Nelson and Herbert Hunt

Randolph and Mortimer Duke

Oil prices are on the rise, so once again the fingers are pointing on those evil speculators. Websters defines speculation as “assuming a business risk in hopes of gain”, in other words: Trading. When the oil market goes up, speculators who have purchased oil futures are blamed. When the stock market goes down, speculators who have sold short are blamed. In other words, “how dare you be right, when I was wrong”.

Now if you can prove that a small cabal of moneymen have cornered a market and artificially forced up prices, well go ahead and bust them. But in most cases, those who have tried to corner a market have met with disaster. Just ask the Hunt brothers who tried to corner the silver market in 1979 and ended up losing $2.5 billion, or the Duke brothers who tried to corner the frozen orange juice market and ended up living on the street (okay, so that was a movie).

The truth is that when oil prices were skyrocketing last year to over $145 a barrel and people were blaming speculators then, it was those very speculators having to sell out their long positions that helped drive down future prices to below $34 a barrel. It’s simple, the more buyers any market has, the more future sellers there are. Conversely when the stock market was collapsing last fall, the only upward movements were short-covering rallys.

If you take the shorts out of a market then eventually you might have a market where no one needs to buy.Here is link to an article in the Wall Street Journal about regulatory worries.