How is the price of oil impacting your business? I have heard many say that high oil prices are just another tax on the small business community, the middle class and the poor. CNBC reports that 23 senators and 45 members of congress are attempting to crack down on speculators. This article will define what and who a speculator is.
The price of oil is being driven by speculators and they take bets on the price of commodity prices into the future. Presently, speculators are saying that there is tension in the Middle East specifically Iran and they are buying up oil today with borrowed money on a bet that conflict would take place. Speculators don’t wait for the conflict to happen they anticipate that it might happen therefore they driving oil prices by purchasing oil contracts most of the time moving together as herds in the same direction. Senner states that the risks for speculators are low base on the strategies they can employ such as a stop loss. In essence a speculator does not need the confirmation of a conflict all they need is to know tension is in the air between a country that can affect commodity prices and a country that needs the commodity.
The other argument in favor of speculators is they provide liquidity to the market. Many people believe that speculators are all rich people driving up the price of oil because they could. They are out to make money but they help the purchasers of commodities by helping to lock in prices even if we don’t like that price. Many pension and index funds speculate on the price of oil and these are not rich people they are institutions that hold the retirement of many blue collar workers. Most of all, the argument in favor of speculators is they examine the underlying economic situation and they base their decisions on it.
No matter what you think of speculators one thing is for sure, it is taxing small businesses, the middle class, and the poor. Most of the time, it is difficult for small businesses to transfer the entire cost of this tax because the economy is so fragile. Air line companies, cruise companies and others have divisions that specifically help them weather these fluctuations in oil prices. Small businesses, the middle class and the poor do not have the luxury of hedging their cost. I would like all of you small businesses out there to drop us a line and let us know how you are dealing with higher energy prices.