The oil futures markets routinely trade more than 1 billion barrels of oil per day. Given that the entire world produces only around 85 million actual "wet" barrels a day, this means that more than 90 percent of trading involves speculators' exchanging "paper" barrels with one another.
Because of speculation, today's oil prices of about $100 a barrel have become disconnected from the costs of extraction, which average $11 a barrel worldwide. Pure speculators account for as much as 40 percent of that high price, according to testimony that Rex Tillerson, the chief executive of ExxonMobil, gave to Congress last year. That estimate is bolstered by a recent report from the Federal Reserve Bank of St. Louis.
ET: Banning middlemen from oil trade could drive down price of crude by 40%
1 comment:
Yep, everything that is not compulsory should be banned! Then we can declare the whole world to be Communist! What is more, let us grant the power to enforce all bans and compulsions to a small elite consisting of Rahul Nehru, Manmohan Singh and a few others.
Let me add that your method of price-fixing of various goods and services by the government has been tried and Nehruvian-Stalinism failed miserably.
Let me repeat what I posted in the other thread - the speculation is due to speculation on the value of the paper currency. This is true of any item that can be stored. People are moving out of paper currency. The other kind of speculation which is speculation on the real value actually stabilizes prices.
If only we had a market for speculators to trade futures on onions, we would not have seen shortages and the sudden spurt in prices. A slight upward trend would have incentivized farmers to enter into future contracts and grow onions. Similarly, we won't see gluts either. An offer price below what farmers think is feasible will make them not waste their time growing the crop.
You are also wrong in repeating the socialist claims about the ban on speculation lowering the price because India for a long time purchased crude oil through bilateral deals without speculation, but the price of the refined products in India were higher than the prices in other parts of the world where speculative trading existed.
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