Hoarding is exactly what the government is doing right now by filling the SPR, and frankly it's the best thing that could happen. It drives prices up. High prices encourage demand destruction. They also finance new well development. The hoarded oil gives us a buffer to fall back on once shortages become more prevalent. High prices are what we need in order to adapt to what's coming, and the sooner they happen, the better.
Posted: Wed Jun 11, 2008 7:52 pm Post subject: Is oil in the equivalent of a short squeeze?
There are a lot of businesses that buy oil in advance a couple of years out to lock in their costs. Southwest airlines is a notable example. Their counterparties are on the hook to pay whatever is required to get them their contracted for oil at delivery time.
Could oil be high not because speculators are buying contracts today but because they sold contracts two years ago and now the oil just isn't availableon the spot market to fulfill those contracts?
Posted: Wed Jun 11, 2008 8:13 pm Post subject: Re: Is oil in the equivalent of a short squeeze?
Could definitely be.
People promised to sell oil to someone at a certain price, it's getting above that price, why not buy has much as you owe and minimize your loss by riding the stock up until you have to pay it.
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