When essential commodities are no longer traded in a free market that relies on supply and demand new legislation is needed to correct the insanity. When the stock market creates a bubble the only people who hurt are the speculators and investors who have a choice to invest or not to invest. In the essential food and energy commodities markets it is the world populations that suffer when things get out of sync.

The answer to the current oil and food market commodity wild speculations is a simple one and yet overlooked at this moment in time. Before we explore the answer that can solve the problem, let's investigate the causes of the nonsensical prices.

Most speculators will tell you they only trade oil futures for one reason and that is to make money. It is their money and they will trade the easiest way to make a fast buck with the minimal risk. It seems they have a one way bet at the moment. The commodity markets were devised to trade and hedge oil companies production and find a market for the oil they extracted from the ground. It was a place where buyer and sellers met and a fair price was struck by the laws of supply and demand.

Today supply and demand has little influence on the price of a barrel of oil and speculation rules the day. Therefore, the oil futures market is no longer a free market. Rather, it is a speculators market that can control prices by intellectual rhetoric consisting of opinionated experts and propaganda from the president of Iran. The price of oil has risen from $12.00 a barrel in 1999 to $127.00 this week. The two main factors that aid and abet the speculators are;

Firstly, the Iranian government is hell bent on constructing a nuclear reactor and repeatedly states it craves to destroy the state of Israel. This propaganda accounts for 50% of the price rise in oil and puts a floor under any falls. Whenever prices weaken a little the president of Iran communicates his repulsive propaganda to a media hungry for sensationalistic news.

Secondly, expert opinion states China and India are booming and although there is no shortage at the moment, in five years time there will be. Even though most Indians and Chinaness ride bikes or walk. There has been an increase in oil demand in these counties, but nothing to spike prices to ridiculously high levels. What the so called oil experts do not take into account is economies do not boom forever and recession or inflation will come along and dampen the growth substantially. Also, many new discoveries of oil will emerge in the next five years that will add to the already enormous amounts of oil still in the ground.

By the experts logic and reasoning we could declare that apples may be in short supply in five years due to prophesies of a famine in the orchards, so put the price of one apple up to $50.00 an apple now. Therefore, there is no true reason why oil is trading at $127.00 other than the fact speculation is controlling a market that is no longer free to trade solely on supply and demand.

What is the simple answer to end the craziness?

The USA government should pass a law that states every oil contact bought on the mercantile exchanges must be delivered to the buyer and held in storage no longer that 6 months. It cannot be traded back onto the exchanges and its end use must be in an oil related business. Likewise, all sell contacts have to originate straight from companies that extract oil from the ground and they cannot trade contacts that have been purchased on the exchanges.

This act will restore the exchanges back to the standing they were intended to be and a fair market price will be established for all essential commodities. The other commodities such as gold and silver can still be the plaything of the speculators in the same way as the stock market.

The fear of enacting the law will be enough to drive the speculators away from the oil market in double quick time.. Once again the open road will become the delight of the people that is an intrinsical part of the American way of life. The family can enjoy a car ride out in the countryside or beach without watching in dread as the fuel gauge drops.

May 18, 2008

By arrangement with PointofLife

Image under license with Gettyimages.com

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