Monday, May 26, 2008

Crude Oil Prices: Bears Will Soon Win Out (Seeking Alpha, May 26, 2008)

An interesting article futures margin requirments and gasoline subsidies..

" are some very strong potential bearish arguments, some of which can have a sharp negative impact on the crude oil price:

Raising the margin requirements. It is easy to make the case that the margin requirement for the crude oil futures contract has simply not kept up with the price increases. Each crude oil contract represents 1,000 barrels. At around $132/barrel, one contract is worth $132,000. But the maintenance margin is only $7,250. That’s over 17 to 1 leverage. The commodity exchanges are sensitive to pressure from Congress, and will most likely raise the margin requirements in the near future. This could have a dramatic downward effect on prices. (Remember silver and the Hunt Brothers in 1980.)"

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