How Banks Are Poised to Cash In on the Cold Snap

[DainBramaged]

The cold snap that has large swaths of the United States in a deep freeze may mean higher heating bills for millions of consumers, but the frigid air is good news for top banks.

Or, to put it in the language of the perhaps inevitable political talking point: As Main Street shivers, Wall Street is poised to cash in.

Big financial firms have invested heavily in the oil and gas sector in recent years, buying up energy storage facilities. With demand for heating oil rising, and raising prices along with it, tankers used to store oil at sea are now headed back to the Northeast, the trade Web site HeatingOil.com reports, carrying with them the makings of healthy weather-related profits for the likes of Morgan Stanley and JPMorgan.

The practice of storing oil offshore while prices are lower – critics call it "hoarding" – and selling it when the price goes up has become commonplace. Such investors are taking advantage of a market condition known as contango, in which the price received for delivering a commodity – in this case heating oil – in the future is higher than the price for delivering it immediately. Contango had been present in the heating oil market during the fall, providing an incentive for companies to hold rather than sell their oil. Now that the demand has returned, oil owners are reaping the profits. Crude oil prices are up to more than $80 a barrel, while heating oil futures have also risen sharply as the temperatures outside have plummeted.

The store-and-sell method is perfectly legal, but its use during the cold spell reignites a long-running debate over its fairness among consumer advocates, economists and industry executives.

"The commodity traders are making hundreds of millions – if not billions – of dollars at the expense of the homeowners," said Fadel Gheit, managing director for oil and gas at Oppenheimer & Co. The households facing higher energy bills, he said, "are getting screwed."

Gheit maintains that the sharp increases in heating oil prices are a result of a market that's out of whack because of rampant and unregulated bets by Wall Street firms. "They have speculated and manipulated oil prices for the last five years," he said. "It was a free-for-all. It was like a toga party, and everybody was drunk."

http://www.sphere.com/article/banks-with-heating-oil-investments-are-poised-to-cash-in-on-the-cold-snap/19309578

http://www.heatingoil.com/blog/heating-oil-in-sea-storage-headed-for-the-northeast106/

[DJ13]

1. Preventing commodity speculation is another broken promise by Obama

Its sad how large that list is becoming.