A Question on the Price of Oil and Rice
Michael Levy
April 25, 2008
How many futures contracts on the crude oil and grain futures market are actually exercised?
If most buy contracts are covered with a sell when they expire each month and the buyer does not take delivery of barrels of crude oil or a bag of rice how can the price be maintained at such high levels?
If you add one buy and then take away one sell a month later you are left with a zero.
Only by taking delivery can the price remain high and since less than 2% ever take delivery how is the system being manipulated?
Now you may well ask what about stock market trades. Well, people hold the stocks they buy and they do not have an expiry date. When lots of people sell at the same time there is a stock market crash and prices go much lower.
Unlike stocks all commodities have an expiry date each month and cannot be held beyond that date. They can be rolled over to a future month but that will add to the number of buy contracts and eventually they all have to be covered with a sell. If panic sets in the commodity will crash.
If most buy contracts are covered with a sell when they expire each month and the buyer does not take delivery of barrels of crude oil or a bag of rice how can the price be maintained at such high levels?
If you add one buy and then take away one sell a month later you are left with a zero.
Only by taking delivery can the price remain high and since less than 2% ever take delivery how is the system being manipulated?
Now you may well ask what about stock market trades. Well, people hold the stocks they buy and they do not have an expiry date. When lots of people sell at the same time there is a stock market crash and prices go much lower.
Unlike stocks all commodities have an expiry date each month and cannot be held beyond that date. They can be rolled over to a future month but that will add to the number of buy contracts and eventually they all have to be covered with a sell. If panic sets in the commodity will crash.
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