Gas prices - FMTT!

[Darth_Panda]

@Little_Nemo

Companies that trade in oil aren’t oil companies?

Most of the trading is done by banks or other financial institutions. Here’s a random example:

J.P. Morgan is one of the world’s leading energy market makers. We are active in both the physical and financial markets worldwide for crude oil and oil-refined products, coal, power and gas, and have extensive capabilities in the voluntary and mandatory emissions markets.

J.P. Morgan | Official Website

You can call JP Morgan an oil company if you want to, but I don’t think that’s how most people think of them.

[Darth_Panda]

I found some numbers to illustrate the point:

Still, oil’s price shot up because it trades in financial markets, where Wall Street firms and other big financial players dominate the trading of oil, even though they have no intention of ever taking possession of the oil whose contracts they are trading.

…

A McClatchy review of the latest Commitment of Traders report from the Commodity Futures Trading Commission, which regulates oil trading, shows that producers and merchants made up just 36 percent of all contracts traded in the week ending Feb. 14.

That same week, open interest, or the total outstanding oil contracts for next-month delivery of 1,000 barrels of oil (about 42,000 gallons), stood near an all-time high above 1.486 million. Speculators who’ll never take delivery of oil made up 64 percent of the market.

http://www.mcclatchydc.com/2012/02/21/139521/once-again-speculators-behind.html

[Virgil_Tibbs]

Why do we allow speculation on vital commodities? Water and food also come to mind. Speculation seems to make markets more volatile and inflates prices.

Are there good reasons why this is allowed?

[Darth_Panda]

@Virgil_Tibbs

Why do we allow speculation on vital commodities? Water and food also come to mind. Speculation seems to make markets more volatile and inflates prices.

Are there good reasons why this is allowed?

The best reason is that it provides liquidity in the market.

Market liquidity

Speculation

Speculation actually tends to decrease volatility in that individual trades are less likely to drive price (since there are larger open positions). It also makes prices more transparent due to the volume of transactions. However, when you consider behavioral finance (a somewhat controversial topic) speculation does present risks in terms of group think effects and the idea of the tail wagging the dog.

[gamerunknown]

@cards

No, it would be $8.88

and up to $14.88?

[Little_Nemo]

@Darth_Panda

You can call JP Morgan an oil company if you want to, but I don’t think that’s how most people think of them.

What does it matter what people think of them? The point is that companies that trade in oil exist.

[Darth_Panda]

@Little_Nemo

The point is that companies that trade in oil exist.

That is undeniably true.

[Imasquare]

@silenus

I know that there have been pipeline problems and refinery fires, but fuck me to tears. I just saw the price of regular go up $.30/gal in 9 hours. It was $4.23/gal when I drove to school, and $4.53/gal when I drove home!

It’s all a Republican plot, I’m sure of it.

30 cents a gallon - so that’s 8 cents a liter. Not too bad.

In my neighborhood prices fluctuate more than that on a daily basis. Fluctuations of 20 cents a liter are not uncommon.

As an example last weekend my local petrol station was charging 149.9 cents per liter, yet a couple of days earlier it was 131.9. That’s a jump of 18 cents per liter = 68 cents per gallon. And that price would have gone up in one hit, not in stages. If I check the price on my way home tonight it will probably have fallen again.

A lot of people moan about these fluctuations, but I think what they don’t realize is that when the price is low it is being discounted. If you do away with the fluctuations it will most likely always be at the top of the current price range.