Larry Jaques wrote:

Why do you think they don't try to reduce prices on oil? They make a
percentage, so the higher that is, the more money they rake in.

Who makes a percentage? Certainly not the gas station owner. He makes a few
cents per gallon irrespective of the price. In fact, the more the price
increases, the lesser percentage he makes.

The distributor of gasoline is in a similar economic situation. He buys from
the refinery and does NOT mark up a percentage. He sells his bulk gasoline
at the market price.


I'd be happy if the courts ruled out non-physical trading. One source
said that oil had been traded up to 100 times on paper, each with
profits, before it actually moved from one point to another, source to
purchaser. That's a lot of useless markup.

A guy sells a warehouse of sardines for ten-cents per tin. The guy who
bought them at ten cents sells them the next day for fifteen. The company
that bought the sardines at fifteen cents turns around and sells them for a
quarter. The guy who bought them for a quarter goes to the warehouse and
opens a can.

He takes the opened can of sardines back to the guy who sold them for a
quarter and says: 'These sardines are rancid. They are inedible!"

He is advised: "Those sardines are not for eating - they are for buying and
selling."

Oh.

Humor aside, if you would bar non-physical trading, you would have to ban
insurance policies because that's what futures trading really is.

Perhaps the biggest reason Southwest Airlines made a (huge) profit last year
was because the years before they bought jet fuel contracts at $40 - $50 -
$60 per barrel. Then oil shot up to above $80/bbl.

Interestingly, Continental Airlines did the same thing, but had to sell
their contracts when they hit a small cash-flow problem. They then had to
pay the $80 and $90/bbl price later.

Sure, there's a lot of markup, but no one really loses. The creator of a
future resource (a barrel of oil, a pork belly, a bushel of soy beans)
cannot know what he'll get when the item is ready for market. He's willing
to sell this future product at a fixed price now so that he can plan for the
future. Likewise, the buyer is willing to commit to a future price now so
he, too, can plan.

Rule #1 in an MBA program: "Always trade an unknown variable price for a
known fixed one" is the basis for futures trading.

Even so, futures trading is an open market between a willing buyer and a
willing seller. Why would anyone want to interfere with that?