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How Speculators Impact Oil Prices

March 23, 2012 by staff 

How Speculators Impact Oil Prices, With gas prices rising and President Obama’s approval rating falling, many liberal pundits have been quick to point out the illogic of blaming the commander in chief for something that mostanlysts believe is largely outside his control.

It is unfair, they argue, for voters to hold the president accountable for high gas prices, just as it would be to blame him for an act of God such as – oh, I don’t know – a hurricane in New Orleans. President Obama can’t control the supply and demand of oil in the short term, they say, so he can’t control gas prices.

But the price of a product isn’t simply the result of supply and demand; present-day prices are heavily influenced by expectations of future prices. For instance, if consumers (or investors) expect the supply of a product to decrease in the future, they will purchase more of that product today to avoid the high prices of tomorrow.

 This increase in demand will cause prices to rise in a sort of self-fulfilling prophecy. Conversely, an expectation of lower future prices will cause consumers to delay purchasing a product, which in turn will result in lower prices for that product today.

This is essentially what happens in the oil futures market. Speculators attempt to predict future oil prices, making bets with sums of money so large that they have tangible impacts on global oil prices. Such speculators base their decisions on a wide variety of factors, including the policies coming out of the White House. The president’s words and deeds can therefore have a very real impact on the price of gasoline and other fossil fuels.

President Obama is perceived as being anti-oil, and for good reason. He appointed a secretary of energy who is on record saying that he wants U.S. gas prices to be as high as those in Europe. He imposed a costly moratorium on offshore drilling in the aftermath of the BP oil spill. Most recently, he single-handedly scuttled the Keystone XL pipeline, a project that would have brought a much-needed supply of oil from Canada, relieving to some extent our dependence on anti-American oil producers in the Middle East.

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