Wednesday, April 13, 2011

$4 Gas

Why have gas prices shot up in the last several weeks? Did a whole bunch of oil wells explode? Not much has changed in the real world, just in the imaginary world of casinos called futures market contract trading. Speculators think prices may be higher in the future, so they bid up the price of a contract to deliver oil sometime in the future, perhaps a year away. If the price does go up, they make a lot of money. In the meantime, the big oil companies are happy to charge us more now.
Some claim futures markets are jutified by giving big users of the product (such as the airlines) a chance to lock in a price for future delivery. But, in fact the market for futures is much, much larger than the users of the product. Most of the players are simply gamblers. Gamblers in ordinary casinos don't bother the rest of us, but these speculators do.


The Arthurian said...
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The Arthurian said...

"the market for futures is much, much larger than the users of the product."

An excellent point, sir.

Yesterday, the price of regular where I stop for gas was $3.86, or $1.01 higher than the place across the street that closed about 8 months ago.

Today, it was ten cents higher yet.