Quote Originally Posted by dragonrider
Someone has got to explain to me how this futures market works and how it affects today's spot price. I thought the whole point of futures contracts was to accurately know the future price of a commodity based on future supply and demand predictions, or eliminate the risk of not knowing. How does runaway speculation affect that? Why would anyone buy a futures contract saying "I agree to buy a barrel of oil next year for $130 dollars" if predicted supply and demand say a barrel should only be $70 next year? How does that work? Seems like the market would just correct that out pretty quickly. And if supply and demand say that today a barrel should go for $70, then how does a futures contract for a future barrel of oil change today's price? I don't see how that works at all.

I know I don't know enough about how future's trading works, but it seems like bubbles would not be such a big problem and would rapidly self-correct, and I definitely don't see how it affects today's price.

I am thinking that today's high price is probably NOT due to some kind of futures bubble that has somehow added a 40% premium onto the supply-and-demand price of oil. That just seems like such a huge market distortion for such a heavily traded high-volume commodity that it would have to collapse.

Does anyone know how this works and can explain it to me?
The top CEOs of U.S. companies such as AMR Corp.'s American Airlines, Delta Air Lines Inc., Continental Airlines Inc. and US Airways Group Inc. this week asked their customers to press Congress to rein in speculation, which they say could contribute between $30 and $60 a barrel to current oil prices trading near $140.
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From what I've heard on t.v. and read there are MANY oil tankers off our coast at the present time filled with crude that's already accounted for or bought through speculation. Since this is removed from the supply side we have our increase. I guess there are many firms putting their retirement funds into this since it is so much of a money maker at this time. Let congress vote in a measure to allow drilling and these people will run for the hills.:thumbsup:

Do a google search on "Oil Speculation"....maybe you can find some better info than this on the subject. If so, please share for the rest of us!:thumbsup:

Have a good one!:s4: