I've always said that oil prices should be based on supply and demand, and not speculative Futures Traders. Hopefully, this will stop the nonsense. Hell, I was talking to my dad earlier this week, and he mentioned that both the CEO of Exxon AND OPEC had stated that Oil shouldn't be more than $65 a barrel right now. Let's hope these F***ers get this back on track. This has corruption written all over it. http://www.chron.com/disp/story.mpl/chronicle/5808998.html Feds six months deep into probe of oil speculators In unusual move, panel goes public about its look at trading practices WASHINGTON — Federal regulators — in a highly unusual move — revealed Thursday they have been conducting a wide-reaching probe into oil trading practices for the last six months. And in response to growing concerns about the role speculators may be playing in driving up oil prices, the Commodity Futures Trading Commission said it will require energy traders to begin providing more information so the government can better assess what effect they may be having on the markets. "Perhaps the CFTC has gotten some religion," said Michael Masters, of Masters Capital Management LLC, who has called for tighter regulation. Although, he added, "it's just a start." With oil futures diving more than $4 Thursday, the commission went public about its probe. It is examining the purchase, transportation, storage and trading of crude oil and futures contracts — agreements to buy or sell commodities at a later date that are central to the energy markets. The agency provided no other details about the investigation. "Although the commission ordinarily conducts enforcement investigations on a confidential basis, the commission is taking the extraordinary step of disclosing this investigation because of today's unprecedented market conditions," agency officials said in a prepared statement. "Unprecedented" remained the theme Thursday on the New York Mercantile Exchange as futures contracts for light, sweet crude for July delivery shot up as high as $132.90 a barrel after the Energy Department announced a surprise drop in oil supplies, only to then plunge later to settle at $126.62, down $4.41 for the day. "The daily ranges are mind-numbing," said Kyle Cooper, director of research for IAF Advisors in Houston. Adding to volatility Thursday was a blunder by the Energy Information Administration, an arm of the Department of Energy, which posted petroleum data prematurely on its Web site. "EIA is investigating this event and its causes," the agency said. Answers in demand The Commodity Futures Trading Commission has come under fire in recent weeks, with lawmakers demanding answers to why oil prices have more than doubled in the last year. Before a Senate panel last week, Masters called on policymakers to focus on the pension funds, university endowments and other institutional investors — including the University of Texas and the state's teacher retirement system — that have poured billions into the commodities market in the past few years as a hedge against inflation and a weak dollar. Through transactions with large investment banks, these institutional investors have been able to circumvent speculative limits when investing in commodity index funds, Masters and other experts argue. Masters said these institutional investors have helped move oil prices higher because nearly all are betting the same way — that the price will keep rising. But that argument is controversial. Just last week the commission was attributing the oil price increase to market fundamentals of supply and demand — not speculative trading. On Thursday, the commission said it would require energy traders to provide monthly reports on their index trading "to help the CFTC further identify the amount and impact of this type of trading." House Energy and Commerce Committee Chairman John Dingell, D-Mich., said he was disappointed that the agency did not propose closing the loophole that allows some institutional investors to circumvent the speculative limits. "The failure to corral this rampant speculation is not only ravaging consumers, but harming businesses such as airlines, trucking and auto manufacturers," Dingell said. Slow to see impact Critics have argued that regulators have been slow to see the real impact of the institutional investors' commodity trading activity because of the way the agency classifies these trades. The commission said it will review its trade classifications, which the critics say understate the activities of institutional investors. New York Mercantile Exchange officials have disputed the arguments about the role index traders may be playing, arguing Thursday that such "sweeping assertions" are based on "distorted and patently erroneous information." Foreign markets included The CFTC also announced Thursday it has reached an agreement with Britain's Financial Services Authority to beef up surveillance of U.S. oil contracts traded on a London exchange. Sen. Carl Levin, D-Mich., said the commission has not had information as to whether "traders subject to U.S. speculation limits were circumventing them by trading in London." Levin and Sen. Dianne Feinstein, D-Calif., recently introduced legislation designed to ensure that energy commodities traded on foreign exchanges using trading terminals located in the United States be subject to the same speculative trading limits and reporting requirements as those traded on U.S. exchanges. "It appears that the CFTC is acting administratively to accomplish some of the goals of this bill," Feinstein said. Congress recently passed legislation granting the commission authority to regulate electronic energy trading on the Atlanta-based Intercontinental Exchange.
posted this in another thread but I think it should go here... maybe the fed should do a better job with its policies related to inflation
There's only so much the Fed can do when the president is fiat spending like mad on Iraq. The dollar crisis and current inflation has little to do with the domestic economy, and everything to do with our current foreign policy.
Not really true. While the spending on the war has a large effect on the dollar, that is only part of the story. The housing and credit crises have caused the Fed to drop interest rates in order to combat low consumer confidence. When interest rates drop that quickly, the effect is a weaker dollar.
Agree. This war and the subsequent defecit spending seems to be the key factor in lowering the value of the dollar.
So it was OK when tech companies and housing were ridiculously overvalued, but when oil and commodities go through a boom, it's NOT ok. Just checking. In the end, I personally get screwed more by overpriced homes than by $4 gas. In the end, you cant really blame "speculators" for creating bubbles. I have invested in a commodity fund through my IRA. There are probably millions like me who are investing and driving up prices. The problem is the FED creating one bubble after another. Would you rather invest in the US Dollar and US stocks or commodities?
Seriously, do you even know why futures were originally invented? Do your research before you speak. Speculators have been the bane of brokers for a while now.
They certainly could have - we might have a global recession or depression and massive collapse of basic financial institutions, but at least we'd have cheap oil, I guess.
The market corrects itself and goes through cycles. That doesn’t require the fed to adopt monetary policies that extrapolate the problem by unleashing inflation. Ever heard of Stagflation??? We are heading down that path.
http://money.cnn.com/2008/05/08/news/economy/oil_prices.ap/index.htm?section=money_latest Oil rides trading momentum Analysts at Goldman and firms such as Barclays Capital believe tight global supplies, and growing demand from fast-growing economies in such countries as China and India, are driving oil higher. But Gheit and other analysts, including Tim Evans at Citi Futures Perspective, argue that supply-and-demand fundamentals don't support such high prices. "There is no reason why oil prices should be above $60," Gheit said, noting that domestic crude supplies are at average levels, and that refineries are cutting gasoline production as high prices cut consumers' demand for fuel. "The physical supplies do not justify the price, it just doesn't make sense." OPEC Secretary General Abdalla Salem El-Badri on Thursday reiterated his position that oil supplies are adequate, and that there is no need for the cartel to boost production. He said several OPEC oil projects are coming on line, but he noted that several member countries are having a hard time finding buyers for their additional supplies. El-Badri agrees with analysts who feel speculative investment driven by the dollar's protracted decline is the real reason behind higher prices. The dollar fell against the euro Thursday, attracting investors who view commodities such as oil as a hedge against inflation. Also, a weaker dollar makes oil cheaper to investors overseas. Still, the market sometimes ignores the dollar, as it did Wednesday when oil surged to new records while the dollar advanced. Some analysts say that's a sign that many investors are buying on pure momentum - believing prices will head higher regardless of negative data, news or dollar movements. "There's a lot of momentum driving the oil price up," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.
strange . . .i never pegged you for an optimist I doubt anything will come of it . . . . Rocket River
I hate this argument. It's not important what futures were invented for. They have developed since then. Speculation will not stop. It will just have to be conducted elsewhere, and there are plenty of places for speculators to take their money. This is an overreaction. Some poor sap will be made into an example so that the public can think "Thank God, now gas prices will drop drammatically". That will never happen. Oil will dissapear from earth at some point in time. There is no doubt that the price will go up over time. Due to the (1) uncertainty of supply and (2) current relative inelasticity of oil, the price will have special features: always upward, and always increasingly volatile.
Absolutely. And in doing so, it occasionally creates things like the Great Depression. The Fed's goal is to minimize those kinds of downs in the economy - of course, as with everything, there are tradeoffs there. But ultimately, the idea is that the negatives the Fed creates are less problematic or damaging to people than things the unregulated market correction would create.
we agree, but do you believe the fed can not err?? They have done so in their past. Just look back 35 years
Certainly - but as of right now, it looks like the Fed took a very dangerous situation of a massive credit & housing bubble and might have diffused it to create a relatively soft landing. We might even avoid a recession entirely, and inflation looks to be around 3-4%. Not ideal, certainly, but also not a bad tradeoff in the grand scheme of things. There is a bigger issue with inflation of specific goods - food & energy - but those are, in large part, driven by speculation and demand (in food's case, partly due to ethanol policies).
OPEC nations are having a hard time finding buyers for their excess supply. Refineries have adequate inventories and are slowing production due to a decrease in demand. This leads you to say that prices are going through the roof right now because we aren't sure supply will be adequate in 25 years? Damn...I needed a good laugh.
Thats assuming we always use cars running on oil. Nothing goes up forever. Our dependence on oil is one of the biggest problems for this country. If we didn't have to worry about oil we could get the out of the middle east and let them duke it out amongst themselves. We wouldn't need to pander to the saudi's.
he is speaking of "heavy" crude (used for natural gas); "light" crude (used for petroluem and desiel) is not following that trend. this article from the economist explains the difference in supply and demand for heavy and light crude.
