Peak Oil, Speculation, and Office Romance

I would like to use the message board to continue the conversation we had Saturday night. I encourage other members to participate. This message is only going out to those who RSVP'ed yes for that evening.
Note that if you post to the message board, it will *NOT* result in email being sent to anyone. Only I, the organizer, have the authority to email everybody in the group, and that will happen only to announce upcoming meetings, or last-minute changes of plans. So you can post to the board to your heart's content without filling up anybody inbox. I will delete spam and rude posts.

As usual, there was no shortage of conversation Saturday, and the topics spun off onto many things, and sometimes things got cut off before they could be properly followed through.

On speculators: someone was suggesting that it was OK for an airline to buy fuel six months in advance, because they are really going to use it, but it's not OK for a speculator to buy it six months in advance when all he's planning to do is resell it at a higher price. I would maintain that such speculators do contribute positively to the system.

Consider two examples: you are an airline that wants to buy fuel six months in advance, just so you know what price you're going to be paying for it and so you will know how much to charge for plane tickets. You go to the trading floor, and that day none of the oil companies are selling futures for that date. A speculator, however, is willing to sell you the oil future, because he plans on buying the oil at a later date. The airline is therefore able to make its plans.

In the other example, suppose you are an oil company trying to decide whether to drill a new, expensive well. If you drill the well, it will produce oil in a year, but it will cost $100 a barrel to get. If the oil price then is $90, the well wasn't worth drilling. You go to the trading floor to sell oil futures a year in advance, but none of the airlines are buying any that day. A speculator, however, is willing to pay you $110 / barrel for the oil, since he figures he'll probably be able to find an airline that needs it by then.

If the speculator tries to sell at too high a price, no one will buy from him. If he tries to buy at too low a price, no one will sell to him. If he buys to high or sells too low, he loses money. So the speculator is putting tremendous effort into analyzing the whole oil market to figure out what a fair price for an oil future will be, and the presence of speculators trading back and forth allows parties that really are producing or consuming oil to do business in a smoothly functioning, orderly fashion.