GWB knows it too.
Posted on 06/09/2008 1:23:15 PM PDT by PeaceBeWithYou
The dramatic surge in oil prices—including a $16-per-barrel jump in just two days last week—has left Washington regulators scrambling to exert new oversight on futures trading in oil and other commodities. The U.S. regulatory agency's abrupt shift toward more rigorous oversight in the past two weeks also represents a stark example of how the pinch from high gasoline prices has changed the political landscape and made energy traders prime suspects in congressional inquiries.As recently as May 20, the U.S. commodities regulator, the Commodity Futures Trading Commission (CFTC), insisted at a Senate hearing that speculation was not causing the rapid spike in energy prices. The CFTC's chief economist, Jeffrey Harris, testified that the agency found that speculation and manipulation are not causing energy prices to surge. He said that instead prices are being driven "by powerful economic fundamental forces and the laws of supply and demand." Nine days later, after further pressure from Congress, the agency announced steps aimed at more oversight of energy futures trading.
Among the measures:
• A new information-sharing agreement with Britain's commodities regulator, the Financial Services Authority (FSA), to gather information on large positions of the benchmark West Texas Intermediate (WTI) contract.• A proposal to consider reclassifying investment banks such as Goldman Sachs (GS) and Morgan Stanley (MS) as speculators, which would subject them to trading limits from which they're currently exempt.
• An investigation of the crude oil trading market dating to December, 2007.
(Excerpt) Read more at businessweek.com ...
“The highly leveraged Hunt Borthers were unable to meet their margin calls, and were forced to sell.
... because regulations were changed, requiring margin requirements to be raised, which is what you’re objecting to in regards to investment banks.”
COMPLETLY WRONG.
By January 1980, the Commodity Futures Trading Corporation (the regulatory body supervising the commodities markets) became alarmed, estimating that the Hunts and their allies controlled contracts for 77% of all the privately held silver in the world. The regulators increased margin requirements, BUT THIS MADE MATTERS WORSE; the shorts were forced to come up with tens of millions of dollars to meet their obligations under the new rules. Silver prices spurted higher, incredibly breaking through $50 per ounce on January 21, 1980, up from about $9 per ounce only six months earlier.
Finally the regulators and the commodities exchanges took draconian action to forestall disaster. Rules were imposed arbitrarily to prevent further buying of silver by the Hunts or anyone other than industrial users and shorts who were buying back silver they had previously sold. The Hunts were trapped; they could not buy, and there was no one to sell to.
You’re welcome.
Manipulation is part of a market.
The ChiComs manipulated the dollar (by buying our debt) to keep it high to make us unable to compete with imports.
They now hold paper worth 1/2 of what they paid for it.
Too bad, so sad.
Large scale manipulators get hosed if you leave the market alone.
Oil is no different.
Develop oil shale now.
http://www.sltrib.com/utahpolitics/ci_9277208
Incentivize compressed natural gas.
http://www.newser.com/article/1A1-D909J1M80.html
Point granted, but the fact remains that you find the above acceptable, but do not find a similar regulatory remedy acceptable in oil.
That’s really strange.... NYMEX is still showing WTI @ $134.91..up $0.56 and Brent @ $134.08 up $0.17. At the same time Shell Trading is showing WEST TEXAS/NEW MEXICO INTERMEDIATE $131.10 ($4.20).
Who said I find that acceptable?
They basically made a law specific for the Hunts. Sounds like a Bill of Attainder, or close to it.
Moreover the Hunts held something like 77% of silver — no one is remotely close to that in oil.
Exxon, for example, holds 3% -— and it is not really “in control” of even its 3% as much is under contract or shared with others.
Yeah, well, I'm tired of them hosing me until the time comes that they get hosed.
And this time, they are lining up the suckers for when the price drops, including a lot of pension funds. So yet more people will get screwed by their actions.
These are not complex regulations. The Reagan economic boom operated under then, as did the economic expansions of the 1990s. But we've had major economic problems as a result of lifting too many basic regulations. The world economy is just too interconnected to have rogue speculators inflicting economic hardship on millions if not billions of people.
Some of us here on Freerepublic were saying two to three years that because of the Iranian situation and the Clash of Civilizations, we should have declared a national security emergency back then and starting drilling like there was no tomorrow. Basically because if we don't drill, we wont have a tomorrow. What good is keeping oil in the ground until it is no longer the most desired commodity on the planet ? We have some of the worse leadership in DC that we could possibly have.
Yep. The Hunts lost hundreds of millions of dollars.
They became what Ben Franklin said are bad examples that are good examples.
The market gave them what they deserved.
Instead of passing laws no Business-Socialist would enforce anyway....this madness can be stopped immediately with GWB merely stating “we begin drilling in ANWAR and off all US coasts immediately”
Of course, GWB is so Al Gore these days...no wonder why this economy is crap. GWB is more in love with Commie China and the Petro-Terrorist states than he is w the USA.
Cutting off the nose to spite the face. If they want to classify the aforementioned banks as speculators, they’d better be prepared to give them the additional classification of “bankrupt”, since energy hedges are about the only things keeping the lights on at these institutions.
Startling stupidity on the part of the government... ONCE AGAIN.
Saudi Arabia has us by the cajones, plain and simple. If OPEC member nations sign on to the oil-in-the-ground-as-insurance-for-the-future philosophy, oil will continue to go up and up and up. If Saudi Arabia enacts this kind of policy, the pressure will be enormous from the constituents of other OPEC nations (i.e., their citizens) to follow suit. A policy of aggressively conserving production would almost guarantee military conflagration.
I’ve said this time and again for the last two years: the Middle East doesn’t need a nuclear weapon when it can simply strangle the oil market by leaving it in the ground. As light bulbs continue to go on in places like Saudi Arabia, you’re going to see a level of consternation that WILL push us to the brink of an all out World War for oil.
Ironically, this is all dovetailing with Iran’s interest in preventing it’s own economic demise, as it moves rapidly toward becoming a net IMPORTER of oil. If we push past the bluster and saber-rattling and look at the unfolding scenario with a cold eye, it becomes very obvious what Iran’s goals are:
Iran wants actual WMD so it can take possession of economic WMD (Saudi oil reserves) and call the shots with a nuclear gun at the head of Europe/Israel/Asia...They’re not interested in destroying Israel, per se. They’re interested in controlling Saudi Arabia by means of coercion or all-out conquest. Israel’s just the feint. Once Iran gets control of those fields, the rest of the world will have to either come to them hat-in-hand, or start a nuclear war.
But I digress.
The oil producers have discovered that they can essentially name the price for the oil they sell as Mexico and the North Sea interests very publicly broadcast the declining status of their fields. The world economy is on the brink and there are no alternatives on the horizon for manufacturing, transportation, etc. - all of which will shrivel and die without oil, and take their respective economies (and governments) with them. The only way it backfires is if a worldwide depression literally devolves us back into an agrarian society. Anything short of that, and oil is still indispensable and more precious than ever.
Thus, if oil is going to be the weapon of choice, the only discernible outcome would be an Oil War for control of Saudi Arabia. If Iran gets there before us, our standard of living is going to decrease quickly. If we get there before Iran, we could push China into a grab for the south Asian shipping lanes, not unlike Japan pre-WWII, as a hedge against the U.S. having complete hegemony with oil, and maybe even make a play for India. It’s just ugly.
Any way we cut it, we have to get the Saudis to abandon the notion that they are better off using reduced production as a hedge for their own future. At the same time we have to stop the Iranians from building nuclear weapons. And then we have to pray that Peak Oil is a sham. If it’s not, none of this matters. The price of oil will only go up until we find an alternative.
And now you know why we can’t leave Iraq.
You’re right, on that. People I know here in Texas say the price of oil should be around $70/bbl as you say.
The trouble is the government changed the rules and created an “exempt commercial market” even after being warned that the market was ripe for manipulation. It’s called the Enron Loophole but others did it too.
By the time the market caught up with Enron, Amaranth and British Petroleum, millions of people were hurt by their manipulating energy markets.
Deregulation of electric rates in Texas has failed miserably because there are only a couple of electric producers. You and I can’t build a coal fired generating plant and sell electricity. We can’t build any kind of generating plant. It is regulated. But the price isn’t regulated.
You and I can’t drill for oil or natural gas in places we both know it exists in huge quantities, because the government placed those places off limits to drilling.
You can’t regulate competition out of an industry and then say let the market set the price.
We have record supplies of oil, minimal increases in demand and record high prices. In an completely unregulated market we’d have low gas prices, not record high prices with record high supply.
I would love to see all regulation of drilling, refining, power generation plant building, etc. done away with and let the market work. But we don’t have that or any chance of getting it.
GWB knows it too.
“Yeah, well, I’m tired of them hosing me until the time comes that they get hosed.”
Seriously, how much are you getting hosed?
Going by what I see crude production actually being sold on, the fair price of gas is probably 75% of the market portion, plus the fixed price of taxes.
Rough justice .75(2.50) + 1.50 (taxes) = 3.38
Actual price = $4 — for a $.625/gallon hose factor
10 gallon a week? $6.25 extra a week.
Say an even $10, just for grins.
OK, it’s an extra $520/year. Big whoop -— just remember when oil was TOO LOW because the Saudis were dumping oil to destroy domestic USA production.
People always forget those days.
In the NYMEX day session today (the 'main' session if you like), the Light Sweet Crude contract settled at 134.35, down 4.19 on the day.
Thanks for the lesson!!
Most of the oil is used in the manufacturing sector. Businesses will be forced to either raise prices or layoff workers. What a shock. Unemployment just rose.
I drive about 400 miles a week. Get about 20 mpg. So that works out to $20 a week or a grand a year.
Now, lets talk heating oil. That's up a good two bucks since this time last year. Speculative price impacts cost me probably $500 bucks in additional heating costs this winter.
Now throw in the price increases for transport of food and goods, and this is all costing me about $2,500 bucks. Throw in the fact that the fed is devaluing the currency as the speculators make me pay a lot more for goods with what is left of my pay, and that's a rather large bite from a middle-class income.
I can absorb that. But a lot of folks can't.
I don't mind market forces. $70/bbl will open up a lot of development, enhanced recovery and alternative fuels such as coal to diesel. I'm not interested in it going back to $30/bbl. But I loathe a couple grand of my hard-earned income going to line the pockets of speculators who, unlike you, don't produce jack in the way of real goods and who are messing up market after market with their manipulations.
Which might have been the whole point behind the "share the risk" part of CDO's. You share the risk so that nobody loses money unless the whole system crashes, then count on the governments to bail the system out
Essentially a financial hostage situation
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