spalmer999 at yahoo.com
Wed Jul 9 15:58:16 MDT 2008
I'll bite ...
The only way to make money, by *holding* a futures contract is if the price
actually rises by the delivery date. For this to happen there have to be actual
reductions in supply or actual increases in demand. Oil going up because
exploiters are nervous about the consequences of attacking Iran are an example
of the former - anticipations of an actual fall in supply; the anticipated or
actual increase in demand by China and India are examples of the latter.
To make this anything more than a (more or less informed) gamble implies having
'inside knowledge' of some kind about future movements in supply and demand.
One can encourage this artificially by hoarding ('cornering the market'). To do
this with oil requires stashing 2.5m barrels per day - or keeping a growing
bunch of tankers sailing in circles somewhere. There are limits to how long you
can stash oil, since some of the lighter distillates evaporate in storage. I
have read suggestions that China has been effectively hoarding to ensure a good
supply of gas during the Olympics, but it could be one of those hoary 'reds
under the beds' stories.
You can of course, sell your futures contract to someone else before delivery
and take a profit on that. That would be a good way to speculate provided there
are plenty of scare stories speculating about speculation, and an environment
of economic uncertainty and geo-political crises around supply and plenty of
investment banks making wild predictions about the future course of oil prices.
In short, you're right.
-- Joaquín Bustelo <jbustelo at gmail.com> wrote:
> As for the rest of the discussion, I'd like someone to try to
> illustrate with a simplified example like the one I gave for future
> trading in bushels of wheat just how one would accomplish driving up
> the price of the physical commodity by speculation in the futures
> market. I can explain in very simply and straightforward terms how
> this would be accomplished in manipulating a physical market, but I
> just can't see how it could possibly be done in a futures market where
> prices inevitably converge with the physical market for each
> successive month as the delivery date for the contract approaches. I
> just can't wrap my head about how this would be accomplished in a
> futures market. Someone please enlighten me.
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