Interesting editorial from Derik Andreoli today on Logistics Management web site about the role of speculation in oil prices. Quote:
If speculators are driving prices above a level supported by the fundamentals, the solution is government regulation of futures markets. If, however, prices are supported by the fundamentals, mitigation through supply chain re-engineering is called for.
My motivation is not to defend speculators or their actions. Surely there are rotten apples among the bunch, and their existence justifies regulatory vigilance. Rather my goal is to show that speculators can profit from declining prices just as easily as when they rise—thus, the entire premise that speculators are to blame for high prices is called into question.”
I am not sure that just because speculators can make money on the downside does not absolve them of blame. After all, for something to go down it firs has to go up. The famous “pump and dump” strategy come to mind. The issue is volatility and is that volatility organic or synthetic. If the latter, then in what form and under what conditions? Still, it’s good to see logistics writers start to go beyond the “price is too high” mentality and try to understand factor dynamics.
Read the full text here: