A question for Sen. Bernie Sanders (I-Vt.): “Is it your position that market forces are the primary reason that oil and gas prices fall, but speculation and energy market manipulation are the primary reasons that oil and gas prices rise?” [Mark Perry, AEI] But see: Arnold Kling (capitulation by upside speculators could cause price collapses).
2 Comments
Ah, yes, speculators like friends of mine who, every year, buys a contract for heating oil for their house for the winter. The company they deal with offers them a choice: they may purchase the oil at a price based on the current market price or they may pay an extra few cents a gallon, but if the price of heating oil drops, they get a similar reduction in their price. This is achieved by the company purchasing puts on their behalf.
Bob
I love it when the politicians try to regulate the oil/gasoline market by trying to fix the textbook example of a free market.
Oil and gasoline markets are the freest of markets and tend to be self-regulating. The price that you pay at the pump (excluding taxes which are VERY substantial) is very close to the ideal free-market price.
There was one period back in 1973, when Sheik Yamani was running OPEC and was able to enforce a cutback in production among all OPEC members, so everyone had to pay the monopoly price for crude. This continued for a few years, but as predicted, the monopoly fell apart because of the strong economic incentives for each OPEC member state to cheat on its production.