Posted on 05/22/2008 5:51:24 AM PDT by wildbill
Ready for the Oil Bubble? Source: http://www.star-telegram.com/104/story/651928.html
------------------------------------------------------------
One law is causing prices to go through the roof By Ed Wallace Special to the Star-Telegram
"There’s a few hedge fund managers out there who are masters at knowing how to exploit the peak [oil] theories and hot buttons of supply and demand and by making bold predictions of shocking price advancements to come, they only add more fuel to the bullish fire in a sort of self fulfilling prophecy." — National Gas Week, Sept. 5, 2005 as reprinted in the US Senate Permanent Subcommittee on Investigations’ report, "The Role of Market Speculation in Rising Oil and Gas Prices," June 27, 2006
Fiddling While We Burn
There it is in plain sight for everyone to see, exactly what I’ve been reporting for the past few years: Many individuals who are investing in oil and natural gas futures are going out in the media and trying to convince the American public that either we are out of oil or there is a serious supply shortage of crude against worldwide demand. The question is: Does it surprise you to discover that the US Senate investigated the rigging of the oil market by speculators in the summer of 2006 – and concluded that there was no supply and demand problem with oil? Did you know that their conclusion was that speculators were responsible for a 70 percent overcharge in the price of oil in the months leading up to the summer of 2006?
This from page 1 of the Executive Summary of that Senate investigation, there is this one troubling line: "Today, U.S. oil inventories are at an eight-year high, and OECD (Organization for Economic Co-operation and Development) oil inventories are at a 20-year high."
That’s odd because, in 2006, just like today, the media reporting covered the serious international shortage of oil and justified oil’s high price. Even more troubling is that the House of Representatives held a hearing this past December, ominously titled "Energy Speculation and Price Manipulation." How did it pass under the radar that both the Senate and the House studied the issue of price manipulation in our energy markets and both concluded that it was unregulated, massive trading in one futures market that was really driving up the price of oil and natural gas? And given that conclusion, why has Congress done nothing about it?
Investors Make the News, Literally
A week ago Goldman Sachs issued a new investor note, suggesting that somewhere between six months to two years, the price of oil could go into a "super spike" and prices jump as high as $200 per barrel. It became the major story of the night. Ignored in the reporting frenzy was that many legitimate and well-respected oil analysts dismissed Goldman Sachs’ prediction as groundless.
Get ready for the next shock to your system. In the past month we have added 11.9 million barrels of oil into our stock reserves, giving us 32.3 million more barrels of oil than we had on hand January 1. On May 5, we found out that for the second time in as many years, Iran was storing its excess crude oil on tankers in the Persian Gulf, because it had run out of storage space in the desert and was awaiting buyers for its heavy crude. That same day Saudi Arabia cut the discount price for its Arabian Heavy crude to $7.45, hoping to entice more buyers for immediate delivery. We didn’t hear that news, either.
While researching my third article for BusinessWeek online about the world’s oil situation in 2008, I asked for the most current report from Oil Movements. Because the oil industry is not transparent, Oil Movements tracks every tanker at sea, from both OPEC and non-OPEC oil countries, along with their cargoes’ final destinations. Anne O’Shea responded immediately to my request with their report dated May 8, 2008. Just so you will know, oil shipments are up from a year ago in almost every class, including Middle East oil in transit and Non-OPEC in Transit. The only class of oil shipment that has declined is covered on page 3 of that report. That chart is labeled, "4-Week Changes in Westbound Oil at Sea."
That’s right, shipments of oil headed west have shown serious declines during the month of April, down 800,000 barrels per day in the week before the publication of the report. Now, let me give you the first line from under the Westbound Oil shipments chart: "In the west, a big share of any [oil] stock building done this year has happened offshore, out of sight."
Could this be true? Oil Movements, the unimpeachable source for finding the real world situation on oil transits, is saying that oil is being hidden offshore, not declared in inventories? Yes, that is exactly what they are saying.
That same week our refineries cut their production runs back to 85 percent, down from 89 percent a year ago, to trim more gasoline out of our stock reserves, to increase their profits per gallon.
National Short-Term Memory Loss
It’s amazing how quickly we forget our recent history. Congressional hearings in 2001, blasting certain Wall Street executives for using the media to sell the public on stocks in order to bid up the price – so their firm could divest of its shares without taking a beating. Meanwhile, other trusted advisors pushed stocks that were fundamentally worthless, because their affiliated banks had large loan agreements with those companies.
The year before Enron had been caught manipulating the California energy market, even forcing rolling blackouts across the northern part of their state apparently just for effect – to support their claim that there just wasn’t enough electricity to go around. Again, we now know that claim was untrue. It was Enron shutting down certain power generation plants, while placing bets on their unregulated energy futures market. The net cost to California consumers was almost $8 billion.
It didn’t end there. Amaranth Advisors, a hedge fund, literally was cornering the market on natural gas futures, to make it appear that there was a shortage of natural gas, when the Commodities Futures Trading Commission told Amaranth to liquidate its position on the NYMEX because its bidding had already moved natural gas prices far beyond the reasonable limits of supply and demand. Now, remember this name: ICE, short for Intercontinental Exchange – the "dark futures lookalike market."
Once the CFTC told it to back off its natural gas futures contracts, Amaranth simply shifted gears, got out of the NYMEX, placed its massive bets outside of government regulation in ICE and managed to drive natural gas futures to $8.50 per MBtu.
As the Senate investigation into the manipulation of the energy markets showed, "Amaranth – the day before they failed, natural gas was about $8.50; the day after it failed, it went to $4.46 MBtu." That’s right, one major hedge fund managed to double the price of natural gas simply by loading up on futures contracts; when the government told them their bets were unwarranted, they simply moved their monies to a futures exchange that was unregulated. Only when Amaranth failed did natural gas prices fall back to what was considered normal for supply and demand.
Sadly, like oil today, when this was happening we were being told that natural gas supplies were tight worldwide. That statement simply wasn’t true.
Dark Future
Likewise, British Petroleum was busted for manipulating the propane market in the winter of 2004 and fined $373 million. Of course, in Texas, under deregulation of our public utilities, our electric rates can be set using the futures market for natural gas, so the manipulation of the natural gas market spelled trouble for us. Consider this, by 2006, according to www.powertochoose.org, electricity rates for us had climbed to 15 cents a kilowatt-hour due to the high cost of natural gas. But, that was the exact same time period that Amaranth was proven to be manipulating the market and sending natural gas futures through the roof. Two months later the hedge fund collapsed and natural gas prices fell. Therefore, most Texans paid higher electric bills for Amaranth’s manipulation of the natural gas market.
Professor Michael Greenberger of the University of Maryland, a former board member of the Commodities Futures Trading Commission, testified in front of the House Committee on Energy and Commerce on December 14 of last year. Under discussion that day was the manipulation of the energy markets and prices, but Professor Greenberger added these comments: "Three, four months from now, you’re going to have a hearing on the subprime meltdown, and you’re going to find that the very same legislation [deregulating energy] deregulated something called collateralized debt obligations, CDOs." That legislation, friends, directly ties the mortgage meltdown to the high price of energy today.
It was called H.R. 5660, the Commodities Futures Modernization Act of 2000. At first this bill went nowhere in the House, not even up for debate. Then, a few months later, late one night a 242-page bill written by Wall Street lawyers, with the exact same name as the former House bill, was quietly added to an 11,000-page appropriations bill, and the Enron loophole was created. The power behind that bill was one Texas Senator, one Texas Congressman and their wives.
Next week: How the unregulated futures market pushes the price of oil, natural gas and gasoline far beyond those commodities’ market value, thanks to the creation of the Intercontinental Exchange. Worse, Congress knows this, but does nothing.
We’re almost there now. When the bottom drops out a lot of speculators are going to get their @sses handed to them.
CNBC is a willing co-conspirator for all the hedge funds who have their hacks on forecasting $150 or $200/bbl. oil. They are all in bed together, promoting the Democrat victory in Nov. They should all be sued when the bubble bursts, as it most definitely will.
It is heartening though, to see that the Congressional hearings with the oil company execs are being universally panned by everyone. The publicity hogs in D.C. have worn out that old propaganda gambit, and no one believes they can do anything about the price of oil.
However, I would like to see someone ask Nancy Pelosi why the price of gasoline has almost doubled since the Dems took over Congress in ‘06. When they campaigned on “doing something about the price of oil” the voters didn’t think they meant they’d double the price.
Oh, absolutely. I don’tknow when the world’s going to wise up to the fact that these people are trading with the value of a country’s economy and wrecking the infrastructure while they’re at it.
Yep. When the summer tourism season hits and a lot of people opt out of driving cross-country for vacation, watch for the panic to set in.
China also suffered two devastating natural disasters in just the past 6 months (cold winter and earthquake). Over half a million structures were destroyed and over 100,000 businesses demolished. Their oil demand right now should be way down. Heck, they cannot even get oil to some earthquake damaged regions.
“Stored oil” means it is oil that is not on the open market yet. They hold it in reserve and control the price that way. It also means wells that have been drilled, but not depleted or yet sold. In this case you seem to consider the oil not yet produced as a “surplus”.
That’s not how the industry or the market works. In fact, very little of the oil taken out of the Alaska Pipeline goes to our domestic use. Most all of it is contracted to Japan and is tankered there the moment it hits Valdez. The reason is logistics and shipping distance and difficulty dealing with shipped products.
Most of our oil comes from Canada via pipeline.
The speculators tracks are found in the commodity pits and in corporate boardrooms of financial giants. They took option postitions early on and now talk up the price.
Supposedly the DEms held a hearing the other day and called in the CEOs of oil companies to berate them and find out why oil prices were going through the roof.
Did you hear anything about this hearing and their response?
Dems want to demagogue the issue.
Second, ''margin'', in the world of futures, is a performance bond put up by the trader as a guaranty of performance on the contract, and a guaranty that he will be responsible for any trading losses. These dolts (Sen. Bunghole Bingamen, to name one) who are calling for gigantic margin requirement increases on the order of tenfold, are off on some other planet. Name me an instance, ANY instance, of a 50-60-70% performance bond on ANY contract on this planet.
Third, in futures mkts there is NO borrowing by anybody from anybody, except sometimes in the case of physical delivery (the brokerage will lend the client the capital to pay for the goods, on the condition that he sell them back into the spot mkt immediately).
Other than those points, your cited source may have a clue as to what he's talking about.
we were thinking of that for our living room/dining room/kitchen area on the first floor.
It’s a good sized house with 5 different zones on the furnace.
One zone is a new addition for my mother-in-law - a pellet stove could heat her whole apartment.
So, we’re wondering if there’s a way to keep the furnace running on a different source.
Close. The rules need to be reinstated... Glass-Steagall Act.
Anyone with the reputation of Goldman Sachs who predicts $200 oil in the future is going to be listened to—with the predictable result of an immediate run up in oil futures as speculators want to get in on the run-up.
Does anyone here think that Goldman Sachs is already sitting on some very sizeable oil futures options? They are investment bankers. That’s what they do—invest and speculate on financial paper.
From what I understand you can hook these units into your existing duct work and wa-lla...heat!
The figure cited was 6.0 %. It was cited by the author from an earlier article the author wrote. Do not know when that article was written.
Third, in futures mkts there is NO borrowing by anybody from anybody, except sometimes in the case of physical delivery (the brokerage will lend the client the capital to pay for the goods, on the condition that he sell them back into the spot mkt immediately).
Perhaps borrow was a poor choice of words by the author. As you stated, Guaranty is much better. That could be a simple England verse States problem. For Example - They refer to rent as let over there.
Other than those points, your cited source may have a clue as to what he's talking about.
Well he is from England. You can post comments to his article if you like.
Partially true, but T. Boone hasn’t always hit homeruns!
Can remember back in the 70’s GAS LINE days, a lot of “offshore” oil stockpiling was going on and may prove today’s oil scam could have an end as well.
This statement doesn’t make sense.
The bubble will not burst until after the election. Especially if obama-lama-ding-dong gets elected. IF that happens, the price will plummet (congress finally telling the traders that there is no reason for the run up) allowing the dhims to claim a major victory. The dhim congress needs this issue of high oil prices for their campaigning. So, don’t expect anything until after Nov.
Watch the video I posted...You'll then find out...
“in futures mkts there is NO borrowing by anybody from anybody”...
With the margin you cite there has been an increase in the cash working capital requirement of the futures market in propertion to the increase in value of the commodity.
“On November 12, 1999, President Bill Clinton signed into law the Gramm-Leach-Bliley Act, which repealed the Glass-Steagall Act of 1933. One of the effects of the repeal was to allow commercial and investment banks to consolidate. Several economists and analysts have criticized the repeal of the Glass-Steagall Act as contributing to the 2007 subprime mortgage financial crisis.”
Oops. Clinton and McCain involved.
http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.