Ha ha I tricked you--I'm not discussing anything risque here, just oil stuff. As readers of Crash Landing know, I have been pontificating at Hayekian-like length on the oil markets, and in particular whether speculators are driving up prices. My general answer has been that it is theoretically possible they are doing so, but I don't think in fact that they are.
Now the one thing that has really been worrying me in my stance is this: With war brewing with Iran--where they might mine the Strait of Hormuz etc.--shouldn't speculators be driving oil prices way up? Shouldn't there be massive contango (or something more exotic involving the prices of options) in the oil market, giving people the incentive to buy oil today and stockpile it? As I speculated (ha ha) earlier, I think one of the reasons the Bush Administration was so reluctant to cease filling the SPR, is that we are going to need that oil if Israel bombs Iran.
But I need to take the (un)friendly criticism of emailers to heart, when after my articles on futures markets they blast me with, "We don't have a free market in oil!!"
Let's say you are a refiner and so you actually know how to stockpile thousands of barrels of oil. (Most people, especially me, would have no freaking idea how to do this.) Further suppose that you are really convinced there will be war with Iran before Bush leaves office.
OK, so are you really going to pay $1.4 million to buy 10,000 barrels of oil, then shell out another $?? to warehouse them for six months, buy insurance in case someone robs you or starts a fire, etc., and then try to sell them for a total of $4.2 million when oil triples? Do you really think when oil is selling for $420 per barrel, and we realize we've got about 2 months' worth of net imports in the SPR, that the politicians are going to say, "Good job, Mr. Speculator! Like a wise squirrel, you hoarded 10,000 barrels. In this country, such foresight is rewarded with entrepreneurial profits! Ah, don't forget to pay a low capital gains tax on that profit. Our small government needs its funding too, don't ya know" ?
Of course that wouldn't happen. Your oil would be seized and you'd be lucky if you didn't get shot as an example.
So this explains to my satisfaction why no US citizens, at least, are stockpiling oil like crazy. It doesn't, by itself, explain why speculators aren't driving up prices, but I wonder if there is something similar going on.
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