Traders in what, exactly?

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I just don’t get it. Those who are supposedly in the know say that traders and funds and stuff have nothing to do with the high price of oil. And yet the cost of oil has risen to five times what it was a few years ago. Is it suddenly worth five times what it used to be worth? Have the Saudis had a sudden labor shortage which has driven up their costs? Or have the world’s ships crews demanded millions to transport the stuff in a show of solidarity? Or is there anything else out there which has changed the price of production that I’m unaware of? Heck, has there been a single constriction of supply in the past few years?

I really don’t think there is, but I’ve been known to be wrong before. (It happens.)

So, if the cost of getting a barrel out of the ground to the refinery hasn’t really changed all that much, why are traders willing to pay more for those barrels?

I expect it has something to do with the news reports that I keep hearing and reading. Go ahead, Google for a news story about oil prices and note that every single frickin’ one of them has the words “worry,” “fear,” “anxiety” and their synonyms in them. That’s right, they’re not buying and selling oil based on reality, they’re trading based on their own insecurities. It’s not like OPEC is saying to the market, OK, folks, the price today is $200, take it or leave it. They’re a monopoly and could do that, you know, but instead they just say, What are you willing to pay us? and we, like idiots, outbid ourselves for the privilege of paying them more.

And if I’m more afraid than you are, I’ll pay more than you will.

(Stupid me.)

OPEC doesn’t think that supply is constricted. And you know what? I trust ‘em. After all, though demand in the world has increased, I don’t think we can realistically say that demand has increased so hugely in the past few years so as to make anybody think the Saudis are going to run out any time soon. Supply has kept up because OPEC has kept supply up. And, for that matter, there’s nothing that some rogue state, such as Iran, can do that the US and every other oil-consuming country wouldn’t do something about if they got uppity and plugged up the Persian Gulf. In short, demand and supply seem to be running pretty well together and it’s not likely to change a bunch.

So what are the traders afraid of? Well, pretty much anything. Their shadows. Spiders. Weak dollars. Things that go bump in the night.

Now, how do we fix this problem? First, stop trading futures. Right now. Put a halt to it. Sure, let the people with futures finish out their deals, but after that, no more! Second, if you aren’t an oil consumer with real refineries and big honkin’ boats or if you aren’t prepared to take delivery of the barrels you bought, you can’t buy the stuff, either. Sure, you can still buy those barrels and sell them later on, but you damned well had better take delivery of the stuff you bought. And there can still be a market with people screaming about buying and selling, but those are real barrels that they’ll be buying and selling and if there aren’t enough barrels to go around today, the price will go up. If there are too many people yelling about selling and not enough takers today, the price will go down. No fears. Just real oil which either is or isn’t there.

(Who invented this futures stuff anyway? I realize that in some markets, such as those associated with real variable supply and demand, such as agriculture, there’s a purpose. But until we’re trading iPod futures, oil futures don’t make any sense. Monopolies are different.)

Now, are these ideas probably stupid, unrealistic and ridiculous? I’m sure they are. But to the layman who doesn’t get to trade on my fears but has to pay whatever the going price is for an iPod, they make sense.

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