The significance of futures trading in minerals and oil

Futures trading has been introduced for aluminium and oil in recent years and the range of contracts available on various minerals and oil products continues to widen. Concern has been expressed by producers of a number of minerals, including nickel and platinum, that the introduction of futures trading may introduce a speculative element to price determination that will create inappropriate or excessively volatile prices. It is the purpose of this article to analyse the role of futures trading in relation to trade in underlying commodities in general and especially for trade in minerals and oil. Evidence from oil and platinum markets, in particular, is adduced and examined in the light of earlier evidence of the influence of futures trading on underlying commodities. The contribution of futures trading is examined in detail and conclusions are reached on the significance of futures trading for minerals and oil.