Can futures traders sustain a higher price?

S

Smart Money

Hey guys,

I think I know a little big about economics, but I keep hearing in the news that speculators are "supposedly" keeping the price of oil up. From what I can figure, this would only work over the long term if there was collusion or a cartel type effect, where the entire supply channel refused to sell their futures (and or bid up the futures) to an agreed price range. The problem with this is that cartels fall apart and someone always cheats.

So when I hear these reports on the news, I equate it to the newscaster, in essence, saying: "the speculators have cornered the market".

I just don't see how thats possible in a world market.

Can someone enlighten me?

SM
 
Quote from Dobbes:

Speculators can't drive a market. Hedgers are the larger market participant by far.
More...
How do you know?

Financial Investors Fueling Commodities Boom

"New research from Greenwich Associates reveals that more than a third of investors in commodities have been active in these markets for less than three years, and more than one in 10 say they started investing in OTC commodity derivatives within the past 12 months.

The entry of new financial or speculative investors into global commodities markets is fueling the dramatic run-up in prices. "While the long-term fundamentals of global energy and other commodities markets are being driven by increasing demand, there is little doubt that, in the immediate-term, speculative investors are driving up both trading volumes and prices," says Greenwich Associates consultant Andrew Awad.

The results of Greenwich Associates' 2008 Global Commodities Research Study reveal that, in general, the growing ranks of commodity market investors consist of three types of organizations:

1) Pension Funds, which use commodities as a portfolio diversification tool;

2) European banks, which use commodity derivatives to structure retail products that they then sell to their retail customers;

3) Hedge Funds, which use commodities as a source of alpha.

"Overall, about 55% of the investors participating in the Greenwich Associates study say they use commodity derivatives for diversification, including almost 85% of pension funds and fund managers," says Greenwich Associates consultant Frank Feenstra. "At the same time, almost 40% of the investors say they use these instruments to generate alpha, including nearly three-quarters of hedge funds.""

Read the rest here.
 
Quote from loik:

How do you know?

Financial Investors Fueling Commodities Boom

"New research from Greenwich Associates reveals that more than a third of investors in commodities have been active in these markets for less than three years, and more than one in 10 say they started investing in OTC commodity derivatives within the past 12 months.

The entry of new financial or speculative investors into global commodities markets is fueling the dramatic run-up in prices. "While the long-term fundamentals of global energy and other commodities markets are being driven by increasing demand, there is little doubt that, in the immediate-term, speculative investors are driving up both trading volumes and prices," says Greenwich Associates consultant Andrew Awad.

The results of Greenwich Associates' 2008 Global Commodities Research Study reveal that, in general, the growing ranks of commodity market investors consist of three types of organizations:

1) Pension Funds, which use commodities as a portfolio diversification tool;

2) European banks, which use commodity derivatives to structure retail products that they then sell to their retail customers;

3) Hedge Funds, which use commodities as a source of alpha.

"Overall, about 55% of the investors participating in the Greenwich Associates study say they use commodity derivatives for diversification, including almost 85% of pension funds and fund managers," says Greenwich Associates consultant Frank Feenstra. "At the same time, almost 40% of the investors say they use these instruments to generate alpha, including nearly three-quarters of hedge funds.""

Read the rest here.
More...

This makes it sound like a third bubble! First tech stocks, then real estate, and now commodities?

SM
 
Quote from Dobbes:

Speculators can't drive a market. Hedgers are the larger market participant by far.
More...

True. But the hedgers became speculators by buying instead of selling. Why eliminate risk, aka lose money, shorting something that is a bubble and is going way up...
 
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