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No one is really addressing the question in an earlier post about the relationship between oil futures and the current price of oil. I believe that speculation in the futures market is not a cause of the current price. I know this flies in the face of what you hear sometimes in the press. A recent article in The Economist had a great explanation:

“Stuck for answers, politicians have been looking for scapegoats. Top of the list are the speculators profiting from other people’s hardship. Some $260B is invested in commodity funds, 20 times the level of 2003. Surely all that hot money has supercharged the demand for oil? But that is plain wrong. Such speculators do not own real oil. Every barrel they buy in the futures market they sell back again before the contract ends. That may raise the price of “paper barrels”, but not of the black stuff that refiners turn into petrol. It is true that high futures prices could lead someone to hoard oil today in the hope of a higher price tomorrow. But inventories are not especially full just now and there are few signs of hoarding.” The Economist May 31st, 2008, p. 13.

I think the rising price of oil is fueling (no pun intended) the speculation, rather than the cause and effect going the other way.
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