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RUSSELL WANGERSKY: Capitalism’s speculative underbelly

Oil production equipment. — Reuters file photo

I know that this will have all the effect of stamping my little feet in frustration. (OK, for purposes of accuracy in reporting, my medium-sized feet.)

But sometimes the speculative side of capitalism is not only a tragic mystery to me, but also beyond frustrating.

I make a thing — you want a thing. The more you want it, the more likely you are to pay for it, Its value essentially corresponds to what you’re willing to pay for it. I get that.

If you want to buy a house and the owner doesn’t want to sell, then you have to come back with a new price, a price that probably involves more money — and more of your time invested in work to earn the money needed for that price. The more you want something, the more you have to pay.

But then there’s the other side of capitalism.

I thought it was mildly irritating when oil analysts, looking at prospective hurricane patterns earlier this year, decided that there was a reasonable chance that Texas oil infrastructure could be damaged by severe weather. Oil prices rose moderately, not because anything had actually changed, but because it could. The change in price made money for those who already held oil contracts at the earlier, lower price.

Then, last week, U.S. national security adviser John Bolton, on the edge of quitting, was instead Tweet-fired by President Donald Trump. Bolton has been seen as a hawkish adviser; with him at the White House, the chances of a U.S. war with Iran were, apparently, greater than in a Bolton-less White House. So, within an hour of Bolton’s firing, oil prices tumbled by 2.2 per cent.

“This is a knee-jerk reaction given that Bolton has been so adversarial with Iran,” Matt Smith, director of commodity strategy at ClipperData, told CNN Business at the time.

The argument is that algorithmic models drove the change in price, with, once again, some people somewhere making money — perhaps large amounts of money — by betting that prices would change.


Then, this weekend, Yemeni drones attacked and damaged Saudi Arabian oil facilities, damaging the Saudi kingdom’s ability to supply world markets by reducing their output by 5.7 million barrels of processed crude per day.

Oil prices correspondingly shot up again — 20 per cent above earlier levels, but by Monday morning settling back to something around 10 per cent higher than they were before the attacks. The prices rose even though President Trump announced that his government would release strategic oil reserves into the market to mitigate price increases, and even though the Saudis said they had sufficient processed oil stockpiled to make up for the production losses. Trump pretty clearly blamed Iran for the attacks, and claimed in a Tweet that the U.S. is essentially waiting to hear from the Saudis on further action: “There is reason to believe that we know the culprit, are locked and loaded depending on verification, but are waiting to hear from the Kingdom …”

And, no doubt, oil prices rose again to some degree as a result of the gleeful idea that a war with Iran, which would no doubt kills tens of thousands, would limit oil supplies, even though Iran is basically being squeezed with sanctions now and has a much smaller role in global oil markets than it might have. And speculators made money in the process — money we’ll pay.

I understand the idea of capitalism.

But those who ride the shifting wave of speculation make nothing, improve nothing, fix nothing and deliver nothing.

They are, fundamentally, parasitic leeches.



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