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Oil Speculators
Since no one really physically excersises an oil futures contract when it expires, what exactly constitutes a speculator in the market? would the non-speculators be the ones who actually want oil for its true price opposed to prices that are artificilly created by traders in the market? Would all oil futures trading not then, be speculation? Companies and parties who actually want oil in its physical form would not go and buy a contract in oil futures...
Answers
2183 points
ChaosNantuko answered one year ago …
Actually, companies and parties who actually want oil in its physical form frequently buy contracts in oil futures so that they have better control over what price they pay. If you needed oil in its physical form, your going to want to budget for it. Its much easier to budget for something if you know how much it will cost in advance, and its less risky to use futures in this case.
Oil companies also might consider selling oil on the futures market for a similar reason. It hedges their potential risk because they can sell a certain amount at a set point and be sure to make a certain amount of profit, while they can let the rest float at the market price.
Point being... while there are a lot of speculators in the market, there are also people who actually want to buy/sell the oil.
The real question as i see it, is how do you determine how much is artificially created by traders, and how much is legitimate. I suppose the second question is are people holding it for the long term because of a perceived trend still speculators, even if they intend on buying and holding? lastly, what if the speculators guessing it should be higher are right?
546 points
warren answered one year ago …
Anyone who is not in the futures market for business purposes is considered a speculator and will roll forward as the contract approaches expiry.
CN, you can look at the COT report and see who the speculators are, usually spreader and funds.
Warren,
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2775 points
Oldman answered one year ago …
Both Warren and ChaosNantuko are absolutely right...and I would add that there have been flows of money into upwardly trending commodity futures markets by large investor funds from pension to 'sovereign' wealth groups that hope to turn a short-term gain > bond yields.
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