Speculators are a pain in the neck; even a slipped disc between C5 and C6 cannot inflict as much pain as these pests.
I was at a birthday party sometime ago and there was this guy blaming the Arabs for the high oil prices. I’m not trying to defend the Arabs or OPEC but the fact is they are powerless to contain the sharp rise in oil prices (as if they want to contain the price increase!). They are powerless because the oil price is not determined by the economic factors of demand and supply but instead by the power of the speculators' market manipulation by creating artificial demand. We all know that an increase in quantity demanded will push the price upwards so the speculators capitalised on this economic fact to make money for themselves at the expense of the genuine participants of the economy.
Basically what they do is bid for the oil without having any intention to take physical delivery of the commodity. Their excessive bidding will push the price up resulting in the genuine buyers having to pay more for their oil. The fallout in the global financial market put a stop to these speculative activities and the speculators abandoned the market, liquidating their positions and causing the oil price to drastically drop, the opposite effect now comes into play whereby artificial supply is created. This sharp drop in oil prices again affects the genuine buyers especially those who believed that oil prices will continue to rise, hedge their oil price obligations at high levels (Malaysia Airlines is apparently looking at almost RM3billion in paper loss after hedging their fuel costs at USD95-100 per barrel).
Now, do we see why Shariah forbids any form of speculation in trade and financial transactions? Speculating is akin to cheating the market, dishonest in the sense that it does not entail any genuine economic activity. Shariah based trade and finance is all about undertaking productive economic activity to increase wealth and not merely making money out of thin air.
So, don’t blame the oil producing countries for our oil woes, just ban speculation and our problems may just disappear.
I was at a birthday party sometime ago and there was this guy blaming the Arabs for the high oil prices. I’m not trying to defend the Arabs or OPEC but the fact is they are powerless to contain the sharp rise in oil prices (as if they want to contain the price increase!). They are powerless because the oil price is not determined by the economic factors of demand and supply but instead by the power of the speculators' market manipulation by creating artificial demand. We all know that an increase in quantity demanded will push the price upwards so the speculators capitalised on this economic fact to make money for themselves at the expense of the genuine participants of the economy.
Basically what they do is bid for the oil without having any intention to take physical delivery of the commodity. Their excessive bidding will push the price up resulting in the genuine buyers having to pay more for their oil. The fallout in the global financial market put a stop to these speculative activities and the speculators abandoned the market, liquidating their positions and causing the oil price to drastically drop, the opposite effect now comes into play whereby artificial supply is created. This sharp drop in oil prices again affects the genuine buyers especially those who believed that oil prices will continue to rise, hedge their oil price obligations at high levels (Malaysia Airlines is apparently looking at almost RM3billion in paper loss after hedging their fuel costs at USD95-100 per barrel).
Now, do we see why Shariah forbids any form of speculation in trade and financial transactions? Speculating is akin to cheating the market, dishonest in the sense that it does not entail any genuine economic activity. Shariah based trade and finance is all about undertaking productive economic activity to increase wealth and not merely making money out of thin air.
So, don’t blame the oil producing countries for our oil woes, just ban speculation and our problems may just disappear.
who are the speculators..? and why are they called speculators? and don't the arabs make lots of money too, considering they are the sellers of the oil at the highest bidder, I mean the king of Saudi Arabia is friggin' loaded..
ReplyDeleteAla Pauline Hanson 'please explain'.......
Specualtors come in many forms, hedge funds, investment banks, George Soros, and the so-called capital market gamblers. Their objective is to make money thru the manipulation of the marketplace without undertaking any real economic activity. They use their financial might to determine the direction of the prices of certain commodities, regardless of the economic fundamentals.
ReplyDeleteYes, the Arabs made tons of money and were enjoying themselves to the max. But a Muslim must not forget, wealth comes from God and it comes with responsibilites. We will be asked on judgement day how we acquired and what did we do with our wealth, did we acquire it thru unfair means? Did we spend it towards wasteful ends? In the case of the wasteful Arab nations - my opinion is they have failed God's test.
The Arabs have oil but they do not have the technology. All the oil is still extracted by the huge American corporations like Haliburton, Talisman, Hess etc. So, any increases in oil prices benefit the large American oil giants as much (if not more) than the Arab Sheikhs.
An interesting fact - excess oil is only found in and around Islamic nations. The non-Islamic nations do have oil but not enough to export.
oh I see...
ReplyDeletecool, thanks for the explaination..
:)