Wednesday, August 13, 2008

Much ado about oil speculation

From FT Alphaville:

“If regulators really wanted to limit speculation in the oil market, they should keep the shorter-term futures contracts and eliminate the more speculative six-month futures contracts.”

That’s the conclusion of a recent paper by Lonnie Stevans and David Sessions of the Frank G. Zarb School of Business, who also found that:

“For model specifications with short-term futures contracts, supply does indeed dominate price movements in the crude oil market. However, for specifications including longer-term contracts that are inherently more speculative, the real price of oil appears to be determined predominantly by the futures price....MORE