Michael Covel

Andy Added:

June 1st, 2008 at 3:55 pm

It’s neither the institutional money nor the speculators:

“Investment can flood into the oil market without driving up prices because speculators are not buying any actual crude. Instead, they buy contracts for future delivery. When those contracts mature, they either settle them with a cash payment or sell them on to genuine consumers. Either way, no oil is hoarded or somehow kept off the market. The contracts are really a bet about which way the price will go and the number of bets does not affect the amount of oil available. As Mr Harris puts it, there is no limit to the number of “paper barrels” that can be bought and sold.”

Source: http://www.economist.com/finance/displaystory.cfm?story_id=11453090

James Added:

June 3rd, 2008 at 10:53 am

The writer seems to miss the point. As futures are a zer-sum game, the initial investment AND NOT THE SUBSEQUENT ROLL is the problem.
The problem is agent diversity: What is the impact of a futures participant who simply accumulates long positions and never sells, regardless of price? What price impact is realized when a new futures participant begins to accumulte this large position that may represent as much as 50% of total open interest? It is inflationary! Why is this the ONLY unregulated participant in the futures industry….exempt from position sizes? The cry here is for a level playing field. Equal regulation. But make no mistake, the new entrant here has has an inflationary impact upon price over the past few years.

Alex Added:

June 3rd, 2008 at 9:38 pm

Whatever it is….. who cares whether institutional money drives up the price or not? The reason is not important as it simply would not help in making final decisions in trading. I am more concern with the price action. It is the price that matters!