Cause, effect of oil prices

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					Cause, effect of oil prices
By Administrator <br />Larson Newspapers Thursday, 31 July 2008 05:16 -

Speculators are always looking to make large profits on the expected rise or fall of prices, whether they’re meddling in Sedona’s real estate market, Wall Street’s dot-com ventures or the price of a barrel of oil.

Their interference with what would otherwise be relatively simple rules of supply and demand frequently results in economic bubbles, luring inexperienced investors into risky ventures — then leaving them broke when the gougers exit the market and prices drop accordingly.

By Susan Johnson

Larson Newspapers

Speculators are always looking to make large profits on the expected rise or fall of prices, whether they’re meddling in Sedona’s real estate market, Wall Street’s dot-com ventures or the price of a barrel of oil.

Their interference with what would otherwise be relatively simple rules of supply and demand frequently results in economic bubbles, luring inexperienced investors into risky ventures — then leaving them broke when the gougers exit the market and prices drop accordingly.

In the middle are legitimate consumers of the commodity who pay dearly, albeit temporarily, for the artificial inflation.

Some members of the U.S. Senate would like to stop the speculation they believe is occurring in oil commodities, a factor they say is contributing to prices beyond the point of reason.

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Cause, effect of oil prices
By Administrator <br />Larson Newspapers Thursday, 31 July 2008 05:16 -

If these senators are correct about this cause and effect, then there are few people or businesses in the U.S. who remain financially undamaged by what is purely profiteering.

In Washington, D.C., Senate Majority Leader Harry Reid introduced S.3268, the Stop Excessive Energy Speculation Act, on July 16, according to “Land Line Magazine,” an information center for the trucking industry.

“Right now, Wall Street traders are raising gas prices with nothing more than the click of a mouse,” Reid said. “Without regard of anything but their own profits, traders are bidding up prices by buying huge quantities of oil just to sell them at an even higher price.”

A few days prior to Reid’s proposal, oil was trading at $147 a barrel.

It has since dropped to an intra-day low of $122.50.

Matt Meller, a registered principal and retirement planning specialist in Sedona, approves of the legislation.

“The futures market was never designed for speculation,” Meller said. “It was always meant to allow sellers of a particular product, like corn farmers, to offer future delivery of their product to the buyers of that product, like corn flake producers, at a pre-determined price.”

While grains are typically traded on the Chicago Board of Trade, known as CBOT, consumers of energy commodities lock in future prices from suppliers using hedging

contracts on the New York Mercantile Exchange, NYMEX.

Appropriate contracts in this market would be conducted between buyers of fuel, such as

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Cause, effect of oil prices
By Administrator <br />Larson Newspapers Thursday, 31 July 2008 05:16 -

airlines and truckers, and the suppliers of fuel.

Currently, however, there are no limitations on who can buy and sell the futures, many of whom get in and out of the market long before the hedge comes due.

Marc Sterling, a business, marketing and accounting teacher at the Sedona Red Rock High School, agrees that speculation is one factor that’s driving the price of oil, but he doesn’t like the idea of increased government regulation of the commodity.

“In the U.S., we enjoy free markets and additional government control is not what most of us want. In addition, I don’t believe that it’s a long-term solution to the energy price/supply problem,” Sterling said. “The basic premise of supply and demand includes a component of speculation which, in certain circumstances, can have the positive effect of slowing current consumption and thus preventing future shortages.”

In a political opinion column published July 22, the editors of “The Wall Street Journal” concurred with  Sterling’s assessment, adding that the measure would drive commodity trading overseas, where market oversight and transparency would decrease, while Meller’s

conclusion was that “deregulation and greed mix like oil and water.”

 

Susan Johnson can be reached at 182-7795, Ext. 129 or e-mail sjohnson@larsonnewspapers.com

 

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