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Tuesday, June 24, 2008

Oil Speculation - debunked?

Thanks to Mankiw for this.
Both Paul Krugman and Alan Reynolds (and Mike Moffatt) don't believe oil specualation is significantly driving prices.

Last week I made the argument that it could be, in so far as more and more speculators enter the market (as perhaps measured by increasing volume of "buys" in the oil futures markets).

I also noted that perhaps speculation itself was feeding global demand (inventories etc).

But I think the empirical data presented particularly by Alan Reynolds suggests otherwise.

So I concede the point. It's the fundamentals stupid.

1 comment:

Anonymous said...

Future trading of Commodities & inflation is the classic controversial debate. There is lot of theoretical support but every theory is based on certain assumption that’s why the practical results are not matching with it. Recently India started the future trading & it faced double digit inflation, in order to find the co-relation between future trading & inflation govt. formed a committee but the results were not conclusive.

The speculators took the advantage of market inefficiencies (lack of regulation + correct information + leveraged finance) to sky rocket the prices. If we will add the social economics consideration to study the impact of speculation, we can reach to a better solution but it won’t be acceptable by many of us, futures market size is in trillions.