Jun 24, 2008 11:10 pm US/Central
Good Question: What Is A Speculator?
(WCCO)
As gas prices soar, oil companies have been taking a lot of the blame as they reap record profits. Well lately, there's a new target in the blaming game: Speculators. So as Butch Cassidy and the Sundance Kid would say "Who are those guys?" What is a speculator?
Whenever the picture is as bleak as it is these days we all want someone to blame. Some politicians and market analysts are pointing at speculators in the oil market. But what is an oil speculator.
A lot of folks at a local gas station didn't seem to know.
"Do you know what an oil speculator is?" asked WCCO-TV's Jeanette Trompeter.
"No, I just know that this gas is too high," said one man pumping gas.
"Somebody who does commodity pricing for oil?" asked another woman.
"People who play the futures market," said another man.
Chris Farrell, an economics editor of American Public Media's Marketplace Money, said oil speculators are simply betting on the future price of oil.
"I love speculators. Speculators are risk takes, they're trying to figure out what is the price of a commodity like oil or corn. And if they're right, they make money, and if they're wrong, they get another job," said Farrell.
For speculators, if they think the price of oil will go up, then they buy up the commodity.
"In some sense, all finance is degrees of speculation," said Farrell. "When I buy a stock, I'm taking a risk. Am I an investor or speculator?"
The difference between being an investor and speculator may be in the time frame.
"That's almost the convenient way that we've divided the investor versus the speculator. The speculator is looking for a quick action, a quick return. A year or less," said Farrell.
Speculators are buying oil, on paper, a year from now or three months from now, or whatever the contract dictates.
Farrell believes speculators are taking more heat than they deserve; that it's possible they can prompt a spike in a market, but not the sustained surge in prices we've seen with oil.
"Speculators did not take the oil market from $26 a barrel to $140 a barrel. They did not do that. There's no way," he said.
And speculators could lose as much as they're making. They are taking a big risk, in essence they are gamblers.
"They're smart gamblers," said Farrell. "The key is they really don't care if the price goes up or the price goes down. They can make money either way."
(© MMIX, CBS Broadcasting Inc. All Rights Reserved.)
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