Independent Connecticut Petroleum Association seeks federal probe of NYMEX

What are the specific allegations against the NYMEX? The only concrete complaint I found in the article was that analysts' comments are driving the market higher (which sounds like BS). But what about the supposed NYMEX rule infractions?

For the last year, many industry analysts have been saying the price is being set by speculators rather than market forces. This was explained at the time by uncertainty caused by the insurgency in Iraq. But as this winds down, the explanation has gone away while the abuses have stayed.

I do not believe there are any specific allegations against NYMEX as of yet.

Connecticut's pump prices are some of the highest in the nation, thanks in part to high state gas taxes. A lot of people are beginning to feel the energy pinch. With the driving public growing increasingly fed up, the Attorney General thinks his office can investigate to determine if there is any manipulation within NYMEX.

The only thing I can think of is some of heavy block (high volume) trading going on, who knows. If people think prices are high now, just wait until Iran's nuclear crazy mullahs are finally dealt with. There could be 'real' disruptions of Persian Gulf exported crude oil, one those mad mullahs fathom, time's up.

I have trouble with the notion that speculators are something other than part of the market. They ARE one of the market forces.

Interesting. One way to look at rising crude prices is a forecast of further conflict in the Middle East. Maybe we're in for another war.

rising crude prices is a forecast of further conflict in the Middle East.

That, or maybe it's the Middle East conflict that forecasts rising oil prices.

The conventional wisdom is that the big 'crisis' in '74 was the result of Israel's beating back the Arab attack in '72. We also had another spike with the Gulf war.

My guess is that prices fluctuate because well, they fluctuate. Afterwards, pundits announce that they knew all along that last week's change was because of what ever happened the week before.

With the driving public growing increasingly fed up, the Attorney General thinks his office can investigate to determine if there is any manipulation within NYMEX...

Excuse the cynicism, but based on observations of CT AG Blumenthal over the years, this should read: "With the driving public growing increasingly fed up, the Attorney General thinks his office can fabricate a publicity article to prove that he might take legal action to sue anyone the can that may be remotely connected with NYMEX, and that the publication will succeed in a favorable public opinion of his job performance."

Yep. BTW, that's a cool chart. Is that real dollars? And what's with the dual-logarithmic scale?

Just before Clinton left office, the price of crude oil spiked up. At the time, there was a whole lot of talk about temporarily suspending the federal gas tax. Why are we not hearing that now?

That, or maybe it's the Middle East conflict that forecasts rising oil prices.

More like the devaluation of the dollar.

a cool chart. Is that real dollars?

	we're doomed!

..or not

Thanks. In real dollars price of oil is way less than it was than say, 25 years ago. The msm never likes to show graphs like that because it just doesn't look well, dramatic.

Same with log charts. When it comes to anything that grows exponentially (like population or bank balances) the choice between a linear or a log plot makes a big difference. Linear plots are good when you want to win an argument. Log plots are used when you want to know what's going on so you can make money.

But with real (inflation adjusted) dollars it's the linear plot's that's better because the real price of oil is just not growing exponentially.

The price of oil might be going up at the moment because of the fall of the dollar -- or maybe at least in part.

OTOH, the dollar fell a hell of a lot more back in '86 and the price of oil just fell right along with it. I'm aware that it doesn't make sense but where is it written that oil prices have to make sense?

OTOH, the dollar fell a hell of a lot more back in '86 and the price of oil just fell right along with it.

That's when OPEC realized they were losing market share and they turned on the spigots. It overcame the weakness in the dollar.

To understand why the SEC exists and similar government bodies, you have to revisit the 1880's and the days and lives of such great men as Jay Gould and Jim Fiske, who made and lost great fortunes just knocking the props out from under companies and commodities to create panic and opportunity. Their rough play in the capital markets along with the great battles fought over capital and control of the nations railroads and heavy industry through the 1880's spurred the creation of the Interstate Commerce Commission in 1887 and the Sherman Anti-trust act of 1890.

You can lament this intrusion by the government and law into the financial markets that somehow managed the capital to build railroads privately all across the United States, something that would be done at public expense today perhaps. But, at the time, the outcry of injustice and the sense that the "game" was rigged by the Morgans and Carnegies of the world was palpable. The anger that was generated in these years led to the mass appeal of Socialism and Communism in later decades.

The current creation of unrealistic, unsupportable oil prices by speculation today create the seeds for the resurgence of such ideas. Especially in the face of the inevitable collapse of such bubbles that crush the small investors that follow the speculators into the trap of such follies. The Republican party will bear the blame for this whole nightmare, even though this is most likely farthest from the truth. Still, if illegal games are creating this mess, such as they were in the case of Enron and the California Energy crisis. Then, its better to prick this balloon before its explosion can damage so much that we hold dear.

"in '86 ..." " ...OPEC realized they were losing market share and they turned on the spigots. It overcame the weakness in the dollar."

The part about OPEC turning on the spigots in '86 matches with the fact that the price of oil fell big time. The part about overcoming the weakness in the dollar doesn't fit with the fact that from '86 to '95 the dollar lost a third of it's value --a much bigger drop than the 'crisis' we got now.

It's a very popular view that the path of history goes from an "outcry of injustice and the sense that the "game" was rigged" to "the mass appeal of Socialism and Communism". It just never happened. The trust-buster's did their bit many decades before the wobblies had their heydey-- and even then the only 'mass appeal' was in Europe-- nowhere near the likes of the "Morgans and Carnegies".

Likewise with this 'oil crisis' shtick. Everyone's talking about "unrealistic, unsupportable oil prices by speculation" "inevitable collapse of such bubbles that crush the small investors" "this whole nightmare" "llegal games are creating this mess, such as they were in the case of Enron and the California Energy crisis" puhleeeze!

Now don't get me wrong-- if your thing is proving Bush is a miserable failure so as to get the Dems back in power, then knock yourself out. OTOH, if we're seriously checking to see if market indicators warrant words like "nightmare" and "crisis", they aren't.

I understand you skepticism. And my scholarship may be lacking as to the the order of battle on the front of dealing with market manipulations, but the oil market is susceptible to heavy manipulation. Infact, this was the the outright purpose of the old Texas Railroad Commission. To stop the incredibly destructive swings in oil price due to production boom and bust cycles. This worked all of the way into the 60's when the whole concept became unsustainable in the face of the oil realignments that occured in the face of the Alaska Oil Pipeline and the "Arab Oil Embargo" that just happened to coincide with this realignment.

But the record is clear about what happened in California, a minor generation shortage, primarily to to poor maintenance and thus poor availability, created a market of scarcity and almost inelastic demand that Enron manipulated to make Billions. This all collapsed though when the value of available generation spurred improvements in maintenance that could contribute across the country in a matter of 12 to 18 months a significant boost in available generation. This looked like the magical appearance of several new generating stations. This new generation made the artificial price created by Enron's manipulations unsustainable just as Enron had become reliant on the funds created by their game. Of course the situation was made more dire because of the difficulty in collecting that they experienced in trying to close the circle on the obligations they created for California as the enforcement cycle caught up with them. This is what caused Enron to implode.

Now the oil market of today is not a good analog for the electricity market of 1999, but in the short term traders with inside knowledge and large positions can create artificial shortages by accident or by design that have the effect of driving up commodity prices to absurd levels in the presence of an inelastic demand. This is very much the case for electricity and for oil in the US.

The central problem right now in the US is a lack of refining capacity, but other problems are plainly transparent. The US over reliance on imported oil make the markets subject to the a palpable risk that the flow of oil can be disrupted by any of a number of problems and thus folks are not selling contracts at the real value of oil in the current market but hedging against this supposed disruption. This is intensely profitable unless and until like in the case of Enron the market changes so that supply appreciably increases or demand slacks. Supply has been increasing, but as the "fear" is about future events this burgeoning glut has not paniced the market to the downside yet.

But, though people may be fooled for a while, many are starting to question what is happening that the US is paying a premium that is estimated now in terms of $10 to $20 per barrel for "risk". And, they rightly are starting to say we are being screwed. When an Industry Association like ICPA starts asking for intervention, this is not Dems trying to score points. This is technocrats screaming that something funny is happening.

BTW, I think you are ignoring the birth of the whole Progressive movement and the Grange associations that formed in response to the abuses of the 1880's, the railroad rate structures and the questions of the money supply that all were coming into collision that created the climate for the Trust Busters. But if you think this movement didn't put the fear of GOD into politicians at the time, you are missing the fact that many of the ideas of that time are just as much sacred cows today even as the basis for them is pretty much forgotten. These reforms were not put into place over 5 years or 20, but the sweep of this reform started in the 1880's and ended in the interventions of the New Deal some 50 years later.

It took until 1980's and Ronald Regan, to finally put a sword into the heart of these "reforms" as they finally became obviously the problem, rather than the solution they were proposed to be. I understand your concern about feeding this dragon when it can take a century to kill it, but the laws of economics dictate that sometime small interventions to make the game "fair" is all that it takes to let the market get back to its business without sacrificing millions of innocents waiting for the inevitiable crash and burn that unwatched markets provide as their normal mechanism of enforcement. Speculative bubbles are never good markets in the long run.

I am not proposing new legislation is the answer for this problem, except for perhaps finally passing the Energy Bill. However, folks crying that the markets will handle this, when the evidence is growing that a major scandal may be underneath this distorted market, are missing the opportunity to be on the "right" side of this crap when it hits the fan.

And, gasoline at the pump of $2.25 is a crisis, it just takes about 6 to 12 months for this to work its way through the system, just in time for us to get our butts handed to us in the next election cycle.

The point you bring up is well taken. Prices would drop some 40 cents a gallon overnight if the state & federal taxes were dropped.

Maybe we're in for another war.

That war has a name and has been long over due since Carter allowed Islamic madmen to take control of Iran, OPEC's number two exporter of crude oil.

Oil prices could double from current levels if the pro-jihad regimé is not removed quickly once the countdown begins. It may be a long hot summer in a number of respects, over the geostrategic issue of nuclear Iran.

There really is a lot to America's energy policy and you said a lot that got me thinking and researching. Fortunately I managed to keep any of the new information from changing my opinion (hey, I'm honest). You were kind to comment on my "scholarship". Check out Free lunch --these days everyone's a scholar.

I had a hard time following all the things you said -- what I got was that the market price of gasoline is higher than it's supposed to be because US refining capacity was too low and the solution was to punish oil company owners. You just can't be saying that.

Let's focus, The price of gas is set by sellers and buyers, so when you drive an extra block to save a couple cents/gallon, you have manipulated the price of gas.

OK, the refinery owners have something to do with it. So go own a refinery. I own part of a refinery and you can too. Last week I bought a few shares of VLO for $70.80/share (but you can probably find others that are cheaper). We at VLO are working real hard to make more gasoline to drive the price at the pump down-- but if I start hearing too many people saying that I'm some kind of crook, then forget it. I honestly think that if everyone put money into building more refineries instead of putting their mouths into more laws, then we'd have cheaper gasoline. We'd also be richer as VLO is selling today at $78/share (10 percent profit in a week is pretty good).

So let's decide if this is really a crisis. The real price of gas went up in 2000 so Clinton sold off the reserves to party hacks--so the price goes up even higher and then we didn't have reserves even. What finally made the price of gas go down was the slowing of the economy after 9/11. So then everyone starts belly-aching about the jobs crisis. So now the economy's picked up and so has the real price of gas. Personally, I like the gas crisis better than the jobs crisis.