Clipmarks - cmstratton's clipmarks from July 24, 2008

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POPS Speculators Chase the Money not Make the Money

by cmstratton 7-24-2008

I have a couple concerns about this story. One, even though it's a very small incident that had a negligible impact on the markets, I have a feeling politicians are going to use it as an example to introduce laws prohibiting or reducing oil trading. This despite the fact that there's even more research out there that says trading has not artificially inflated prices. It's supply and demand people - demand is greatly increasing, while supply is staying flat - of course prices are going to skyrocket. Second, it uses the correlation between the increase in oil price and the amount of money going into oil futures. Yet another basic market principle people - investors are going to chase hot items. Oil starts to go up, people anticipate it continuing to go up due to supply/demand issues, investors invest in it to hopefully make a profit. Finally, don't forget the dollar - people use oil as a hedge against inflation, which his been going up due in part to the weakening dollar.