Comments on: Among Politicians’ Favorite Scapegoats

By: Surfisto

Surfisto — Sat, 12 Sep 2009 23:30:00 +0000

The Roger Gray paper. My jury is still out, but searching.

http://chla.library.cornell.edu/cgi/t/text/pageviewer-idx?c=chla;cc=chla;rgn=full%20text;idno=5033566_4125_002;didno=5033566_4125_002;node=5033566_4125_002%3A6.3;view=image;seq=19;page=root;size=s;frm=frameset;

By: Surfisto

Surfisto — Sat, 12 Sep 2009 23:11:00 +0000

Interesting.I read several of the articles and would like to read some of the references made in those articles. This is one example and I do not take it lightly. I would like to know how world prices were and are there onion tariffs or anything of the sort.Also onion supply can be more drastic as stated in the article about weather causing a supply crunch. These drastic swings were mentioned for only a 2 year period when the law went into effect in 1958. (I need to look at the paper by Roger Gray)Thank you for your patience and continued responses. I feel that there are a lot of posts by Don and I can’t keep up and others lose interest which affects my learning curve.

By: Anonymous

Anonymous — Sat, 12 Sep 2009 04:32:00 +0000

It’s good that you ask these hard questions. It keeps us all on our toes.

Who’s an “end user”? Producers don’t care what the oil is bought for. Whether it’s because you’re planning to make widgets, or because you like to burn it in your Hummer, or if you just like it because it’s shiny, or you want to hold on to it because you think it’ll become more scarce in the future.

If speculators are removed from the market, the price of oil will definitely be affected: prices will swing with a much larger amplitude, guaranteeing higher highs, and lower lows.

You could extract that simply out of econ theory, or you can also extract from past attempts at curtailing speculation. Google “onion speculation” for an eye opener.

By: Surfisto

Surfisto — Sat, 12 Sep 2009 00:05:00 +0000

Lets say I have purchased a lot of oil, relative to my wealth, although for reasons not only concerning a conflict of some sort. If the conflict happens will you concede that I was right and that investors/speculators are driving up oil?
I mean in your example you suggest a “fad,” this would not take place if only end users were buying.
Also do you really believe if Obama et al. eliminate speculators in the oil futures market that the prices will remain unchanged?
You made good points as well as robert; however, with this issue I am still undecided and need to do more research.

By: Economiser

Economiser — Fri, 11 Sep 2009 20:26:00 +0000

I take issue with the notion that we “know” the price will spike. I don’t know that. If you do know that, I suggest you buy lots and lots of oil now and sell it at that spike. I’ll bet you can find lots of rich people willing to give you 2 and 20 to do it for them.

In the end, oil is only useful for its input properties. Let’s say that buying oil futures becomes the new fad. Everyone wants to do it. Suppose that this drives the future price of oil up to $1,000 due to nothing but the fad (i.e., supply and demand for the physical commodity remain the same). When the people who don’t plan on taking delivery eventually sell their contracts, the only players left to buy the physical oil will be the ones who want to use it. And they won’t pay $1,000 per barrel, since supply and demand of physical oil haven’t changed. Instead the market will quickly correct to the clearing price (~$70 or so today). And short-sellers, recognizing the fad, will act to bring down the futures price before it gets out of hand.