1.6. Sometimes speculators get it wrong. In the months before the Persian GulfWar, speculators drove up the price of oil: The average price in October 1990 was $36 per barrel, more than double its price in 1988. Oil speculators, like many people around the world, expected the GulfWar to last for months, disrupting the oil supply throughout the Gulf region.

Thus, speculators either bought oil on the open market (almost alway at the high speculative price) or they already owned oil and just kept it in storage. Either way, their plan wa the same:

to sell it in the future, when prices might even be higher.

As it turned out, the war was swift: After one month of massive aerial bombardment of Iraqi troops and a 100-hour ground war, then President George H. W. Bu h declared a cessation ofhostilities. Despite the fact that Saddam Hussein set fire to many ofKuwait's oil fields, the price of oil plummeted to about 20 per barrel, a price at which it remained for years.

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In 1991, speculators bet that a war against Saddam Hussein's regime would raise the price of oil for years.

Wrong decade, perhaps.

a. Is buying oil for $36 a barrel and selling it for $20 per barrel a good business plan?

How much profit did speculators earn, or how much money did they lose, on each barrel?

b. Why did the speculators follow this plan?

c. When the speculators sold their stored oil in the months after the war, did this rna sive resale tend to increase the price of oil or decrease it?

d. Do you think that many consumers complained about speculators or even realized that speculators were influencing the price of oil in pring 1991?