Elections Have Consequences I: Oil Speculators - Public Enemy Number 1?

[jpak]

Crude oil prices more than doubled then fell by $87 a barrel between March 2007 and November 2008.

These price swings cannot be wished away simply by invoking "supply and demand" or "the weak dollar" or "peak oil" * or any combination of the three.

It can only be blamed on speculators run amok. The rapid run-up in crude prices exacted a bitter toll on family budgets and the nation's economy and sucked up every dollar of the "economic stimulus" most Americans received last summer.

What is the best approach toward establishing an orderly crude oil market that responds to REAL economic pressures but cannot be gamed by speculators?

Should oil buyers be forced to take possession of the oil they purchase?

Should hedge funds be banned from the crude oil market?

Discuss



* disclaimer: I was "peak oil" before "peak oil" was cool so save your breath...

[dipsydoodle]

1. Should..........

Should oil buyers be forced to take possession of the oil they purchase? Should hedge funds be banned from the crude oil market?

I believe both to be the answer.

[jpak]

2. I forgot to add demand destruction/conservation policies to the list of solutions

The only way to protect yourself or your business or the economy from future oils shocks is to significantly reduce crude oil demand.

[INdemo]

3. Regulations on oil futures just have not been enforced

and speculators have made profits with oil prices going up and profits on falling prices..Now as risky as oil futures might be there were those investors that were able to hang in there for months and profit from our economic pain.Here's my theory...These investors realize that President Obama will enforce these regulations and investors are fearful of holding contracts they won't be able to unload or lose if the market continues to decline.So with today's economy oil futures becomes a much higher risk.The American public is not stupid and with all the excuses the oil companies used when gas prices increased,it was all about speculation.The speculation of unleaded gas would also enter into this equation and this outgoing administration did nothing to give the public any relief when they could have very easily done so months ago or even 4 years ago.

[jpak]

4. What you said

:hi:

[happyslug]

5. Speculator can only run up the price when the market is tight.

Thus the run up on the price of oil was do to the fact oil production is within two percent of oil consumption (Historically the difference is about 5% world wide, the 5% approximate the amount of oil used by the US military, thus marked as produced and exported by OPEC and other exporters, BUT not marked as Imported into the US, for it is imported OVERSEAS to US Bases stationed overseas, and since it is NOT imported into those countries EXCEPT for use by the US, it is NOT marked imported into those countries either, thus the Historical 5% difference between Production and Consumption. The Difference is NOT real, but a product of US not Wanting to marked as imported oil, oil that is used overseas and the fact no other country wants to marked that oil as being imported, the old saying "Figures don't lie, but liar Figure").

Thus observations that the recent price increase, unlike the price spike in 1979, you had no excess oil being held in stock (The main cause of the 1979 Oil Price Spike). The problem has been since at least 2002 the world has been producing about what the world has been using, and when you have that the price naturally goes up. Speculators took this price increase as a sign of where oil was heading so start to by, which pushed up the price even more. As the price went up more and more speculators invested more and more money into oil price, and was rewarded by the market when it came time to sell that oil (Prices went up). Speculators helped the price go up, but only do to the fact the market was tight and thus ready to be manipulated.

The problem with speculation is that it works both ways, and the recent drop in price is as much the result of speculation as the recent increase. As the price of oil started to drop, speculators, worried about their investments started to pull out of the market, putting addition pressure on the market to drop. As the market dropped further speculators started to make investments in oil BASED ON THE PRICE OF OIL DROPPING, the price dropped even further. Thus the key is why did the market STOP going up? As long as the Market was going up the smart money was on the price going up. When the price stopped going up and started to drop, speculators switched from betting on the price going up, to one on betting the price will drop. This is the traditional function of speculators, betting on how the market will go, and it has always been legal. It is illegal when market participants manipulate the market by withholding product (As what happened in 1979) or flooding the market (Which is how Standard oil controlled the price of oil form the 1860s till 1912, and how the Texas Railroad Commission did the same from the 1920s till 1970, and how Saudi Arabia controlled the price of oil from the mid-1970s till recently).

So what cause the recent price drop. Several factors lets list them:
1. Drop in US Usage, the US apparently has for the Second time ever (The first time was in 2007 but that was a drop on less then .1%) had a drop in consumption, in the summer of 2008 that appears to be about 5% of US consumption (Which given that the US uses 25% of the World's oil it is about a world wide drop of over a little over 1%). 1 % does not sound like much, but in a tight market enough to slow down any increase in the price of Gasoline.
2. World wide trade in down, which means there are less ships using oil to ship goods from one country to another. How much of a drop in unknown, but it appears to be significant. Most of this also reflects the tight market for money at the present time, a lot of retailers are buying less items to sell this Christmas Season, which affects how much oil is used shipping goods from country to Country.
3. The US Military secured Iraq oil Supplies, by promising any money from those wells will go to both the Shiites and Sunnis in Iraq. The Payments to the Sunnis reduced the need for US patrols thus reduced the use of Oil by the US (Which imported most of its oil from Kuwait for use in Iraq). To build support with the Shiites the US made sure any exports of oil from Shiite territory went to the Shiites. This double promise, money from the oil fields to both the Shiites and Sunnis will sooner or later come to a head, but as long as the US can give money to both not a problem and increase world wide oil supplies.
4. In the last couple of Weeks I have seen an increase in Helicopters flying from my local Air Reserve base. Something I missed over the last few months, then it dawned on me, this is the best explanation for the recent drop in oil prices, the Pentagon stop buying oil in the huge amount it normally does, that would by itself reduce the demand for oil and cause its price to drop (i.e. Help McCain win the Elction).

[excess_3]

6. the electric car is coming .n/t