Can anyone explain how speculators intentionally drive up the price of oil?

[LoZoccolo]

[liberal N proud]

1. :

:popcorn:

[Drale]

2. They say gas prices will be this and it happens

Its magik.

[Blue Meany]

3. One way they do it is to buy a tanker full and then park it in a

Mediterranean port until the price goes up. Some of the banks were doing this during the financial crisis. Refining companies create shortages by shutting down refineries just before the busy seasons, creating artificial shortages.

At this point, oil supplies are so tight globally that it takes very little (e.g., Libya) to throw the market off-balance. Then the speculators jump in and jack up the price further, and it is difficult to tell how much is caused by speculation and how much by actual shortfalls in production.

[walldude]

4. Yeah it's called GOOGLE

http://www.google.com/search?hl=en&q=how+speculators+affect+the+price+of+oil&aq=0&aqi=g1&aql=&oq=how+speculators

[Better Believe It]

5. This information should be helpful. U.S. Senators letter urging curbs on oil speculators

Opinion Leaders Speak Out

3/17/2011 - Representative Barney Frank (D-MA), United States House of Representatives
"There is no question that speculation is playing a role in the rise in gas prices." New York Times

1/20/2011 - Senator Sherrod Brown (D-OH), United States Senate
"They will bet on prices going up, encouraging other to bet on prices and they pocket a lot of money." NBC4i.com

1/14/2011 - David Berg, vice president and general counsel, Air Transport Association
"The extraordinary price fluctuations that harmed consumers, industry and the economy in recent years will not be prevented by the proposed limits, and with predictions that prices will once again exceed $100 a barrel, the CFTC must do more to address this problem by delivering on the intent of Congress as clearly outlined by Dodd-Frank. The market easily can function efficiently and effectively with more stringent limits." ATA News Release

1/14/2011 - David Berg, vice president and general counsel, Air Transport Association
"Excessive speculation, unrelated to the fundamentals of supply and demand, creates volatility in prices that simply cannot be effectively managed by the airlines or, for that matter, any other industry where fuel is a key cost item, and it damages the economy." ATA News Release

12/15/2010 - William F. Galvin, chief financial regulator, State of Massachusetts
"If the Commission fails to act in a timely way or fails to adopt strong position limits, markets and consumers will be vulnerable to excessive commodity prices and volatility arising from speculative trading activity." Bloomberg

http://www.stopoilspeculationnow.com/pages/MoreQuotes.aspx

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Nelson, other senators urge curb on oil speculators
By William E. Gibson, Washington Burea
Orlando Sentinel
March 17, 2011

WASHINGTON — Florida Senator Bill Nelson and a dozen of his colleagues urged federal officials on Thursday to use new regulations to curb speculators from driving up gas prices.

“Speculators are seizing on recent political turmoil in North Africa and the Middle East to drive energy prices to unwarranted levels,” the senators wrote to Gary Gensler, chairman of the U.S. Commodity Futures Trading Commission.

The senators cite evidence that oil trades have jumped 35 percent since civil unrest began late January in North Africa and then the Middle East. During that period, U.S. gas prices soared by almost 40 percent.

Speculators can buy $100 worth of oil futures with only $6 down, Nelson said. The Commission has the authority to call for higher margin requirements. Other commodities traded in the same exchanges often require 50 percent down, he said.

http://blogs.orlandosentinel.com/news_politics/2011/03/nelson-other-senators-urge-curb-on-oil-speculators.html


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A text of the letter is below:

March 16, 2011

The Honorable Gary Gensler
Chairman
U.S. Commodity Futures Trading Commission

Dear Chairman Gensler,

There is strong evidence the recent surge in gas prices has little to do with the fundamental supply and demand for oil. Government data confirm that oil speculators are driving the price increase. We urge you to restore integrity to our energy markets by exercising the CFTC’s authority to require higher margin levels for speculative oil futures contracts.

Speculators are seizing on recent political turmoil in North Africa and the Middle East to drive energy prices to unwarranted levels. The Commitment of Traders Report reveals that speculators have flooded into the market in recent weeks. Since protests began in Egypt on January 25, 2011, money managers have increased their long positions in NYMEX West Texas Intermediate crude oil futures contracts by more than 35 percent, or the equivalent of 75 million barrels of oil. Oil speculators have increased long positions on the Intercontinental Exchange by nearly 50 percent. At the same time, actual true hedgers have reduced their long positions in the oil futures markets.

The loser in this game of oil speculation is the American consumer. Rising oil futures translate into higher gas prices, and that means Americans have less money in their pockets to pay for basic needs.

In the Dodd-Frank Wall Street Reform and Consumer Protection Act, we empowered your Commission with a number of new tools to rein in excessive speculation and prevent market failures. In addition to mandating speculative position limits, we removed the broad statutory restriction that prohibited the CFTC from imposing higher margin requirements. Section 736 authorizes the CFTC to require higher margin requirements in order to protect the financial integrity of the futures trading markets. Now is the time to exercise that authority. New margin requirements could take effect as soon as July, but the CFTC must begin the rulemaking process now. Higher margin levels would reduce incentives for excessive speculation by requiring investors to back their bets with real capital.

For the same reason we don’t let pharmaceutical companies approve their own drugs, we shouldn’t let futures exchanges self-regulate by setting their own margin requirements. This hands-off, self-regulatory approach has led to a fundamentally inequitable system in which ordinary investors are required to post 50 percent margin to buy a stock, but Wall Street traders post only six percent to purchase a risky and volatile futures contract.

We urge you to act quickly to raise the margin requirements imposed on speculative oil contracts. The margin increase should only apply to speculators, not true hedgers. This is consistent with current exchange policies that apply different margin requirements for investors and bona fide hedgers. With your leadership, we can discourage damaging and excessive speculation in the oil markets and bring down gas prices.

Sincerely,

Sen. Sherrod Brown ( D-OH ) Sen. Maria Cantwell ( D-WA )

Sen. Barbara Boxer ( D-CA ) Sen. Al Franken ( D-MN )

Sen. Jeff Merkley ( D-OR ) Sen. Patty Murray ( D-WA )

Sen. Robert Menendez ( D-NJ ) Sen. Mark Begich ( D-AK )

Sen. Rockefeller IV ( D-WV ) Sen. Carl Levin ( D-MI )

Sen. Barbara Mikulski ( D-MD ) Sen. Bill Nelson ( D-FL )

Sen. Bernard Sanders ( I-VT )

http://blogs.orlandosentinel.com/news_politics/2011/03/nelson-other-senators-urge-curb-on-oil-speculators.html

[Warren Stupidity]

6. speculative purchasing artificially increases demand,

worse, the speculator is insensitive to the unit cost of the commodity as he is not a consumer of that commodity, he is merely betting on price fluctuations while competing against others who are buying in order to use the commodities.

For example, discussing agricultural commodity speculation:

"The argument is sometimes made that speculation is unimportant because the futures speculators will never take delivery of the actual food; but this is precisely the problem and it is why this speculation is highly destructive of the true market. Purchases of agricultural commodities futures contracts have classically been the means by which a limited number of traders stabilised future commodity prices and enabled farmers to finance investments in future crop production. Speculative purchases have no other purpose than to make money for the speculators, who hold their contracts to drive up current prices with the intention not of selling the commodities in the real market, but of unloading their holdings onto an artificially inflated market, at the expense of the ultimate consumer."

[Tippy]

7. Here is an explination......

http://www.swnewsherald.com/news_inside/2011/03/031111cs_rh_gas.php

In addition the speculators buy when oil is low...there by taking it off the market price goes up and they sell...then they laugh all the way to the bank...

[FreeJoe]

8. They don't

Speculators can have a dramatic effect on the price of oil in the futures market (the cost of oil purchased today for delivery in the future), but very little effect on the price of oil today. The price of oil on the spot market is determined by producer supply and consumer demand. It is expensive to hoard a bunch of produced oil, so you rarely see it happen.

Think about it. The companies that produce oil are greedy. They want to make the most money possible. Why would they sell it to consumers for any less than the maximum amount that they can get? If they are already gouging consumers for every last dollar they can get, where do the speculators come in? How can they buy it from the producers and sell it to the consumers for still more? Do you think the big oil companies are too stupid to get the best price for their oil?

On a related note, whenever you see an article that talks about who we get our oil from, the article is almost always full of shit. The oil market is global. If we stop buying oil from a country we hate, they sell it to someone else for almost the exact same amount as we would have paid. If a country hates us and refuses to sell us oil, we buy it from someone else for almost the exact same amount. That's not to say that a large trading block like OPEC can't affect prices by cutting production, but when they do the price goes up for everyone in the world. There is basically one worldwide oil market.

The gasoline market is different. It is comprised of more local markets each of which is small enough to be subject to more manipulation. This is typically done by refiners and not by speculators.