Reply #9: Speculative bets roil oil markets [View All]

[ozymandius]

Big fund money is flowing into oil markets sending prices to levels never seen before. Is it profiteering or an essential way to ensure supply?

NEW YORK (CNNMoney.com) -- There's no question about it, a new breed of speculator is pouring money into the oil market and helping drive prices to record levels. What's less certain is if this new money is essential to a healthy market.

Many blame record prices on Wall Street investors new to the oil market, saying they're bidding up gas prices to artificially high levels - and soaking drivers.

As oil nears $130 a barrel, some say $10 to $70 of that price is due to Wall Street speculation.

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What is a speculator?

Speculators originated in the food market, and were intended to give farmers a set price in the spring to buy seed, according to Peter Beutel, an oil analyst at Cameron Hanover.

For example, a speculator would offer a farmer $3.50 in April for a bushel of corn to be delivered and paid for in October- these are called futures contracts. The speculator hopes that by October corn will sell for $4.00, and he'll make money. The farmer can plant his filed's certain that he's making $3.50 a bushel.

Conversely, a speculator might bet the price of corn will fall.

http://money.cnn.com/2008/05/16/news/economy/oil_speculator/index.htm?postversion=2008051604

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The more I read Galbraith and Keynes - the more adamant I become in my stance that these commodities should be removed from speculation. This means taking measures of either partial or total nationalization of these industries.