Is there a causative link between oil speculation and fuel prices?

[jerryweaver]

I thought I remembered that there was also a claim that there were some tiny companies trying to compete with the bigs and the bigs sought regulations that drove the little guys out of the game. I could not find such references in 2012 but if that's true it would tend to support the libertarian model that what we see is nothing like a free market-- even if self-described capitalists defend it.

This is true. My cousin and her hubby had control over hundreds of wells in Texas in the 70's. OPEC and big oil manipulated the market to drive out the little guys. She got her butt kicked. A friend in Central California told me a similar story about his Uncle in Texas.  
 Ask around you'll find some oldtimer with a story to tell about oil speculators .  

[jerryweaver]

Rockefeller and Cousins (the ratchilds) will keep US feeding our gas guzzlers out of their  trough or starve US or both.

Only the U.S. Can Keep the Strait of Hormuz Open | Geopolitics ...
www.rightsidenews.com/.../only-the-us-can-keep-the-strait-of-hormu...
Jan 20, 2012 – How the Rockefeller Fund Killed Keystone .... Militarily, the regular Iranian Navy, which is tasked with defense of ports and coastline, has limited ...

Sorry link above is bad. Try this.
http://www.rightsidenews.com/2012022315680/life-and-science/energy-and-environment/how-the-rockefeller-fund-killed-keystone.html

[Valerius]

The problem is that, because of the ridiculously false Austrian School "capitalism"-vs.-Marxist "socialism" paradigm, whenever an economic left-winger criticizes something, the Pavlovian response of economic right-wingers is to immediately rush to the defense of that something. And economic left-wingers, of course, often have the same knee-jerk reaction whenever an economic-right winger criticizes something. It's all very childish when you really stop and think about it.

-- Dan Sullivan, http://geolib.com/sullivan.dan/commonrights.html#marxist

-----------------------------

But an effective mechanism of social control.

[Geolibertarian]

http://www.forbes.com/sites/robertlenzner/2012/02/27/speculation-in-crude-oil-adds-23-39-to-the-price-per-barrel/

Speculation In Crude Oil Adds $23.39 To The Price Per Barrel

Robert Lenzner
Forbes
2/27/12

If there were no speculation in oil futures on commodities exchange, the price of a barrel of oil might be as low as $74.61– not more than  the present price of $108.00 a barrel.

But, there is plenty of speculation as the possibility of strife in Iran, one of the globe’s largest crude oil producers,  pushes up the price of oil futures, which in turn impact the price of buying crude oil in the open market. As of February 23, 2012 “managed money” held positions in NYMEX crude oil  contracts equivalent to 233.9 million barrels of oil– the equivalent of about one year’s crude oil supply from Iran to Western European nations like France, Belgium, Greece, Italy  and Spain.

As Goldman Sachs believes that each million barrels of speculation in the oil futures market adds about 10 cents to the price of a barrel of oil, this means that in theory the speculative premium in oil prices due to speculation is as much as $23.39 a barrel in the price of NYMEX crude oil.

In  turn oil analysts believe that every $10 rise in the price of crude oil translates into a 24 cent rise in the price of gasoline at the pump.   Using the 24 cent rise in the price of gasoline suggests that each dollar increase in a barrel of oil equals about $.56 per barrel.

So, if a barrel of crude oil is $23.39 higher because of speculative action in the commodity markets– this translates out into a premium for gasoline at the pump of $.56 a gallon. Since gasoline in the northeast is about $3.68 a gallon, this suggests that without any speculation, the cost of a gallon would be only $3.12, a lot more favorable outcome.

[Continued...]

[Geolibertarian]

http://www.globalresearch.ca/why-the-huge-spike-in-oil-prices-peak-oil-or-wall-street-speculation/29803

Why The Huge Spike in Oil Prices? "Peak Oil" or Wall Street Speculation?

by F. William Engdahl



Global Research, March 16, 2012
engdahl.oilgeopolitics.net

Since around October last year, the price of crude oil on world futures markets has exploded. Different people have different explanations. The most common one is the belief in financial markets that a war between either Israel and Iran or the USA and Iran or all three is imminent. Another camp argues that the price is rising unavoidably because the world has passed what they call “Peak Oil”—the point on an imaginary Gaussian Bell Curve (see graph above) at which half of all world known oil reserves have been depleted and the remaining oil will decline in quantity at an accelerating pace with rising price.

Both the war danger and peak oil explanations are off base. As in the astronomic price run-up in the Summer of 2008 when oil in futures markets briefly hit $147 a barrel, oil today is rising because of the speculative pressure on oil futures markets from hedge funds and major banks such as Citigroup, JP Morgan Chase and most notably, Goldman Sachs, the bank always present when there are big bucks to be won for little effort betting on a sure thing. They’re getting a generous assist from the US Government agency entrusted with regulating financial derivatives, the Commodity Futures Trading Corporation (CFTC).


Source: oilnergy.com

Since the beginning of October 2011, some six months ago, the price of Brent Crude Oil Futures on the ICE Futures exchange has risen from just below $100 a barrel to over $126 per barrel, a rise of more than 25%. Back in 2009 oil was $30.

Yet demand for crude oil worldwide is not rising, but rather is declining in the same period. The International Energy Agency (IEA) reports that the world oil supply rose by 1.3 million barrels a day in the last three months of 2011 while world demand increased  by just over half that during that same time period.Gasoline usage is down in the US by 8%, Europe by 22% and even in China. Recession across much of the European Union, a deepening recession/depression in the United States and slowdown in Japan have reduced global oil demand while new discoveries are coming online daily and countries like Iraq are increasing supply after years of war. A brief spike in China’s oil purchases in January and February had to do with a decision last December to build their Strategic Petroleum Reserve and is expected to return to more normal import levels by the end of this month.

Why then the huge spike in oil prices?

Playing with ‘paper oil’

A brief look at how today’s “paper oil” markets function is useful. Since Goldman Sachs bought J. Aron & Co., a savvy commodities trader in the 1980’s, trading in crude oil has gone from a domain of buyers and sellers of spot or physical oil to a market where unregulated speculation in oil futures, bets on a price of a given crude on a specific future date, usually in 30 or 60 or 90 days, and not actual supply-demand of physical oil determine daily oil prices.

In recent years, a Wall Street-friendly (and Wall Street financed) US Congress has passed several laws to help the banks that were interested in trading oil futures, among them one that allowed the bankrupt Enron to get away with a financial ponzi scheme worth billions in 2001 before it went bankrupt.

The Commodity Futures Modernization Act of 2000 (CFMA) was drafted by the man who today is President Obama’s Treasury Secretary, Tim Geithner. The CFMA in effect gave over-the-counter (between financial institutions) derivatives trading in energy futures free reign, absent any US Government supervision, as a result of the financially influential lobbying pressure of the Wall Street banks. Oil and other energy products were exempt under what came to be called the “Enron Loophole.”

In 2008 during a popular outrage against Wall Street banks for causing  the financial crisis, Congress finally passed a law over the veto of President George Bush to “close the Enron Loophole.” And as of January 2011, under the Dodd-Frank Wall Street Reform act, the CFTC was given authority to impose position caps on oil traders beginning in January 2011.

Curiously, these limits have not yet been implemented by the CFTC. In a recent interview Senator Bernie Sanders of Vermont stated that the CFTC doesn't "have the will" to enact these limits and "needs to obey the law.” He adds, "What we need to do is…limit the amount of oil any one company can control on the oil futures market. The function of these speculators is not to use oil but to make profits from speculation, drive prices up and sell." While he has made noises of trying to close the loopholes, CFTC Chairman Gary Gensler has yet to do so. Notably,Gensler is a former executive of, you guessed, Goldman Sachs. The enforcement by the CFTC remains non-existent.

The role of key banks along with oil majors such as BP in manipulating a new oil price bubble since last Autumn, one detached from the physical reality of supply-demand calculations of real oil barrels, is being noted by a number of sources.

A ‘gambling casino…’

Current estimates are that speculators, that is futures traders such as banks and hedge funds who have no intent of taking physical delivery but only of turning a paper profit, today control some 80 percent of the energy futures market, up from 30 percent a decade ago. CFTC Chair Gary Gensler, perhaps to maintain a patina of credibility while his agency ignored the legal mandate of Congress, declared last year in reference to oil markets that "huge inflows of speculative money create a self-fulfilling prophecy that drives up commodity prices." In early March, Kuwaiti Oil Minister Minister Hani Hussein said in an interview broadcast on state television, "Under the supply and demand theory, oil prices today are not justified."

Michael Greenberger, professor at the University of Maryland School of Law and a former CFTC regulator who has tried to draw public attention to the consequences of the US Government’s decisions to allow unbridled speculation and manipulation of energy prices by big banks and funds, recently noted, "There are 50 studies showing that speculation adds an incredible premium to the price of oil, but somehow that hasn't seeped into the conventional wisdom," Greenberger said. "Once you have the market dominated by speculators, what you really have is a gambling casino."

The result of a permissive US Government regulation of oil markets has created the ideal conditions whereby a handful of strategic banks and financial institutions, interestingly the same ones dominating world trade in oil derivatives and the same ones who own the shares of the major oil trading exchange in London, ICE Futures, are able to manipulate huge short-term swings in the price we pay for oil or gasoline or countless other petroleum-based products.

We are in the midst of one of those swings now, one made worse by the Israeli saber-rattling rhetoric over Iran’s nuclear program.

[Continued...]

[Geolibertarian]

http://money.cnn.com/2012/03/26/markets/oil_speculators/index.htm

Defense of oil speculation is just plain wrong - opinion

By Dennis Kelleher
CNNMoney
March 26, 2012

CNNMoney recently ran two columns on the role speculators are having on oil prices.

Better Markets, an organization dedicated to Wall Street reform, argued speculators are to blame for the high prices while finance professor Craig Pirrong said speculators are having little impact.

Pirrong's piece directly attacked Better Markets. This is a response by Better Markets' president Dennis Kelleher:

Everyone is entitled to their own opinion, but not their own facts or evidence.

Better Markets has done extensive research on the commodity markets and commodity index funds in particular.

Moreover, Better Markets did a comprehensive review of the literature on commodity speculation, which was included in a lengthy appendix to the comment letter it filed with the CFTC regarding position limits. This work is publicly available on our website and elsewhere.

Mr. Pirrong clearly didn't bother to look at any of this and, rather than address that substantive evidence, engaged in name-calling.

The article also suffers from a common misunderstanding about how futures markets actually work.

Pirrong argues that because index funds never take delivery of the physical commodities they can't affect their prices.

[Embedded video clip omitted - see original article]

This is wrong for two primary reasons. First, the reality is that prices in the futures markets are used for physical transactions as (a) benchmark prices for physical auctions, (b) reference prices for physical delivery products, and (c) assessed prices like Platts which uses the near month futures prices as a key component for physical prices.

Second, the Wall Street firms that trade the futures also actually own refineries, storage facilities and other physical assets and crude products with which they arbitrage the futures markets. Therefore, when index funds pour artificial demand into the futures markets this translates into higher prices for real commodities too.

Another mistake Mr. Pirrong makes is cherry-picking just one commodity as supposed proof that speculation does not impact prices.

But, as he points out, the fundamentals in natural gas have been uniquely benign. Corn, wheat, soybeans, metals and various other essential commodities have all behaved like oil rather than the outlier natural gas.

The article also incorrectly asserts that rising inventories are a necessary condition for speculation to affect prices. This would be true if all market participants had perfect information and the ability to adjust their demand or supply at will.

The fact of the matter is that several studies from both inside and outside academia have provided strong evidence to back up the common sense observation that letting financial speculators pour vast capital into markets that were designed for an entirely different purpose is having hugely damaging effects.

The article ignores basic economics, common sense and rigorous empirical research when it claims that the tidal wave of speculative money in the commodity markets today is not pushing up prices and disrupting the markets.

[Continued...]

[Geolibertarian]

In yesterday's edition of World Crisis Radio, thought criminal Webster Tarpley spends the first two segments explaining the central role that Wall Street speculators have played in price-gouging everyone at the fuel pump:

       http://tarpley.net/audio/getfile.php?f=WCR-20120407.mp3

[dondilly]

Commodity speculators do have some, but not a great influence on petrol prices.

The futures market for oil acts more as a price stabiliser.  There are too many factors at stake.
If oil prices are low and projected to stay low,  the oil companies wanting to maximize profit simply leave it in the ground until the slack in the market is consumed. With oil futures they are buying, or commuting to buy now in the hope by the time they get the oil the price has risen.  I remember after bush's 'mission accomplished'  there was a significant drop in oil prices.  Here in the UK  that resulted in a number of huge oil tankers sitting off the coast at huge cost to the speculator unwilling to sell into the UK market until the price rose.

But what is really blame for Americans paying e er higher prices is that while the $ is the reserve currency with the only thing backing it being oil and the fed printing presses running at $85bn a week it gives those in the USA  a double shock.   While the dollar price of oil increases other countries see the value of oil in terms of their own currency.  If $100 bought a barrel of oil yesterday and $110 today, they don't see it as the price of oil rising but the value of the dollar falling.  The rest of the world can to an extent insulate themselves.  Being the world's  reserve currency worked until the fed put the printing presses into overdrive and with no sign they are going to stop anytime soon.  I'd  get used to ever increasing g oil prices.

[Geolibertarian]

Commodity speculators do have some, but not a great influence on petrol prices.

I invite everyone reading this to read all of the previous articles in this thread and decide for themselves whether the above is a factual statement or merely an ideological one.

The futures market for oil acts more as a price stabiliser.

No, more like a price manipulator.

But what is really blame for Americans paying e er higher prices is that while the $ is the reserve currency with the only thing backing it being oil and the fed printing presses running at $85bn a week it gives those in the USA  a double shock.

Does that mean the Fed's "printing presses" magically stopped running during the latter half of 2008? If not, then why, on December 21, 2008, was the price of oil less than one fourth of what it was five months beforehand? One cannot answer that question by repeatedly begging it.

As I explained on page 1 of this thread (which you apparently only skimmed through), you can't have it both ways. If the value of the dollar is, by definition, the primary determining factor of fuel prices, then that means there had to have been a reversal of "printing press"-induced dollar devaluation during the five month time period in question.

Is there any evidence of such a reversal?

If not, then I again ask Austrians (or those who've fallen prey, however unwittingly, to Austrian School propaganda) to please stop insulting everyone's intelligence by blindly insisting that oil speculators play only a minor role in determining fuel prices.