May 26, 2011
CptnCanada is correct. The speculators buy oil futures. The futures are contracts to deliver a set quantity of oil at a time set in the future for a spcific price. If an investor thinks the price in the future will be higher, he buys a contract thinking to get more for it - in the future - than he paid - when it is to be delivered delivered in the future. Because you can buy on the margin (buy partially on credit) if the price declines, you can be wiped out rapidly. If you are right you win, if you are wrong, you lose. So do you think oil prices will be up or down in a year say?