Perhaps 60% of oil price is speculation

Adrian Laguna · Post by **Adrian Laguna** » 2008-06-10 11:56pm

Could you expand a bit on what "long positions on contracts" are and why they are related to speculation? I'm finding this rather interesting, and would perhaps like to bring it up in another forum.

Jaepheth · Post by **Jaepheth** » 2008-06-11 01:07am

Adrian Laguna wrote:Could you expand a bit on what "long positions on contracts" are and why they are related to speculation? I'm finding this rather interesting, and would perhaps like to bring it up in another forum.

Basically "long" is buying the contract for yourself and betting for the contract. "Short" is in essence betting against a contract.

Common contracts

Post by **Darth Wong** » 2008-06-11 01:09pm

Those figures are indeed interesting; they certainly show the limits of the non-commercial traders in terms of affecting oil prices. In the case of agricultural goods, the dramatic effect of the non-commercial traders can be seen in the numbers (especially the long:short ratio, which is amazingly different for commercial vs non-commercial traders). But that huge disparity doesn't really show up for oil, although the volume is still sufficient to make a noticeable impact, albeit not a huge one like in agriculture.

J · Post by J » 2008-06-11 09:18pm

One other thing I'd like to note is many speculators are trying (and failing for the most part) to short down the price of oil since their fancy algorithms and technical analysis tools have told them that oil is a bubble and heavily overpriced. Quite a few are overlaying the trace of oil prices over that of previous bubbles and coming to the conclusion that it's due to burst any day now, and so they attempt to make a profit by shorting it. Unfortunately, they ignore the fundamentals or handwave them away, convinced in the rightness of their analyses. They break the key rule of the market; everything will eventually correct and trade to the fundamentals, and no amount of wishful thinking can change that.

Sikon · Post by **Sikon** » 2008-06-15 12:58am

For those interested in following this thread with the topic of speculation and oil prices, there's indirectly a partial continuation in a thread in SLAM here.

Although not the creator of the thread myself, I reference it instead of making another long post here, to not clutter the forums with a bunch of similar posts in two threads.