If prices can be manipulated purely by talking or threatening a policy?

[nothingconstant]

Then are free markets really that free?

If oil can be lowered by the mere threat of opening up ANWR, doesn't that prove markets are just as rational as human beings (god forbid)?

[G-Man]

Yes, but that is still the free market. Prices are set by supply and demand and external factors. Consider whenever there is even a hint of increasing supply of something the price goes down because that means it is not as valuable. That is the free market.

[Brian]

This is why economics is a social science and not mathematics discipline. It is all dependent on people's perceptions and actions based on those perceptions..

[hog b]

It exposes the capitalist system at its worst, the tool of a very few people, to manipulate a hell of a lot of suckers.

[acyberwin]

Well, unfortunately, you can legislate common sense.
Our whole economy is based on perception. It is called "consumer confidence"... If everyone is ok with the economy and people think it is good, it drives investment, raises the value of the markets and the US dollar, and then viola! Everything IS ok.

Israel threatened an attack on Iran a couple of weeks ago and the price of oil shot up 5% in one day... An announcement that American oil companies would help out in Iraq brought the price down more than 2%...

If we actually DO something that will prove to increase supply, and indirectly decrease demand... The price will plummet as all the investors will simply find some other commodity or stock to hedge their money...

[Matt W]

In this case we are talking about the effect on speculation in the markets. The speculators always are affected by rumor and projections. Right now they are saying that the actual lack of shortages is temporary and that by selling oil today at lower prices producers are missing the opportunity to make more money later. By suggesting that steps will be taken to increase the supply the assumptions used by speculators change and the price can actually tumble. Information is what drives the markets, always has and always will.