Interesting findings from Goldman Sachs with regards to oil prices. This comes from a recent research report from their Commodities Research Team. In July of 2008 Goldman Sachs famously said the price of oil was not being distorted by speculators. After a 75% decline in prices they changed their tune and said speculators had in fact distorted prices. Their retraction said:
“Conversely, speculators bring fundamental views and information to the market, impacting physical supply management and facilitating price discovery. As a result, speculators have a loose relationship with price. In other words, as speculators buy, prices generally tend to rise, and vice versa. Accordingly, speculators also contributed to the extreme price movements over the last two years. For example, new data suggests that speculators increased the price of oil by $9.50/bbl on average during the 2008 run-up. Thus, speculators exacerbated the volatility that was nonetheless rooted in the fundamental imbalance.” (emphasis added)
As I’ve previously stated, I find it hard to believe that there is not a speculative element involved in the price of commodities today. This is perhaps best seen in “commercial” participants who are now speculating in the markets by hoarding or using various commodities as collateral for financing operations. Given their 2009 retraction, it’s not surprising to find that Goldman says there is a speculative premium in oil prices currently. Perhaps more surprising, is their statement that the speculative premium is too small:
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