It seems as though the HIGH GAS prices we experienced this past spring and summer was not the result of Supply and Demand after all. A 60 minutes report detailed the reason for those high oil prices.
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It was all due to, you guessed it, SPECULATORS!!. Oil is a publicly traded commodity where trading in the U.S. is regulated by the CFTC (Commodities Futures Trading Commission). Oil is traded in Futures Contracts, where the buyer buys the contract for one price hoping to sell the contract in the FUTURE for a higher price. The difference is the investors profit.
Exxon Mobil (Symbol: XOM) was the main scapegoat along with other oil companies during the high oil price bonanza. This was due to their incredible profits during the time consumers experienced high oil prices. However, the Hedge Funds and Wall Street Investment Banks were the largest purchasers of Oil Futures contracts, which subsequently drove up the price.
These entities are more than welcome, like you and I, to purchase any publicly traded investment product. But, when investing in oil, a purchaser has the option of taking physical possession of the oil or either sell their contracts for a “higher” price in the future.
What would J.P. Morgan (Symbol:JPM) or Morgan Stanley (Symbol: MS) do with a barrel of oil? Nothing!! But, they could make a nice ROI in buying and selling Oil Futures contracts. Plus, as so-called market analysts peddling rationales for the reason of price run-ups and future price targets, they kind of manipulated the oil market. Remember, analysts from these banks as well as Goldman Sachs (Symbol: GS) all told us they felt the price of oil would go to between $150/barrel & $200/barrel.
Boone Pickens was also making the $150/barrel oil predictions. One of his investment funds through BP Capital lost about $1 billion and many of his limited partners/investors made capital calls. At one point BP Capital attempted, we believe (Don’t quote us) to halt all withdrawal requests in order to conserve cash. They subsequently provided this option to any investor whom wanted to move in this direction.

What these SPECULATORS did not anticipate was the magnitude this Global Credit Crunch. When the credit crunch started to spread, these companies (Investment Banks, Hedge Funds, etc….) were getting capital calls from their investors. In order to fulfill these investor requests , they had to sell most of their Oil Futures Contracts in order to raise capital. This is one reason why the price of Oil & Gas is so cheap now.
The airline industry is one industry whom actually purchases Oil Future contracts and then take the physical commodity to use for its business.
IMP: In ‘09, take whatever you hear from an analyst or Investment Adviser with a grain of salt. You cannot possibly know what conflicts-of-interest they have underlying their statements and the reasons for “pushing” certain market conditions. Conserve your cash and pay off debt.



