How does speculation impact the price of oil?

I've heard that oil prices are higher than they would be in a natural supply/demand economy, and that part of this is due to speculation. What is speculation? How is it raising the price of oil? Also, if people or companies are using oil speculation to make money, why don't more people do it?

3 Responses to “How does speculation impact the price of oil?”

  1. MM Says:

    Speculation is adding to the price of oil. Oil is traded oin the futures market (30 60 or 90) day contracts. If you called your broker and asked to buy $100k worth of oil in 90 days @ $140 a barrel two things could happen. If the price is below your agreed purchase amount you make the difference, but if the price is above that amount you will lose that amount. A big reason most people are not buying these is they can't afford to. Your liquid net worth needs to be an excess of $1,000.000. Future contracts are generally traded in amounts oif $100,000. If you want to make money off oil just buy stock in Exxon Mobil. You don't need a million bucks cash and they won't be losing money anytime soon.

  2. georgebukshi Says:

    Same concept as buying stock. A stock is going up, more people want to buy, stock goes up some more. In this case, it's creating an artificial demand; these buyers don't intend to, and really can't ever take delivery of the actual product. But it's enough that they're buying "futures" as if they might actually take delivery. The reason more people don't do it is that you can really get burned; there are so many variables, you never really know when it's going to turn. When it does, if you don't move quickly, you will get scorched. . Eventually same will happen to oil.

  3. barnet1992 Says:

    by creating an artificial demand, speculating is buying shares in an oil company (in this case) for a short period of time in order to capitalise on a lucrative market and make a 'quick buck'
    the first guy pretty much got it