For all you good conservatives who suddenly think that the government can legislate the price of oil down..think again.
The US Government can sure screw up the market place and cause losses for investors, but they can’t produce oil.
The difference between tight supply and loose supply, rising prices and falling prices is very narrow. Without futures and speculators the price will jump around even more. The reason that the speculators look like the bad guys is that the prices has been steadily rising..so everyone wants to be long. It has been that way for a couple years. There has been a shortage of oil..China has had rationing of diesel. China may also still be trying to fill their strategic reserve.
Anything that slows us down in opening ANWR(quickest oil) and Offshore will just cost us more money.
I guess you didn’t witness the recent hearings on commodity speculation. With deregulation 10 years back came a new definition of ‘commercial’ representation.
Whereas before a commercial entity was defined as commercial producer or consumer for taking positions in futures for insurance and hedging reasons, the definition was loosened to allow hedge funds, pension funds and private equity entities to be represented as ‘commercial’ by investment banks.
The significance of the loosened definition is that it allows an unlimited position in futures and this is turn allows a huge distortion in the market.
CALPERS is one of the biggest distorters. Represented by Goldman Sachs (GS) they have taken huge positions in oil and gas futures via GS thereby driving up prices. CALPERS produces no oil nor is a commercial consumer of oil, so why are they allowed to take unlimited positions in these commodities?
The deregulation of commodities was in line with broad deregulation of markets. When CALPERS and other pension funds suffered a blow in the dot com crash, they reallocated capital to commodities. Over time as the huge influx of retirement contributions went through investment banks into commodities the price of those commodities became firmly rising; supply of positions was far outstripped by demand.
The hearings revealed that pensions did this because there was no other investment vehicle for them to recover their dot com losses and remain solvent to meet the obligations of their retirement plans.
Back when oil was selling for $20 a barrel there was trade in futures contracts between actual producers and commercial consumers. Now there is trade among many larger players that the market was never designed to accomodate. Only about $25 of the $130 per barrel cost these days is attributed to rising demand from China and India, so that roughly $70 to $80 is attrributed to speculation.
But the real puzzling part of all this development is found in the love-hate relationship with oil. If oil gets set back to about $50 a barrel, then most all of the energy innovations and developments will be wiped out as the profit potential disappears under cheaper oil.
It’s a real enigma and makes a difficult call.
natural gas is very cheap and is plentiful in America. Also, genepax has come up with a way to run an electric car using one litre of water to go 50 miles. Check it out. The world’s economies will no longer be held ransom to the oil companies huge profits...yes, only a 10% profit margin, but considering they have a humungeous volume, they end up ripping us off and using market forces and the liberals to excuse it away. Alot of people, like Bill O’reilly see though the bs and are calling for more good alternatives to solve the problem.