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Four Economic Mandates Examined: Oil Speculation

This is a continuation of Four Economic Mandates Examined:  Mortgage Modification.  This series focuces on four economic mandates proposed by Robert Reich.

Mr. Reich has recommended to the President, as his second of four mandates that he should

“…condemn oil speculators for keeping gas prices high – demanding that the oil companies allow the Commodity Futures Trading Corporation to set limits on such speculation and instructing the Justice Department to investigate and prosecute oil price manipulation.”

What the hell is a speculator and why are they keeping gas prices high?

An oil speculator is someone who purchases oil today at today’s prices, stores the oil in hopes that the future price of oil will be higher and then sells the oil at some future date in hopes of making a profit.  This is simplified but the principles are the same.  The speculator may pay someone else to store the oil or the speculator may buy a futures contract.  For more details on how speculation works, see “The Social Function of Futures Markets” and “The Social Function of Call and Put Options”. Read the rest of this entry »

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Posted by on May 16, 2012 in Uncategorized

 

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