Drunken Oil

If anyone had a doubt that Hedge Funds controlled oil prices. this article (from a 2009 case) should put any doubts to rest.  In two hours, ONE broker raised the price of oil by $1.50 per barrel:

Perkins ultimately purchased 69 percent of the global market between the hours of 1:22 a.m. and 3:41 a.m. causing the price of oil to jump $1.50 per barrel, “the kind of swing that is caused by a major geopolitical event,” CNBC notes.

The global barrel price went from $71.40 to $73.05, as Perkins bid higher and higher each time.

Just to be clear, the Perkins fellow worked for a company called PVM Oil Futures, a company that has never produced a drop of oil, but calls itself “the world’s leading independent broker of oil instruments.”

To REALLY simplify, folks buy and sell commodities futures every day. You can buy a futures contract to deliver 5,000  bushels of corn for perhaps $12.50.  If you do nothing, the corn will be dumped on your driveway, and you’ll owe whatever your contact price was, say $7.50/bushel = $37,500.  Most folks, and the hedge funds, SELL their contracts before they ever come due.

But the contracts affect prices.  Oil contracts can affect whole tanker-loads.

I hate regulations, but some might be in order for oil futures and the entire futures (contracts) markets.

If you want to hedge you gas costs, you can buy 42,000 gallons at a time.