When bad things happen, it"s always nice to have a scapegoat. So, with Americans furious about soaring oil prices, Congress has gone in search of someone to blame. There are a number of usual suspects to choose from, depending on your politics"OPEC, greedy oil companies, lily-livered environmentalists opposed to oil drilling"but now Congress has seized on another set of villains: commodity speculators. "Excessive market speculation," in the words of Senator Joseph Lieberman, has supposedly inflated the price of oil and other commodities beyond reason. Curb speculation, as a raft of proposed laws intend to do, and oil prices will soon return to earth.
Speculation has been a favorite target of politicians looking to mollify anxious voters since the time of ancient Greece, when the orator Lysias protested that wheat traders had reduced Athens to a "state of siege." Even in market-friendly America, there is a long tradition of denouncing speculators as dishonest, unproductive parasites; the nineteenth-century preacher Henry Ward Beecher decried their "cool, calculating, essential spirit of concentrated avaricious selfishness." And not unreasonably: the past century is full of examples of avaricious selfishness leading to the manipulation and corruption of markets. In the twenties, speculators banded together in "stock pools," trading a particular stock among themselves to create the illusion that its value was rising"in March, 1929, a stock pool succeeded in pushing up RCA"s stock price by almost fifty per cent in less than two weeks"and then dumping the stock when outside investors bought in. In the late seventies, a speculators" pool led by the Hunt brothers mounted an attempt to corner the world"s silver market, and at one point controlled an amount equivalent to an entire year"s global production.
Given this history, and the fact that recent years have seen a huge flood of speculative money entering the commodity markets"assets in commodity indexes, by some calculations, increased twentyfold between 2003 and the spring of this year"it"s not unreasonable to wonder if there might be something nefarious behind the sharp run-up in oil prices. But there"s little convincing evidence that the oil market is being significantly manipulated. Whatever chicanery is occurring"and we can assume there is some"has only a marginal effect on prices at the pump.
Congress is not, though, just attacking illegal market manipulation; it"s also taking aim at perfectly legal speculation, namely the buying and selling of futures contracts, which are effectively bets that oil prices will go up (or down). Futures contracts can be used by oil sellers (like OPEC ) or oil buyers (like the airlines) to hedge their risks by agreeing to sell or buy oil in the future at a set price. Speculators, by contrast, mostly use futures contracts to gamble on oil prices, and have no interest in buying or selling real barrels of oil. These gambles can be tremendously lucrative, but they don"t directly determine the real (or "spot") price of oil. That"s set by the people who are buying and selling actual barrels of petroleum. Although speculators could directly distort oil prices by turning their futures contracts into oil and then taking it off the market to drive up prices, a look at oil inventories shows no sign that this is happening.
If speculators aren"t at fault, why have oil prices spiked so high? Fundamental reasons aren"t hard to find. Between 2000 and 2007, world demand for petroleum rose by nearly nine million barrels a day, but OPEC has been consistently unable, or unwilling, to significantly increase supply, and production by non-OPEC members has risen by just four million barrels a day. The prospect of military action against Iran, which would disrupt global supply, seems greater than it did a few years ago. And the plunging value of the dollar has meant that the cost of oil has jumped more in the U.S. in the past year than it has in countries with healthier currencies.
But there"s also something else at work, which the oil guru Daniel Yergin calls a "shortage psychology." The price of oil"more than that of many other commodities"isn"t based solely on current supply and demand. It"s also based on people"s expectations about future supply and demand, because those expectations determine whether it makes sense for oil producers to sell their oil now or leave it in the ground and sell it later. Currently, the market is assuming that oil will become scarcer, and that global demand will keep rising, especially in rapidly developing countries like China and India. As a result, producers are asking very high prices to pump their oil. Now, it could be that these assumptions are all wrong"that the supply of oil will not be constricted going forward, that concerns about the Middle East are exaggerated, and that higher prices will lead people to cut back on energy consumption, shrinking demand. In that case, oil would turn out to have been hugely overpriced. But that won"t be because of sinister speculators; it will be because oil producers and oil users collectively misread the future.
The difficulty for Congress, of course, is that none of the problems that have driven up the price of oil lend themselves to a quick fix, and most, like the boom in global demand and the inaccessibility of certain oil fields, aren"t under our control at all. That"s what makes speculators a perfect target: by going after them, Congress can demonstrate to voters that it understands their pain, and at the same time avoid doing anything that might require real sacrifice from Americans. Our dependence on foreign oil, together with the fiscal fecklessness that has helped reduce the value of the dollar, means that there is no easy way out of where we are. But in an election year that"s hardly a message that anyone in Washington is going to deliver.
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Remember when Enron was using a loophole in the Commodity Modernization Trading Act and interstate ricochet futures trades to make it appear there was more demand for energy in California, and Bush claimed we needed to drill ANWR, and California needed more power plants, and this was despite claims from the public utility (PG&A) that demand was higher earliar in the summer and there was no shortage then?
It turned out to be a huge scam that was exposed after the Enron collapse when auditors started examining their tradeing practices, and the Bush Administration refused to intervene, and the man they had appointed to run the FERC was aformer Enron executive, and Enron had drafted the legislation that was sponsored by Phil Gramm (McCains cheif economic advisor). Recently, the Bush appointee to run the CTFC has left his post to work for a new foreign exchange run out of Dubai that will be operating here the way ICE does: totally unregulated and unaudited.
Now, Congress finally halted filling the SPR and close the so called Enron loophole, but the foriegn exchange loophole that allows dark trade without any audit trailor oversight still exists ( it was created in 2006, promoted by the Bush administration, and passed by the previous congress before the formermajorityparty became theminority party.)
What we have right now with commodity futures and their derrivatives is a complete disaster devoid of any meaningful oversight, and investment flows are responsible for more now for determining price than underlying supply and demand fundamentals.
what can we say for sure? The problem pre-dates Bush, But,Republicans were the cheif proponents (other than lobbyist for firms like Enron and Goldman Sachs), and the problem was made worse when the Bush Administration opened yet another completely unregulated loophole in the commodities futures market, and once again Bush is telling you to Drill in ANWR (without explaining why he didn't do it already) and so on.
The question is are you going to fall for the same scam twice???
Not really meant for blaming, but if we don't get this kind of stuff stopped, we then are surely doomed. eventually.
The California energy crisis occurred because of faulty deregulation that Enron took advantage of, Death Star, Fat Boy, etc. etc. where they scheduled energy flows that never occurred in order to reap profits on "congestion relief."
Remember when Enron was using a loophole in the Commodity Modernization Trading Act and interstate ricochet futures trades to make it appear there was more demand for energy in California....
and once again Bush is telling you to Drill in ANWR (without explaining why he didn't do it already) and so on.
I remember that the demand in California was so high it exceeded energy supply. There is a reason Gov. Davis was nicknamed "Grey Out" Davis.
It would be nice if Bush could just start drilling in ANWR, but the closest we have ever been to legally doing so was when Clinton vetoed the bill in 1995 after it passed the republican house and senate.
As far as ENRON goes, ENRONbecame ENRON under Clinton, and it became ENRo....under Bush.
C. Davis
__________________ Am I greedy because I don't want to give you what is mine?
or
Are you greedy because you want to take what is not yours?
__________________
I love Christmas lights. They remind me of the people who voted for Obama. They all hang together; half of them don't work, and the ones that do, aren't that bright.
For those who understand, no explanation is needed. For those who do
not understand, no explanation is possible.
A golf course is a willful and deliberate misuse of a perfectly good rifle range.
I don't buy that, if you sell a comodity and a large percentage of the ones speculating on the price rising are putting their money where their mouth is, you'd be stupid to disappoint them. The falling dollar has a large impact too since petroleum is priced in US dollars, but dollars are traded too, and speculation has a lot to do with that value as well. Demand certainly has an impact, but supplying said demand is where the immediate profit comes from, and all corporations are about these days is immediate profit. The "one quarter at a time" mentality sometimes takes it's toll.
__________________
Kevin Haendiges
NAHC Life Member
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http://hunting-indiana.com
Evil speculators revisited
