Posted on 06/20/2008 6:47:55 AM PDT by brownsfan
One of the biggest factors in high oil prices, according to many experts, is that investors, such as hedge funds and investment bankers, can use loopholes in commodities law to manipulate the market and drive crude oil, heating oil, gasoline and diesel fuel prices to new heights.
Congress is aware of the problem and lawmakers recently passed legislation to address the “Enron Loophole,” one of the major loopholes that opens the door to abusive trading practices, but the law didn’t go far enough.
(Excerpt) Read more at stopoilspeculators.com ...
I’m skeptical of anyone denouncing “loopholes”. Further there was no mention of basic supply and demand and my experience is that people and groups who ignore supply and demand don’t often have much of a grasp on reality.
“One of the biggest factors in high oil prices, according to many experts”
Who are these unnamed “experts”?
It’s pure nonsense! It’s supply and demand. The world is not pumping enough oil to meet the demand, so the price rises until the demand goes down! If anyone thinks it’s really easy to make money as a speculator, then try quitting your day job and doing it. As for me, I’m keeping my day job for now.
We need to drill offshore. We need to drill in Alaska. We need coal gasification. We need nuclear power. We need conservation. The only thing that won’t help is attacks on the free market.
Speculators and hedge funds actually help stabilize prices in the market. For every buyer, there is a seller. It’s not like they are buying up the oil and storing it in a giant underground tank.
The degree to which oil speculation drives up the price has been vastly overstated. If supply wasn’t short and demand wasn’t high, it wouldn’t be $140 a barrel period, the end.
I’ll add something else. I work for a company that trades commodities (agricultural in our case) and the sort of backroom, underhanded manipulation that people are talking about can only truly be accomplished in a thin market (one where trading volume is low). Oil is anything but a thin market.
After these floods in the midwest you guys will end up in front of Congress trying to explain your "price gouging". Congress doesn't use a capitalist system. It's why they don't understand capitalism.
We keep hearing ‘speculation is doing this or that’ but where is the explanation of how that is actually happening?
Just repeating the same charge over and over again isn’t proof or explanation.
The article has no substance; it is just claiming that people being able to buy and sell on markets not regulated by Democrats is somehow a "loophole".
By definition, this is a direct attack on the "free" market. Also by definition, anyone who agrees with it is an authoritarian with socialist leanings.
In a truly free market, prices cannot be manipulated this way. The reason it does happen is that the oil market is not a free one due to heavy regulations that act has strong barriers to entry.
Government is not the cure to this problem; they are the cause of it.
Sorry “act as”, not “has”.
Exactly
Require that those that trade in oil- hold 20%.
The people whose ballots will determine your future don't know anything about that. Most of them live in a universe with small resemblance to the real one; it is built up from the vicarious experiences they have had, courtesy of the popular media. Scary, sinister things happen in books, TV, and movies all the time; it's necessary to make them sell. It helps if the things could "really" happen, but this is not necessary nor usual. This makes them a dangerous miseducation, given as it is to "graduates" who have the notion that they are entitled to govern accordingly, whether with a vote or with a bureaucratic pen.
Please explain why not.
“Require that those that trade in oil- hold 20%.”
Why not do that for all commodities? Require that all agricultural speculators either be farmers or own a grain silo, etc.
The markets won’t work as well, but that’s not the real point is it? The real point is that anger and envy need to find some practical means of expression.
Because the thread is about oil.
The use is not a capitalist economic system.
It's a hybrid.
Amaranth's manipulation of the natural gas markets in 2006 indicates otherwise.
Because the thread is about oil.
The US is not a capitalist economic system.
It's a hybrid.
Unfortunately, anger and envy are just as much a part of human nature as greed.
Check out the link in post 8.
Try the article in post 8.
“In a truly free market, prices cannot be manipulated this way.” “Please explain why not.”
Speculation can be like poker. If you have a lot more money than the other people as the table, you can sometimes bully and bluff them out of their chips. Sometimes not. As I recall the Hunt brothers tried it with silver, and failed dismally.
However, there’s no one out there even a small fraction as big as the world energy markets. It’s sooo big, a bunch of speculators in Europe who don’t follow CFTC rules are a drop in the ocean.
What is really a menace is the persistent efforts of the socialists/envrionmentalists to find someone else to blame (speculators!) for the problems they themselves have created. Because once the voters clearly understand what is going on, the enviro/socialists are politically doomed.
What has happened since 2006 is a widespread movement into commodities index funds. And since they all seem to be programmed from similar fundamentals assumptions, they all continue to buy long into the market. It isn’t just oil, but all commodities that are up. And it isn’t just one company, but many large entities taking a stake in these funds - including pension funds. That is the big difference here.
There are a variety of reasons, but the easiest to explain is because those engaged in the various oil related activities (speculation or otherwise) would have to generate a profit in order to continue those activities. They couldn't run up the price without ultimately causing an increase in production (or production alternative) outside their control (with prices so high that significant profits are essentially guaranteed, getting venture capital for production would not be an issue), which would then destroy their long-term profitability via even more competition. In other words, you can't control the price of oil if I can go make my own oil.
The reason this doesn't work is that, since the 1970s, energy production (not just oil) has been over-regulated. You can't simply decide to buy a piece of land and drill for oil, or build off-shore rigs and start drilling off the coast. Processes that would quickly respond in a free market (solving the problem in a matter of months if it happened at all) take years in a highly regulated one (again, if it is solved at all).
Other, seemingly unrelated, forms of regulation also result in market distortions. For example, the time to build nuclear power plants was in the 1970s and 1980s. In a free market, they would already be constructed, with their cheaper electricity competing with alternatives (and probably indirectly reducing the price of oil for heating, etc., allowing that production to be re-directed into other markets reducing the prices even further).
In other words, the real reason oil is so expensive is not because of the so-called "speculators", but because governments have created an artificial economic environment where the natural forces that would curtail such speculation have been regulated out of existence. Regulated markets simply aren't as efficient as free markets, especially at determining the "correct" price for a commodity.
Does going from, what, $80.00/bbl early this year, to pushing $140.00 now, meet your definition of short term? How much has demand increased year over year, in that timeframe of less than six months? The dollar has depreciated, but not significantly enough to account for even a third of the price spike. Developing nations such as China, India and Malaysia are all reducing or even ending their price subsidy, so there goes demand there. What is left? Speculation.
While environmentalists get a lot of flack, I'm not sure they have as much power as you imply. For instance, environmentalists were blamed for the lack of power plant construction in the years preceding the California energy crisis, of course we know now that the crisis was precipitated by market manipulation. In addition, the decision to not build new plants was an industry decision based on uncertainty of how California-style deregulation (basically written by the industry) would impact prices.
Environmentalists are also blamed for the failure to construct new oil refineries in the US, but have played little part in the industry decision to close existing refineries - roughly half have been shut down over the past 20 years.
Recently the State of California and consumer groups brought pressure to bare on Shell to sell rather than shut down its Bakersfield refinery - that certainly doesn't support the claim that environmentalists are responsible for lack of refining capacity.
Much of the article is valid, but jumps to incorrect conclusions that insufficient regulation is the problem (rather than the solution).
The section on "Dollar and oil link" could have been longer; he failed to explain how moving some of the market out of US dollars means that the oil market is no longer "fixed" to a constant petro-dollar. When the price of oil jumps from $60 a barrel to $120, it might not mean that oil has doubled in price, but instead could indicate that the dollar is worth half of what it used to be worth (comparing exchange rates vs the euro, for example, shows that this explains at least part of the "increase" in oil prices).
Except for the wrong conclusions and ICE bashing, it is a good article.
That isn't quite correct. The market exploited the situation; it did not cause it.
In addition, the decision to not build new plants was an industry decision based on uncertainty of how California-style deregulation (basically written by the industry)
Using the word "deregulation" to describe the scheme California came up with is a joke. Since utility companies were required by the law to buy electricity from spot markets at uncapped prices (and companies like Enron were free to buy futures), the California situation was almost an inevitability.
Once again, this was just another example of where regulation didn't solve a problem, it caused it. California thought it could create a market system that was more efficient than a natural, free market. Like everyone else that has attempted such a scheme, they failed.
‘we know now that the crisis was precipitated by market manipulation.”
You and I live in two different worlds.
The California electricity crisis was caused by government imposed price controls, that made it more profitable to sell electricity outside of California than in. The government then produced a report that called those who took advantage of those perverse incentives “market manipulators”. But the bottom line is without the government imposed price controls, there never could have been a crisis!
I believe a number of Californians also said utter nonsense when their electrical grid was going down weekly. They also made a comment about supply and demand. We all believed that no one would be that stupid to make such an event occur.
From various financial forums....there are a fairly significant number of folks discussing the number of folks who are now energy market “players”...double of what you had two years ago. Pension funds (to include our two favorite funds out of Detroit who also played the Yahoo game as well) are deep into this entire game...which is a major threat to those who’ve invested into the pension fund....and this is way beyond reasonable investing.
What bothers me in an amusing way...most of the guys who helped deal up the Enron loophole...are associated with McCain. Again, a number of forums have commented on this all week that McCain has zero interest in fixing the Enron loophole...and now demands opening up the coastal areas and ANWR to drilling...leaving the option to the state or region. Yet, he never mentions fixing the loophole. I wouldn’t mind the change in drilling...if we also did our homework on the loophole, but he won’t dare discuss that option.
Since none of the congressional or senatorial players want to fix this issue...I’m of the mind to start pushing state politicians across the US to increase a massive profit-tax on energy futures crowd...just like the airlines and their stupid extra bag fees they are setting on folks. A 40-percent profit tax would sour the crowd and drive them out. Then we could get back to supply and demand...like its supposed to be. Those that want to argue about their ‘God-given right’ to bet on futures....have basically taken the airline industry and the car industry...and set them into financial chaos.
“the Enron loophole.”
This reminds me of the bogus campaign to ban “assault weapons”.
People trading futures in Europe do not pay US taxes, so your proposed punitive tax would not affect them. Do you think we should invade the UK to impose our will on the London markets? Probably not.
What the energy futures markets are telling us is that emerging market demand, and possibly lower production, will cause long term higher energy prices. If the speculators “sending the message” are wrong, they are going to lose a lot of money. In essence, the speculators are enforcing conservation on us right now, at the risk of losing their own money. Of course they hope to win, not lose, but they get no guarantees. That’s how the free market is supposed to work.
In my opinion envy is by far the deadliest of the seven deadly sins. Every time I pull into a gas station I am grateful that I have the freedom to buy or not as I choose at the market price. I know that Obama and the Democrats would like to take that freedom away, and I hope they do not succeed.
I would prepare myself, within twelve months, with the help of speculators...to pay $7 a gallon for unleaded. The drilling from the coastal areas and ANWR....at least three to four years from possibly arriving to “save” us. By the time it finally does arrive...we’ll be at $9 a gallon or more. So don’t make a single move to harm or lessen the impact of the futures crowd...just let them continue on. Thats the right thing to do.
And when you get upset by the county commission asking for a extra heating & bus gas fee for the school system...and you need to cough up an extra $400 a year for that...don’t get upset...just pay it and accept this as part of the free market system.
“So don’t make a single move to harm or lessen the impact of the futures crowd...just let them continue on. Thats the right thing to do.”
Your attempt at sarcasm unintentionally states the truth. Congratulations!
The “futures crowd” includes the people who enabled Southwest Airlines to hedge 70% of their energy costs at $51 per barrel. In business there’s no substitute for brains, and Southwest knows how to use theirs.
With very rare exceptions the free market works best. It always has, and it always will. When government tries to control the market, economic disaster predictably occurs.
Yes, I've seen these so-called "experts" make the claim, but I haven't seen anyone explain how exactly these evil hedge funds actually carry out this supposed "manipulation." Nor have I seen any so-called "expert" provide a shred of evidence that manipulation is actually taking place.
And no, the fact that hedge funds are investing in commodities futures is not evidence that they are engaging in "manipulation," whatever that means.
Also, the author's mention of "investment bankers" is laughable. He needs to get a clue. He obviously does not understand what the business of investment banking is all about. Here's a hint: investment bankers aren't commodities traders.
Closing the so-called “Enron Loophole” as currently proposed is a designed by George Soros to corner the energy speculation market, so he can manipulate it and destroy it for his own profit, which is his specialty.
It singles out hedge funds and investment banks, and raises the down payment to buy in to speculation from 7% to 50%.
None of this stops oil speculation. It only cuts a great number of speculators out, allowing only for extremely wealthy private speculators to continue. In other words, it clears away the competition for George Soros.
It’s no wonder George Soros testified before congress in support of this very scheme.
Also, banning certain speculations and pricing others out of the market will not cause oil prices to drop. This is based on a false premise that since the so-called “Enron loophole” was introduced in 2000 that oil prices have doubled. The truth is oil prices were quite stable for about 7 of those 8 years. It is only in the last year or so, since Democrats took over congress, that oil prices have doubled. If oil speculators were actually responsible for the doubling of oil prices, it would have happened a lot sooner, and would have been a steady rise since 2000.
The real cause of the rise in oil costs has nothing to do with speculators. However, cutting the vast majority out of the market so Geoerge Soros can have free reign to single-handedly manipulate it would have dire consequences.
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