Originally Posted by
global_b
By the way, the idea that there are as many buyers as sellers in the futures market and that the zero-sum game of the market doesn't have an impact are wrong, in my opinion. The secondary market for stocks is similar - people sell shares when they think they're at a maximum price and people buy when they think it'll still go up. There shouldn't be any difference in futures - more people that think the price will go up will drive the price up. I think it's that simple.
This is certainly true. If lots of people mistakenly believe that oil is much more valuable than it really is, then they'll be willing to pay more money for it. There may even be people who know in their hearts that the prices aren't justified, but are willing to take a risk and try to ride the prices while they're going up. But eventually, it will get to a point where enough people will say "there's no way real supply and demand can support this, I'm going to go short on oil" and then the prices will start to fall.
To
iahphx's statement, I'm not claiming that prices aren't higher than supply and demand support, I'm just saying that the rediculous suggestions made in this letter won't do any good at curtailing it. The price has nothing to do with the purchase or sale of futures. It has to do with a (possibly) irrational expectation about present and future supply and demand. And, you're right, there may be no supply shortage right now, but prices can still go up today if people think there will be a huge increase in demand or decrease in supply in the future. People will be incentivized to store the oil for later rather than use it now.