In order for a speculator to lift the price and sustain it, they'd need to actually take delivery of oil and remove it from the system. If they're exiting before the delivery date then they're not generating underlying demand, which means they can't sustain an impact on the price of the underlying.
This thread was about speculators pushing prices higher, and I was outlining the only viable way where I saw that they could push prices higher, and then explaining why it didn't make sense as a business model.
>In order for a speculator to lift the price and sustain it, they'd need to actually take delivery of oil and remove it from the system.
No, when they buy a commodity on futures they own that product. It is out of the market at that point. Further trading can't go on on oil that was bought on futures, it's been sold before it was produced.
>This thread was about speculators pushing prices higher, and I was outlining the only viable way where I saw that they could push prices higher
But this can be done via futures as it has been with Gold. There is more than 10 time more gold "owned" by people than actually exists.
I see one of two things will happen. Our fictional speculator either accepts delivery of the thing, in which case they have to warehouse it and take the stuff away from market. Or, they form a new contract and sell in order to get it off their books. Which will have the effect of increasing supply and depressing the price.
But this can be done via futures as it has been with
Gold. There is more than 10 time more gold "owned" by
people than actually exists.
Do you have a reference for this?
With equities, when there's extra fractional-reserve style liquidity in the system due to shorting, you can tell because that info is available in Bloomberg. So if you see that there's more outstanding than exists, you could call bluff on the people with the outstanding positions.
I'm not sure if the same is true with commodity contracts.
>Our fictional speculator either accepts delivery of the thing, in which case they have to warehouse it and take the stuff away from market. Or, they form a new contract and sell in order to get it off their books.
Sure, but when they buy the futures those products are off the market. If speculators buy up everything via futures then that will drive prices up and they'll be able to dump it at a profit (well, the ones who get out in time will).
>Do you have a reference for this?
Here is a jumping off point [1]. Oh, and I was wrong. It's 100 to 1, not 10 to 1. From the wall street point of view they didn't even find this fact controversial. In the inquiry they just basically responded with "oh, no it's fine. You just don't understand". Right, never heard you say that before...
> If speculators buy up everything via futures then that
> will drive prices up and they'll be able to dump it at
> a profit (well, the ones who get out in time will).
Right - so that's definitely not a long-term business model for sustaining higher prices. Rogues might get away with short term manipulation, but if you were doing that and working for a firm, there's a fair chance they'd be locked up.
> Here is a jumping off point [1].
Thanks. ETFs acting on a fractional-reserve basis - interesting topic. That's different to futures though. I don't buy the ratios, either.
>Right - so that's definitely not a long-term business model for sustaining higher prices.
Ah, I apparently missed the part where this was suggested as a long term thing. In that case, you're right. This isn't a method for long term price manipulation.
>Thanks. ETFs acting on a fractional-reserve basis - interesting topic. That's different to futures though. I don't buy the ratios, either.
The info came from a Wall street exec who said that the ratios were easily 100:1, perhaps more but not to worry because blah blah, you can't understand, blah blah, gold futures, etc. I didn't glean much info from it because he didn't seem all that interested in giving much.
Store what? Commodities are typically traded in futures.