Did Speculation Fuel Oil Price Swings?

Anyone catch 60 Minutes on Sunday? If not, you missed a great and important story.

I've been one to argue that the price of gas was mostly fixated on supply and demand. However, this news piece showed otherwise, and has no doubt doubt changed my opinion on the matter.

Again it seems, Wall Street has bit us on the ass big time.

Why has the been allowed to happen? According to this report, regulations in the futures market are practically non-existant. Apparently, the deregulations efforts were originally enacted for the benefit of--get this--ENRON.

Check this out:

Wall Street bankers insisted at hearings last summer that the rising oil prices were a result of supply and demand, not excessive speculation. But prices continued to go up, even jumping by a record $25 on a single day when there were no supply disruptions to justify the increase and demand was actually going down.

and:

This deregulation of the futures market was originally enacted for the benefit of Enron and made it possible for that firm to manipulate the California electricity market, driving prices up by as much as 300%. It has since been exploited far more widely, and the incoming Obama administration has promised to address the regulatory loophole.

Please take the time to read the story and/or watch the video.

Did Speculation Fuel Oil Price Swings?, 60 Minutes: Speculation Affected Oil Price Swings More Than Supply And Demand - CBS News

I watched this show with skeptical amusement and found that as is typical of the lack of journalistic ethics that is rampant in today’s media, it appears that they were very selective whom they interviewed and had no one from the legal regulatory side to give us more information.

For those who do not want to exert the effort to research this regulatory argument further, I have done it for you here.

The thing that amuses me the most is watching politicians and Liberals parrot the notion that what is wrong with the markets is not enough Government oversight or regulation it is apparent that oversight is what is seriously lacking and not the regulations.

Government oversight has never been pre-emptive or taken on a proactive enforcement, it is REACTIVE and after the fact and usually, politics and lobbying determine the outcome of any oversight rather than actual enforcement.

Here are the regulations on Commodity trading if you think there are not enough of them, there’s a bridge in Arizona I would like to sell you:

The Commodity Exchange Act
Law & Regulation

The 262 page Bill:
http://www.cftc.gov/stellent/groups...atutoryauthority/documents/file/ogchr5660.pdf

The Code conversion chart:
Commodity Exchange Act Conversion Chart

CFTCs Regulations:
Electronic Code of Federal Regulations:

Rules and Authority:
http://www.cftc.gov/stellent/groups...rity/documents/file/conference_report2008.pdf

The Commodity Information Act Electronic Code Regulations:
Electronic Code of Federal Regulations:

Truth Detector said:

The thing that amuses me the most is watching politicians and Liberals parrot the notion that what is wrong with the markets is not enough Government oversight or regulation it is apparent that oversight is what is seriously lacking and not the regulations.

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This is generally the left's answer for everything -- more government.

Did speculation cause the price spike? Of course. But irrational exuberance is a natural part of the economic cycle, and speculators provide a valuable service. Rather than try to clamp down on it, people should bet against the speculators.

Middleground said:

I've been one to argue that the price of gas was mostly fixated on supply and demand. However, this news piece showed otherwise, and has no doubt doubt changed my opinion on the matter.

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The news piece didn't show otherwise. It just showed, whether accurate or not, that commodities speculation shifted into a big business.

Again it seems, Wall Street has bit us on the ass big time.

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No, we have bit ourselves in the ass. Our desire for greater returns on our investments motivated traders to take actions to do precisely that. Our pension funds, our mutual funds, our investment funds all benefitted from this speculation.

Why has the been allowed to happen? According to this report, regulations in the futures market are practically non-existant. Apparently, the deregulations efforts were originally enacted for the benefit of--get this--ENRON.

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Yeah, I was not convinced by this aspect of the 60 Minutes story. The producer never established that Enron sought such treatment, what Congress actually enacted that satisfied Enron's alleged lobbying demands, or that the commodity speculation was all of a sudden permissable with such legisaltive action.

Check this out:

Wall Street bankers insisted at hearings last summer that the rising oil prices were a result of supply and demand, not excessive speculation. But prices continued to go up, even jumping by a record $25 on a single day when there were no supply disruptions to justify the increase and demand was actually going down.

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No supply "disruptions." On the other hand, there were and are oil tankers just sitting offshore filled to the brim with oil that will not off-load their oil until the price of oil increases. That is a supply disruption, no?

Speculation and supply and demand are not exclusive of one another.

I've been one to argue that the price of gas was mostly fixated on supply and demand. However, this news piece showed otherwise, and has no doubt doubt changed my opinion on the matter.

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Thank you for waking up to the truth of the matter, so many North Americans for some "reason" like to defend the high gas prices they're paying like it's all justified and honest and yet will complain the media lies about this and that--very inconsistent.

YouTube - If Oil Industry Profits Are Up, Why Aren't Gas Prices Down?

GOP Socialist Soldier said:

Thank you for waking up to the truth of the matter, so many North Americans for some "reason" like to defend the high gas prices they're paying like it's all justified and honest and yet will complain the media lies about this and that--very inconsistent.

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Hey, nice strawman...

Goobieman said:

This is generally the left's answer for everything -- more government.

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And it is their answer even when the results are always the same. What was that age old saying? If you keep doing what you have always done expecting different results, you might be a moron? :rofl

Kandahar said:

Did speculation cause the price spike? Of course. But irrational exuberance is a natural part of the economic cycle, and speculators provide a valuable service. Rather than try to clamp down on it, people should bet against the speculators.

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We are in rare agreement again. Sometimes you actually elucidate coherently dude. :rofl

GOP Socialist Soldier said:

Thank you for waking up to the truth of the matter, so many North Americans for some "reason" like to defend the high gas prices they're paying like it's all justified and honest and yet will complain the media lies about this and that--very inconsistent.

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This is fascinating denial considering that we in the US pay half what Europeans and many other nations pay for gas.

The notion that your efforts to suggest that obscene profits are the reason for the price we pay in gas while debating truth and honesty is profoundly ironic; I am betting you don't even see the irony.

Once more we are confronted with the socialist argument that obscene corporate profits result in high prices when it is actually the opposite when Socialist nations pay DOUBLE what we are.

Carry on; denial leads to ignorance, don't do denial. (this is what happens when our school systems fail to educate our students and citizens on basic economic theory; it should be REQUIRED at the High School level and pieces of the theory taught in the Middle Schools.) :2wave:

Once more we are confronted with the socialist argument that obscene corporate profits result in high prices when it is actually the opposite when Socialist nations pay DOUBLE what we are.

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So we should be like Europe and also have Health Care like Europe also? Maybe they pay double for those Socialized programs? Where is that money going? :2razz:

GOP Socialist Soldier said:

So we should be like Europe and also have Health Care like Europe also? Maybe they pay double for those Socialized programs? Where is that money going? :2razz:

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Seriously, how did you get ^^^ from TD's post that you quoted?

I really want to know...

GOP Socialist Soldier said:

So we should be like Europe and also have Health Care like Europe also? Maybe they pay double for those Socialized programs? Where is that money going? :2razz:

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So now you run away from your original specious arguments and jump to the next?

They have Government provided healthcare because they pay DOUBLE our income taxes, pay DOUBLE our gas prices, pay more for consumer goods and pay double our social security taxes. On top of that their defense budgets are negligible because of all their social welfare programs and they rely on the USA to do their fighting for them.

With all that, Europeans also historically have double the unemployment we have and half the GDP growth we have. Any other specious arguments you want to raise that I haven't answered here?

:roll:

For an explanation of how simplistic 60 Minutes' report was:

What 60 Minutes Missed on Oil Speculation | The Big Picture

For an explanation of why this is just false:

More on oil and speculation - Paul Krugman Blog - NYTimes.com
http://www.nytimes.com/2008/06/27/opinion/27krugman.html

For empirical evidence of why this is false:

IEA says supply and demand - not speculation - boosts oil - Jul. 1, 2008

This whole "oil speculation is the cause of high prices" reminds me a lot of the "vaccines cause autism" thing. People don't understand it, but it sounds right, makes them feel good, and gives them something to blame.

W

ith all that, Europeans also historically have double the unemployment we have and half the GDP growth we have. Any other specious arguments you want to raise that I haven't answered here?

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Yes. Why is the oil industry so corrupt and lie ridden and why would the media lie on this; a ruse?

This whole "oil speculation is the cause of high prices" reminds me a lot of the "vaccines cause autism" thing.

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And the cause of the recent high rate of autism is due to what??? Please tell us.

RightinNYC said:

For an explanation of how simplistic 60 Minutes' report was:

What 60 Minutes Missed on Oil Speculation | The Big Picture

For an explanation of why this is just false:

More on oil and speculation - Paul Krugman Blog - NYTimes.com
http://www.nytimes.com/2008/06/27/opinion/27krugman.html

For empirical evidence of why this is false:

IEA says supply and demand - not speculation - boosts oil - Jul. 1, 2008

This whole "oil speculation is the cause of high prices" reminds me a lot of the "vaccines cause autism" thing. People don't understand it, but it sounds right, makes them feel good, and gives them something to blame.

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This is all new to me, and beyond the 60 Minutes piece, I don't know a lot futures markets. I did go to one of your provided links (the first one), Right, and found that there were a lot of negative comments about it. These are some of the comments, if anyone would like to reply to them, I'd be happy to get that side.

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Andy Tabbo Says:
January 12th, 2009 at 8:30 am
Generally agree here Barry, but I don’t like the way you summarily dismissed Master’s claims. You’re entitled to your own ideas, but not your own facts. The fact is that pension funs and endowments plowed large sums of money into all “commodities” as a new “asset class” in 2004. This was not “hot money.” This was large money that was sold the bill of goods that they could diversify away from stocks (stung by the 2000-2002 collapse) into a “new asset class.”

It was complete bull**** of course. The CRB indexes all saw a sharp uptick in “long only” investing of commodities in 2004 that continued on a parabolic rate in 2005, 06, 07 and 2008. The amount of money flowing into commodities was “small” compared to the equity and bond markets, but was actually a VERY large sum of money compared to the extremely tiny commodity markets.

The fact is that this instutional flow of funds into the “new asset class” SWAMPED the relatively tiny commodity pits beginning in 2004.

Yes, yes, yes…there was a “good story” to go with it…yada, yada, yada…China, India, etc….but you cannot dismiss the “new asset class” development starting in 2004.

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Cybernaught Says:
January 12th, 2009 at 9:09 am
Yes Barry. There were and are many factors affecting the price of commodities.

If true, the fact that 300 billion of speculative money could move the oil market and create the kind of blowoff that extracted hundreds of billions from the pockets of consumers, calls into question the “efficiency” of the present form of the “free” capitalist system. In a time of 50 billion $ ponzi schemes, and trillion $ bailouts, that kind of money is easy to assemble. If it’s so easy to game the system, the system is seriously flawed. The post-bailout world, awash with dollars awaits.

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Chief Tomahawk Says:
January 12th, 2009 at 9:15 am
By the way, I was watching CNBC the day oil broke last summer. CNBC cut to Sharon Epperson in the pits and said the explanation for what was going on was “the banks were selling”. So, perhaps “60 Minutes” did get that part of the story right last night.

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Barry you missed the point, 60 minutes was just showing another way that speculators have contributed to our downfall, and should have their heads mounted firmly on stakes. Speculators big and small all had their part from the little guy getting cash out of his house value like an atm, and buying an SUV with the money, to the folks living an unrealistic lifestyle in an overpopulated city that sucks off the entire GDP of this nation to sustain itself. I predict that as long as people keep missing the point that we are living byond our means, we are doomed to failure.


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flipspiceland Says:
January 12th, 2009 at 10:04 am
They may have missed 59 other reasons, but the number of those 59 reasons do not amount to a hill of beans.

Speculators, and ONLY speculators caused the rapid rise in a few months. I was one of them.

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BR: while many of the factors you mention may be relevant it doesn’t recognize the fact that over an 18 month period oil went from around 60 bucks to 147 bucks while real demand was falling for part of the period. And surely Masters book is irrelevant that’s a bit of personlization. Croft also had a guy from the Petroleum Marketers and the OFTC both of whom confirmed what happened. The juxtaposition of the Morgan guy with the email of his global strategist was classic. You’re stretching a bit here.

GOP Socialist Soldier said:

And the cause of the recent high rate of autism is due to what??? Please tell us.

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Better detection, adjusted definition of the autism spectrum, etc. You actually think it's the vaccines? :rofl

Better detection, adjusted definition of the autism spectrum, etc. You actually think it's the vaccines?

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I don't know what it is, do you? Why are we having kids born with Autism at a greater rate in America vs. past generations? If mercury or whatever is in the vaccines isn't causing it--shouldn't we get these materials out of vaccines anyway?

Once more we are confronted with the socialist argument that obscene corporate profits result in high prices

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But America is Socialist, the GOP is officially Socialist; it's Socialist fact, not argument via the present via present oil policy. As a voter for GOP Socialist McCain, I realize that, maybe you didn't vote for Marxist Obama or Socialist McCain--good for you--I don't know.

Let's not defend the Socialist Oil policies of Congress or of the President. Maybe this 60 minutes thing was a ruse to throw us off to the real corruption of oil and the Socialist Policy the media really never examines for any length or intensity.


http://www.debatepolitics.com/us-pa...platforms/39566-s-official-gop-socialist.html


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