Price of oil determined on the world market

With gasoline prices up, the usual suspects are charging that oil companies and speculators are manipulating the market, and no doubt there will soon be demands for congressional hearings in which oil company execs are forced to answer inane questions from preening, grandstanding congressmen. It’s all a P.T. Barnum spectacle of course, meant to create the illusion that Congress is “doing something” about oil prices and, when it’s over, the big top is taken down and everyone goes home.

The total amount of money made by futures speculators is zero; slightly less when you factor in commissions. That’s because every contract is made up of a long position and a short position, and any change in the price will make money for one at the expense of the other. Short traders make money when prices go down but oddly enough they’re never accused of manipulating the market. Speculation can cause volatility and affect the price for a limited amount of time, but ultimately the price is determined by anticipated supply and demand. For instance the threat of war in the Middle East can drive up future prices of oil before the war even starts because of anticipated interruptions to the supply, and this in turn drives up spot prices.

The price of oil is determined on the world market, not by Shell or Exxon, or a group of speculators. A market so enormous is hard to manipulate but I’m sure a truther, a grassy knoller or Bill O’Reilly can explain it.

DAVE MUNDELL

Sandpoint