How do oil speculators drive up the price of retail oil?

I know about short selling and I know about supply and demand. What I don't understand is the technicalities behind driving up the price of oil.How do oil speculators drive up the price of retail oil?
if you have netflix you should watch enron story where they caused the California black outs and increased the price of power 20 fold they were also speculators my personal opinion that they are currupt and have a share i the profit that could be made but i dont know that for sureHow do oil speculators drive up the price of retail oil?
First you must understand that the term speculation IS the market: the market IS speculation. This was a term devised to demonize market practices in general.





The following sums it up rather nicely.








The following article was written for MEES. Shawkat M Hammoudeh is Professor of Economics at Drexel University and Mark A Thompson is Associate Professor of Economics at Augusta State University. They can be reached at hammousm@drexel.edu and mthompson@aug.edu, respectively.








With oil going over $140/B and gasoline above $4/gallon, many Americans including Barack Obama, John McCain, Joseph Lieberman and Bart Stupak are searching for reasons as well as scapegoats to blame. They, to varying degrees, blame the oil speculators for causing an oil bubble beyond the fundamentals and ask that oil futures trading be regulated and curbed. What do speculators do and how much have they contributed to rising oil prices? Should they be subjected to more regulations in order to lower the oil price? Who is to blame?











Oil traders, who are now preferably called speculators, are financial players who buy contracts from oil producers and sell to oil users such as refiners and airlines at specified prices. They help the producers and the users hedge against volatility and inflation, thus helping to shed risk without taking physical custody of the commodity. Their contracts are basically predictions about future oil supply and demand and “possible” events. In this process, they make profits and losses and keep the market running. Their contracts help in the price discovery process of future prices. By continuously trading these contracts, liquidity is brought to the marketplace and, subsequently, price volatility is reduced. Without such trading, the prices would adjust much slower and maybe higher, reflecting higher risk. Major oil producers or consumers would artificially tilt the price one way or another without a speedy pricing mechanism to set it straight. In this sense, speculators are needed and their role is important.











However, several charges are currently levied against the oil speculators. In particular, some feel that speculators have artificially pushed prices higher than what is supported by the fundamentals. Some use the US Commodity Futures Trading Commission’s (CFTC) data, which states that the speculators have increased their share of futures contracts to about 70% (no physical delivery) in April 2008 from 30% in 2000 to support this accusation. In fact, some believe that if speculators are barred from futures trading, oil prices would drop to $50/B. There is no sign of price manipulation tactics such as squeezing or hoarding on part of oil speculators.











Speculators’ Contribution To Oil Prices





While those speculators have contributed to the sky-rocketing prices, some of the serious charges cannot be substantiated by evidence in the oil markets. No accurate dollar amount is placed on their contribution to higher oil prices, but some common sense should prevail! If speculators have increased the market price higher than the fundamental equilibrium price, would this not create a surplus in the market that should be evident in hoarding for an extended period of time? This, however, doesn’t preclude that the oil producers are storing oil in the ground as reserves in anticipation of higher expected oil prices or in the name of nationalism. This amounts to hoarding, but it will not be the responsibility of the speculators.











While these speculators are financial players that do not exercise their contracts at expiration, we provide some estimates to put this in perspective. For example, the CFTC data that was released is misinterpreted. The 70% increase in the share of futures contracts includes both long (buying) and short (selling) positions, and thus the net open interest’s share is much lower. We must also add that CFTC found that speculators do not take the lead in setting trends in oil price, but instead follow them. CFTC also found that prices of commodities such as cobalt, rice, iron ore and steel, which have no futures markets or speculators, also more than doubled in the last year.











To estimate the speculators’ contribution to the current price, we use the well-noted historical record price in April 1981. The price reached $40/B then, which is equivalent to about $105/B today. That price includes a slightly lower marginal production cost, a lower depletion cost known as user’s cost, almost the same amounts of geopolitical and OPEC power premium, but no speculation premium.











In 1981, Saudi Arabia produced 10mn b/d of oil compared to the 9.7mn b/d scheduled today. OPEC produced slightly more than 30mn b/d, which is also close to its production today. Of course, oil demand is higher today than in 1981. We can add $15/B to the $105/B to reflect the increase in depletion cost since 1980 and add more to account for the increase in the marginal production cost.
No one does except the cobol of people who control the futures market. They cheat and manipulate and ';fix'; the market price.