Tame The Speculators
Federal regulators will examine whether the government should impose limits on the number of futures contracts in oil and other energy commodities held by speculative traders, the head of the Commodity Futures Trading Commission said Tuesday.
—
The move comes against a backdrop of concern in Congress and complaints by traders over speculation in the oil futures market.
—
For example, benchmark crude oil prices have roughly doubled since March even though government reports show U.S. supplies brimming with surplus oil. Investors have been buying oil barrels not because of traditional supply and demand, but on the expectation that the economy will eventually improve. Some are also buying crude oil as a hedge against inflation, betting that the dollar will get weaker and push the price of energy commodities even higher.
Typical — take ‘action’ when prices move the ‘wrong way’. Did you hear anyone complaining about speculators when oil was crashing from $150 to the 30s? No. Did you hear anyone complaining about speculators or short sellers in the stock market when it was jumping off the lows in March/April? Of course not — because prices were moving in the ‘right’ direction. But if we see the market start to tumble again, the SEC will be right around the corner with their new rules on short selling. Just watch.
8 Comments »
RSS feed for comments on this post.
Leave a comment
Line and paragraph breaks automatic, e-mail address never displayed, HTML allowed: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>
I was actually reading a post on 24/7 Wall St. today that suggested oil was trading at a speculative premium last summer, and that it would take a few years before said premium was studied and quantified so we’d know exactly what it was.
I actually was not surprised to hear this argument because, to many observers, it seems rather sensible. It pairs conventional wisdom (speculators were to blame) with a kind of hands off, scientific approach – waiting for the future “evidence” to roll in.
Still, I have to agree with you on the one way complaints about oil prices moving the “wrong way”. Where were the evil speculators on the way down to $30 oil? Or were they (and this assumes “they” were stubbornly long the whole time) just being punished by the wrathful market all the way down for their previous sin of pushing up the price to $140+?
Also, everyone is so focused on govt. numbers that say US supplies are “brimming with oil”. This leaves me w/ a few questions:
Who verifies these storage statistics? How many days of crude oil supply are on hand? What happens when these ample supplies run out? Does the likely onset of (global) peak oil and a future of steadily diminishing crude oil supply count for anything in this analysis?
Just goes to show you that you can have a speculative bubble in JDS Uniphase & people will take their lumps, but when it comes to a boom/bust in needed commodities like oil, an easy scapegoat is all some people need to address the situation.
Comment by David — 7/7/2009 @ 8:03 pm
I think you’re right David — I think the ’speculators’ were in a large part responsible for both ends of the big crude move. At the high end, commodities/crude were the last things left moving up, so that’s where the money was going. When that bubble finally popped, and commodities were tanking along with stocks and everything else, there was forced selling everywhere as Mr. Margin took over the marketplace, and trades were unwound no matter what they were.
As far as the supposed oil glut, I’m not sure what to believe. But I saw a similar post over at naked capitalism, saying there’s never been anything like it, and calling for $20 oil.
Comment by BMB — 7/7/2009 @ 8:18 pm
Hope everyone had a great 4th!
So, what’s the take one should have on Donald Trump’s recent campaign blasting OPEC and saying the speculators are not to blame? Propaganda to distract from the real problem, or is he being truthful just like Ross Perot was about NAFTA back when he debated Al Gore?
http://www.youtube.com/watch?v=k4iSKX3oPDA
And, I can’t believe you haven’t posted anything on this news, why did Pickens expend so much capital and effort and now he is apparently backing off from the project in light of all this stimulus money supposedly aimed at helping projects like this? “A little too quick off the blocks?” Cmon, someone like Pickens doesn’t just miscalculate. Somethings sure seems opaque right now. Does this mean oil is going way down to where wind is not competitive?
http://news.yahoo.com/s/ap/20090707/ap_on_bi_ge/us_pickens_wind_energy_3
Comment by Henry — 7/8/2009 @ 12:08 am
I stand corrected to your earlier post. Is this retreat part of Pickens’ other comments on cap and trade? Again, what’s going on here while everyone is distracted by the Jackson gala?
Comment by Henry — 7/8/2009 @ 12:44 am
“Pickens doesn’t just miscalculate.”
Pickens’ fund lost millions (billions?) when oil prices crashed last summer. Just like everyone else, he isn’t right all of the time. As for the cap and trade debate, I’ll be honest — I haven’t paid that much attention to it. When it comes to gov’t and their lousy ideas, I tend to gloss over them rather than just add to my frustration level.
As for Pickens and his plans, I’m sure there’s plenty of info on his web site — even a daily blog.
Comment by BMB — 7/8/2009 @ 6:31 am
I think I read Pickens lost about 7 billion. DOn’t quote me on that, but I think that was the guesstimate
Comment by Maria — 7/8/2009 @ 8:08 am
Well, cap and trade is basically the air tax. Kudos to Al Gore for working the system, he’d have made his daddy proud. Of course, its not direct or there would be rioting. Rather, its behind the scenes mumbo-jumbo that is ultimately passed on to the consumer.
I do remember people complaining about the speculators last year, but I think the fact that China buys for one price and sells it at a loss to their people is a factor to blame the high oil prices on (among other communist/socialist countries). Once they re-adjusted their price last July (they do it twice a year…January and July), oil started its brutal tumble. Coincidence? I think not.
What irks me is that gas prices are at least a dollar more than the wholesale market; so, basically, the additives are worth $1 a gallon or that the Fed’s are taxing it at 50% ? Yeah right.
Comment by Andrew — 7/8/2009 @ 7:52 pm
The states tax gasoline on a cents/gallon basis — many of them upwards of 30 cents — so their percentage goes up as the price goes down. Add another 18 cents or so for the Feds.
Comment by BMB — 7/8/2009 @ 7:57 pm