil at a high price six or 12 months in the future but has no intention of actually taking delivery of the oil in that contract, then a physical customer who needs that oil – to deliver home heating oil, to operate trucks or airplanes, or even to process in a refinery – will be forced to pay the higher price in order to obtain the oil that is needed.

How Do They Get Away with That? – Increasingly, sophisticated institutional investors have managed to manipulate the rules and regulations governing commodities transactions through a series of exemptions and waivers, including the so-called “Enron loophole,” low margin requirements and the dodging of U.S. public disclosure requirements. These complex arrangements have a similar impact: They put people engaged in oil-related businesses at a disadvantage with those who gamble relatively small sums that the price of oil will increase out of proportion to marketplace demands. If that happens, as it has regularly over the past few years, those who need oil for their businesses pay a premium, which is passed on to you – the consumer.

What Can Government Do Now? – In the near term, Congress needs to address the impact of unchecked speculation in the commodities market.

Commodities trading is overseen by a small, but very powerful government agency known as the Commodities Futures Trading Commission (CFTC) . Congress can require the CFTC to implement a host of controls such as imposing limits on the quantity of commodities contracts speculators may purchase, closing the loopholes that allow speculators to trade exempt from any government oversight or regulation, and requiring reporting by those who are engaging in speculation.

Experts say that closing regulatory loopholes in the trading of commodity futures will result in a significant reduction in fuel prices.

What’s Next? – Congress is expected to debate some of these issues in the next few weeks and it is urgent that they hear your voice. To facilitate public participation in the debate over speculators, we have launched a broad-based coalition, S.O.S. NOW, that provides a wide array of information on speculation and its impact on the price we all pay for oil. S.O.S. NOW stands for Stop Oil Speculation Now, and we urge you to go to the Web site Stop Oil Speculation Now | S.O.S. NOW and send a message to Congress about oil speculation.
Sincerely,

James C. May
President and CEO
Air Transport Association
__________________

Milky, airlines don't deliver a product on the same day they sell it, therefore selling tickets at cost plus a percentage is an unrealistic idea. Tickets are often sold 6 months in advance and the cost, therefore, can only be speculated, not known. Additionally, with a brief look at CASMs and RASMs, you will understand that the more seats sold, the less cost per seat; yet another reason your simple "cost plus percentage" approach will not secure success.

When a ticket is priced, airlines make educated guesses at what the cost will be when the product is delivered. I dont think that any of us could have predicted today's $150.00 bbl, 6 months ago.


shiiiat, i sound like management. ;)

That's more or less true in a well regulated open market. The key is transparency. The Hunt Bros tried to corner the silver market, when other speculators saw the huge position the Hunts held they realized the price was artificially high and they dumped their holdings. The Hunts were burned to the tune of $2Billion. Thats the traditional risk to cornering the market. What happens if non traditional players with massive amounts of money enter the market? Now add in a market where there is no transparency, i.e. you can not see who holds what or who's trading with whom. You get wash sales. What if these new players, all playing the same game (a herd mentality where no one company corners the market but as a group they have), own 70% of all existing futures contracts? As they trade amongst themselves (no risk in a wash sale) they are holding these contracts out of the market( artificial limiting of supply). The true speculator (who intends to take delivery) must enter the market and bid for what is available at that time. He must his business requires it. Thats trucking companies, airlines, refineries, etc. With these daily trends he can not sit back and hope that fear of a contracts expiration will cause a drop in price. Oil in normal trading is far to liquid for that. I'll show you that supply isn't the issue, I'll show you that the weak dollar doesn't cover current price either. What have been the effects of the Commodities Modernization Act? Why does the Intercontinental exchange exist? Who trades there and why don't those investment banks etc trade on the NYMEX? Please don't throw out cheap easy stuff like it's the fault of leftists, environmentalists, or the scapegoat of politicians. Stick to the point and explain the price.

And Again
 

That's more or less true in a well regulated open market. The key is transparency. The Hunt Bros tried to corner the silver market, when other speculators saw the huge position the Hunts held they realized the price was artificially high and they dumped their holdings. The Hunts were burned to the tune of $2Billion. Thats the traditional risk to cornering the market. What happens if non traditional players with massive amounts of money enter the market? Now add in a market where there is no transparency, i.e. you can not see who holds what or who's trading with whom. You get wash sales. What if these new players, all playing the same game (a herd mentality where no one company corners the market but as a group they have), own 70% of all existing futures contracts? As they trade amongst themselves (no risk in a wash sale) they are holding these contracts out of the market( artificial limiting of supply). The true speculator (who intends to take delivery) must enter the market and bid for what is available at that time. He must his business requires it. Thats trucking companies, airlines, refineries, etc. With these daily trends he can not sit back and hope that fear of a contracts expiration will cause a drop in price. Oil in normal trading is far to liquid for that. I'll show you that supply isn't the issue, I'll show you that the weak dollar doesn't cover current price either. What have been the effects of the Commodities Modernization Act? Why does the Intercontinental exchange exist? Who trades there and why don't those investment banks etc trade on the NYMEX? Please don't throw out cheap easy stuff like it's the fault of leftists, environmentalists, or the scapegoat of politicians. Stick to the point and explain the price.