The Chart for Natural Gas looks like a disaster zone...
When and why does a market like this turn around?
Prices for June 2012 natural gas futures contracts on the CME, which have fallen from about $5 per million BTUs to $2 over the last year.
The St. Louis Fed says speculators jacked up oil prices 15 percent in the 2008 run-up.
"However, speculation significantly contributed to the oil price increase between 2004 and 2008. Our analysis pins down the start of speculative forces driving oil prices in 2004, which is when significant investment started to flow into commodity markets.
We find that the decline in the real price of oil in late 2008 is driven mainly by the negative global demand shock associated with the recession after the Financial crisis.
However, we note that the speculative shock also played a significant role in the decline as the financial crisis eroded the balance sheets of many Financial institutions, which in turn affected their demand for commodity assets in their portfolio, consequently pushing prices down."
When and why does a market like this turn around?
Professor Mark J. Perry - Economics and Finance Blogger
Monday, April 23, 2012
Speculators Are Driving Natural Gas Prices DOWN, Not Up, Reflecting Market Forces: Supply, Demand
Prices for June 2012 natural gas futures contracts on the CME, which have fallen from about $5 per million BTUs to $2 over the last year.
Commodity prices in both the spot market and futures market are ultimately determined by the twin market forces of supply and demand, and cannot easily be manipulated to deviate from the overwhelming, natural and powerful forces of market fundamentals.
When natural gas prices are falling, it's a sure bet that increases in supply and/or decreases in demand, e.g. due to mild weather, are responsible. When oil prices are rising, it's a sure bet that decreases or potential disruptions in supply and/or rising demand are responsible. If speculators bet against market forces and the direction of prices resulting from those forces, it's likely they'll get punished with losses.
On the other hand, if they correctly predict the pending effects of market forces on future price changes in oil or gas ahead of other traders, they could be rewarded with gains; but it's because they're betting on the market, not against market forces.
When natural gas prices are falling, it's a sure bet that increases in supply and/or decreases in demand, e.g. due to mild weather, are responsible. When oil prices are rising, it's a sure bet that decreases or potential disruptions in supply and/or rising demand are responsible. If speculators bet against market forces and the direction of prices resulting from those forces, it's likely they'll get punished with losses.
On the other hand, if they correctly predict the pending effects of market forces on future price changes in oil or gas ahead of other traders, they could be rewarded with gains; but it's because they're betting on the market, not against market forces.
The St. Louis Fed says speculators jacked up oil prices 15 percent in the 2008 run-up.
"However, speculation significantly contributed to the oil price increase between 2004 and 2008. Our analysis pins down the start of speculative forces driving oil prices in 2004, which is when significant investment started to flow into commodity markets.
We find that the decline in the real price of oil in late 2008 is driven mainly by the negative global demand shock associated with the recession after the Financial crisis.
However, we note that the speculative shock also played a significant role in the decline as the financial crisis eroded the balance sheets of many Financial institutions, which in turn affected their demand for commodity assets in their portfolio, consequently pushing prices down."
- Source: CARPE DIEM: Speculators Are Driving Natural Gas Prices DOWN, Not Up, Reflecting Market Forces: Supply, Demand
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