Energy Prices and Speculation

Energy Prices and Speculation

Nothing gets me more riled up than when the President says he has no control over energy prices, especially gasoline prices. While technically the president does not control what happens on the world market, what the US does will affect the worldwide market more than he will admit. Speculation, that is buying commodities in anticipation of selling at a profit, can only be profitable if the speculator accurately predicts what the market will do either going up or coming down. Most commodity traders will tell you that the best thing necessary to fix high prices is high prices. The market is the market. If traders feel the demand is outstripping supply they will buy now to lock in supplies for their refinery or plastic plant or power plant. If they feel that supply is outstripping demand they will either not buy or sell some of their hedged supplies. If the market anticipates increased supply in the near term then why would they buy? The market today is priced based on reduced drilling on federal lands (down 44%) reduced leases in the Gulf of Mexico (down 57%) reduced or no drilling in ANWR. permits for new drilling (down 39%) and the lack of the Keystone Pipeline which will bring North Dakota shale oil and Canadian tar sands oil to market. While none of those things would bring down gasoline prices overnight, the anticipated supply down the road would moderate prices by eliminating the anticipated shortages and thus the higher prices. The market works.