Crude
According to an article in the Winston-Salem Journal, the price of light, sweet crude oil fell $6.44, or 4.4%, on Tuesday. Why?
Well, some analysts attributed the sell-off to (a) Thursday's expiration of options contracts and (b) to computer programs that automatically sell once prices reach a preset threshold. Says another, "Traders get spooked and simply sell positions." And, from Switzerland we get (c) "Since investment banks have been increasing their exposure to commodities, their current distress can have a significant impact on oil prices if they are forced to liquidate commodity positions in a run for cash." Finally, we learn that (d) concerns about inflation and its adverse affects on the economy (possible recession/depression) in the US, the largest consumer of oil products, may have played a role in the sell off.
And, the impact of all this on the price of gasoline at the pump?
Nuttin.
We are, you understand, not talking here about the price somebody actually paid for a barrel of crude oil but rather the price somebody paid for the option to buy a barrel of crude oil at some point down the road. Who buys these options? Well, you can. But mostly it is wealthy speculators and financial institutions (like banks) that do so. Trading paper, it's called.
That's how the free market system works. However, it is a little odd, it seems to me, that it's perfectly legal for individuals to speculate on something like the price of oil that effects everyone while in most states it is illegal to speculate on who will win the Superbowl that affects no one except those players, owners and gamblers directly involved.
Once again, it all comes back to the fact that we no shortage in crude oil that accounts for the dramatic increase in prices of late. We simply have not reached the price at which folks will no longer buy it or the products (like gasoline) derived from it.
Well, some analysts attributed the sell-off to (a) Thursday's expiration of options contracts and (b) to computer programs that automatically sell once prices reach a preset threshold. Says another, "Traders get spooked and simply sell positions." And, from Switzerland we get (c) "Since investment banks have been increasing their exposure to commodities, their current distress can have a significant impact on oil prices if they are forced to liquidate commodity positions in a run for cash." Finally, we learn that (d) concerns about inflation and its adverse affects on the economy (possible recession/depression) in the US, the largest consumer of oil products, may have played a role in the sell off.
And, the impact of all this on the price of gasoline at the pump?
Nuttin.
We are, you understand, not talking here about the price somebody actually paid for a barrel of crude oil but rather the price somebody paid for the option to buy a barrel of crude oil at some point down the road. Who buys these options? Well, you can. But mostly it is wealthy speculators and financial institutions (like banks) that do so. Trading paper, it's called.
That's how the free market system works. However, it is a little odd, it seems to me, that it's perfectly legal for individuals to speculate on something like the price of oil that effects everyone while in most states it is illegal to speculate on who will win the Superbowl that affects no one except those players, owners and gamblers directly involved.
Once again, it all comes back to the fact that we no shortage in crude oil that accounts for the dramatic increase in prices of late. We simply have not reached the price at which folks will no longer buy it or the products (like gasoline) derived from it.
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