Lower oil prices really as easy as closing "Enron loophole"???

[timvwcom]

Obama Vows To Close "Enron Loophole" For Oil Speculators (http://www.usnews.com/usnews/politics/bulletin/bulletin_080623.htm)


The AP reports Sen. Barack Obama said Sunday that "as president he would strengthen government oversight of energy traders he blames in large part for the skyrocketing price of oil." Obama "singled out the so-called 'Enron loophole' for allowing speculators to run up the cost of fuel by operating outside federal regulation."

A number of snippets from an article at the conservative "moon-y" Washington Times (http://washingtontimes.com/news/2008/jun/24/enron-loophole-keeps-oil-speculation-unleashed/?page=1); (sorry this is a long quote, if you want something shorter go chat about trimming female pubes or sumthin'.)


The speculative trading that has helped drive oil prices over $135 a barrel continues largely unchecked despite much talk and repeated attempts by Congress and regulators to rein it in this year, top analysts say.

As much as 99 percent of the market for U.S. premium crude oil is dominated by big financial firms, hedge, pension and index funds seeking short-term profits from oil's rise. The speculative free-for-all is enabled by a regulatory exemption called the "Enron loophole," after the now-defunct Houston energy trading firm that successfully lobbied for its enactment in 2000.

...

"At current oil prices, the U.S. is going broke, and the rest of the world is sure to follow," he said. "At $135 per barrel, the U.S. will spend $1 trillion per year on oil, which is equal to 15 percent of the $6.8 trillion in take-home pay of everyone who pays taxes."

Mr. Biderman said regulators need to take aggressive action to burst the speculative bubble, but have not done so despite much talk at the Commodity Futures Trading Commission about investigating and pursuing illegal manipulation in the oil market.

"Oil prices would collapse if regulators increased" the cash requirement for oil futures contracts to 25 percent from the current 7.5 percent, he said. Other analysts suggest raising the cash requirement as high as 50 percent and imposing an overall limit on participation by financial players in oil trading on the New York Mercantile Exchange.

The commodity commission imposes minimal standards on speculators in New York and allows as much as 30 percent of oil trading to escape U.S. regulation altogether by exempting trades routed through overseas electronic exchanges. The commission has given control over those transactions to regulators in London and Dubai who have been granted jurisdiction over the leading U.S. oil contract for West Texas Intermediate crude.

The foreign exchanges gained control over oil trading through the Enron loophole, which granted an exemption from regulation to electronic energy trading, which was a small part of the market in 2000. But since that time, electronic trading has burgeoned to the point that even the New York exchange last year sought to join those escaping regulation by teaming up with the Dubai Mercantile Exchange.

"I'm sure that American consumers will take little comfort that they are being protected from manipulation and excessive speculation driving up gas prices - not by U.S. regulators but by the Dubai government," said Michael Greenberger, a University of Maryland law professor and former head of the commodity commission's division of trading.

Congress sought to close the "dark markets" created by the Enron loophole in a provision of the farm bill that was enacted over President Bush's veto this month.

Rather than remove the exemption entirely, Mr. Greenberger said, the new law creates a lengthy bureaucratic process involving case-by-case review of energy contracts, which he said is unlikely to result in re-establishing regulatory control over most electronic trading.

Mr. Greenberger estimates that the electronic "dark markets" constitute nearly 30 percent of oil trading today. When combined with the estimated 70 percent of oil trading on the New York exchange that is dominated by major financial firms and speculators such as Goldman Sachs and Morgan Stanley, speculators control an estimated 99 percent of the oil market.

"By any objective assessment, the crude oil market is now overwhelmingly dominated by speculation," Mr. Greenberger said. "One can easily see how Goldman Sachs, a huge trader in these markets, could confidently predict that oil will soon reach $200 a barrel." The Wall Street firm's prediction in May, not surprisingly, caused an immediate updraft in prices.

Enron benefited greatly from the exemption before the firm imploded in 2002. Federal investigators later charged the high-flying energy firm with illegally manipulating the market and driving up California energy prices by as much as 300 percent.

...

Many political pundits blame the enactment of the Enron loophole on former Senate Banking Committee Chairman Phil Gramm, a Texas Republican who is now vice chairman of UBS as well as co-chairman of Sen. John McCain's presidential campaign.

Mr. Gramm shepherded the bill through Congress at Enron's request, but the bill passed by lopsided margins and was signed into law by President Clinton.

...

Sen. Barack Obama, the presumptive Democratic presidential candidate, on Sunday highlighted the connection between Mr. Gramm and Mr. McCain in declaring that he intends to close the Enron loophole and crack down on oil speculation should he win the presidency.

Mr. McCain has not advocated controls on energy speculation but rather attributes high prices to foreign energy cartels. To bring down prices, he proposes a mixture of increased offshore drilling and ratcheting up the energy efficiency of automobiles.

...

Major oil firms have testified that they think speculation has as much as doubled the price of oil beyond what is justified by normal market factors such as supply and demand.

[Cono Este]

New Rule.

Anyone politician who blames the long term oil crisis on speculators and believes we should restrict the avg. person from buying oil futures is a fucking idiot and will not get my vote.

[4matic]

New Rule.

Anyone who blames the long term oil crisis on speculators and believes we should restrict the avg. person from buying oil futures is a fucking idiot and will not get my vote.

+1

I can see raising the margin and redefining hedge classification but where were the conspiracy theorists when oil was $11 a barrell or corn was $1.80?

Obama is on a roll. Raise the Cap gains tax. Raise taxes on the wealthy and give more to the poor. Punish commodity speculators.

What's next state sposnored oil companies?

[lemon boy]

I don't ever read any article quoted by tim b/c the formatting is way too fucking annoying to deal with.

[mitch buchannon]

I don't ever read any article quoted by tim b/c the formatting is way too fucking annoying to deal with.

Amen. It's like the opening credits for star wars on a 3:2 tv when it's intended for wide screen.

[sfotex]

Fuck yeah.

These gas prices are killing me. I might even have to sell my 3/4 ton truck I commute in. Fuck, last week I walked somewhere instead of driving.

Gawd damn polotions ain't taking care of my needs.

[freezorburn]

New Rule.

Anyone politician who blames the long term oil crisis on speculators and believes we should restrict the avg. person from buying oil futures is a fucking idiot and will not get my vote.


Very true,

Just fuck'in think about it. This could will not solve the oil problems.

[Cono Este]

Same goes for any asshole who thinks we should should temporarily lift the gas tax.

Now who does that leave?

[Tippster]

Yeah, because speculators driving up the cost of oil is OK, since people are making money off it, and that's all that matters. Who cares that it's really not demand driving up the price but greedy fuckers buying up futures? Who cares that OPEC said that oil is overvalued and is not in short supply? Who cares that demand went up globally by .5% yet the price nearly doubled? It's all good in this free market economy as long as some motherfuckers are getting rich off it, right?

Get over yourselves. None of you were going to vote for him anyway.

[Cono Este]

Yeah, because speculators driving up the cost of oil is OK, since people are making money off it, and that's all that matters. Who cares that it's really not demand driving up the price but greedy fuckers buying up futures? Who cares that OPEC said that oil is overvalued and is not in short supply? Who cares that demand went up globally by .5% yet the price nearly doubled? It's all good in this free market economy as long as some motherfuckers are getting rich off it, right?

Get over yourselves. None of you were going to vote for him anyway.

How do you know who is making money other than the people who have it under their feet?

For every buyer their is a seller. Many of those speculators have been shorting.

And in case you want to know what happens to the longs who wait until their are no chairs left. Google Amaranth.

God if it was only so simple as you say Tip. I could feed all the poor and homeless.

[CUBUCK]

Yeah, because speculators driving up the cost of oil is OK, since people are making money off it, and that's all that matters. Who cares that it's really not demand driving up the price but greedy fuckers buying up futures? Who cares that OPEC said that oil is overvalued and is not in short supply? Who cares that demand went up globally by .5% yet the price nearly doubled? It's all good in this free market economy as long as some motherfuckers are getting rich off it, right?

Get over yourselves. None of you were going to vote for him anyway.


Sounds like someone is bitter they were left off the invite list for the Party. Still time to pick up some August contracts for $138

Just like tech and housing this bubble will eventually pop itself. No need to inact some sort of knee jerk legislation.

[Cono Este]

someone tell TIP to google Amaranth and get ahead of his competitors on the next big hedge fund blowout.

The only player you can say with certainty who are making a fistfull of dollars is the people with the oil beneath their feet.

In the futures mkt, for every buyer their is a seller, and only a small % of that open interest actually see's delivery. Which means for every shmuck bidding it up, their is probably another shmuck getting run over tip.

[freezorburn]

Get over yourselves. None of you were going to vote for him anyway.

I would have Voted for Hillary, She was a republican in a libral bitch body. If anyone needs to Get over themselves it's you.

[FrankZappa]

Fuck oil!
Speculation grain sale on isle two! Who wants in?

----------
THOUGHT FOR THE DAY

OPEC sells oil for $136.00 a barrel.

OPEC nations buy U.S. grain at $7.00 a bushel.

Solution: Sell grain for $136.00 a bushel.

Can't buy it? Tough...Eat your oil!

Then, oil will come down.

[Core Shot]

Saw CSPAN congressional hearings last night while channel surfing.

they were hammering away at "how many buyers in the futures market could take actual spot delivery of the petroleum"?

What a dumbass question.

Don't they realize the value to every business of being able to hedge their fuel and energy costs?
I can't take delivery of a 10,000 gallon energy contract, but I wish to hell I had hedged my 1,000 gallon a month consumption with forward contracts.
Many businesses in unrelated fields find a need to hedge costs.
Also, without traders, markets don't usually work efficiently.
Why the current market is not working is beyond my knowledge, but its not the presence of traders, its the fact that so many of them are not being logical.

Problem is not the speculators, but how to pop their bubble.

A friend sent me this in an email, and it makes sense.
UOpcPfAarjY

Oh, and Saudi Arabia rattled their sabre, but not seriously.
They are only worried that at current prices, synfuel and conservation will happen too quickly.
They want a return to $100 oil, not the $80 it should be.


Gulf to earn $1.3 trillion from oil in two years

KUWAIT CITY (AFP) - The oil-rich Gulf Cooperation Council (GCC) states are projected to earn close to 1.3 trillion dollars in oil revenue in 2008 and 2009, a Kuwaiti economic report said on Saturday.

The six-nation alliance -- Bahrain, Kuwait, Oman, Qatar, United Arab Emirates and Saudi Arabia -- earned 364 billion dollars from oil in 2007, the Al-Shall Economic Consultants said in its weekly report.

The GCC oil revenues are projected to reach 636 billion dollars in 2008 and 657 billion dollars in 2009, Al-Shall said.

Oil powerhouse Saudi Arabia's earnings in the two years will be just under 700 billion dollars. The kingdom posted 194 billion dollars in oil revenues in 2007.


As for the ENRON LOOPHOLE, the problem was not speculation, or electronic trading, it was the fact that they created phantom congestion, and then profited from the congestion fees they created.
Merely trading energy was never a problem. It was the zonal manipulation, something that does not seem to be the case with oil.

[Brock Landers]

----------
THOUGHT FOR THE DAY

OPEC sells oil for $136.00 a barrel.

OPEC nations buy U.S. grain at $7.00 a bushel.

Solution: Sell grain for $136.00 a bushel.

Can't buy it? Tough...Eat your oil!

Then, oil will come down.

Couldnt people just buy grain from U.S. at 7 and then sell to OPEC nations for 10? 80? 90? Anything less than 136?

[Tye 1on]

methinks the price of oil has more to do than the dollar tanking than speculation.

[FrankZappa]

I think you're onto something there, Brock. shhhhh, don't mess up the spec plan -as sarchastic as it is - somebodys got a lot riding on this.

[Rubicon]

For every buyer their is a seller. Many of those speculators have been shorting.



This is true.

Obama is trying to take advantage of a stock market mindset where prices going up means people are making money and prices falling means people are losing money. The futures market is not the stock market.

Speculation in the futures market is a zero sum game. For every dollar made, somebody else lost a dollar. Speculators would be making(and losing) the exact same amount, dollar for dollar, if the price were falling as they are right now with the price rising.

I don't know if Obama is simply too naive to know this(in which case I would have to ask why he is meddling with something he doesn't understand) or if he is counting on the ignorance of the American people in order to create this new bogey man.

OOOOOO<shudder>! The evil speculator!

If the guy had a single viable idea rattling around in his head of how to improve the situation he wouldn't be positing such an absurd non sequitur

[Summit]

I don't ever read any article quoted by tim b/c the formatting is way too fucking annoying to deal with.

Yep... my eyes just slide over his quote posts... unreadable.

[Adolf Allerbush]

Wow, lots of sore buttholes in this thread. More lube next time boys...preferably not the oil based kind.

[Powow]

Speculation in the futures market is a zero sum game. For every dollar made, somebody else lost a dollar. Speculators would be making(and losing) the exact same amount, dollar for dollar, if the price were falling as they are right now with the price rising.You are assuming speculators only buy and sell from other speculators, which is obviously false. Someone had to buy it from an oil supplier, and someone has to actually sell it to someone who will use it at some point.

The problem with speculators in any market comes when speculation is actually driving the market. Look at the housing market. I've seen a theory that says since the housing market crashed, investors are looking for other markets to invest in, and that is commodities. They are now forming another bubble here. I would have no problem just allowing this to continue because bubbles are legitimate market phenomenon and should not be interfered with. The problem is that people actually need houses to live in, food to eat, and gas to put in their cars. That, and when the bubles do pop, we invariably bail the stupid motherfuckers out.

If the guy had a single viable idea rattling around in his head of how to improve the situation he wouldn't be positing such an absurd non sequitur
Obama:

Yes, I will dramatically increase federal investment in advanced clean-energy technologies and energy efficiency.
That idea will never work!!!

[liv2ski]

In the futures mkt, for every buyer their is a seller, and only a small % of that open interest actually see's delivery. Which means for every shmuck bidding it up, their is probably another shmuck getting run over tip.

Tipp like myself really doesn't give a fuck about the shmuck on the wrong side of the oil trade getting run over. The issue is the run up in price due primarily to speculation is causing a world of hurt for many people and the US economy as a whole. Is this proper to allow? I don't think so. I would shut this shit down as dictator of North America.

Edit: Core Shot, I am totally with Newt on his 3 points but would temper #2 from an all out free for all in oil exploration ANYWHERE as he points out.

[Rubicon]

You are assuming speculators only buy and sell from other speculators, which is obviously false. Someone had to buy it from an oil supplier, and someone has to actually sell it to someone who will use it at some point.

What is the "it" you think speculators are buying and selling?

If you think "it" comes from an oil supplier then you are as clueless as Obama.



The problem with speculators in any market comes when speculation is actually driving the market.


Do you have any idea what you are talking about, or are you just regurgitating what you heard somebody else say?

[Cono Este]

I hate to do this to you guys, but you all share the same opinion as Bill Oreilly, Obama included. Blame it on the speculators etc.. That asshole (not you) does not know a a futures mkt from a fruit stand.

[uglymoney]

Its political manuever as usual. It doesn't require any sacrifice from Americans so it as seen as a safe move. I highly doubt speculation among futures traders is playing much more than a few dollars into the price of oil. If it is, like Cono says, the dudes will get burned eventually.

I do think it would be interesting to close the Enron loophole and don't think off hand that its a bad idea, its just not the answer to our problems. Its not like their wouldn't still be a high level of liquidity in the oil market without them? Also if its true that 'safe' money is being put into play by institutions then that absolutely needs to be stopped.

I'm thinking if we put the curbs on some of the guys sitting around making these plays, they will have to go spend their brilliance on an activity which actually adds value to our economy - like developing ways of using energy more efficiently or brewing an even smoother and tastier can of Pabst. Unfortunately for those looking for easy solutions to our oil porblems, they might be leeches but they aren't the snakes we need to kill.

[timvwcom]

Hey, I don't claim to be an expert on this subject... But I'd bet not a one of youse has the expertise on par with the top advisers of either Obama or McCain, or maybe even the talking heads and pundits discussing this now. There are much smarter people than you or I who feel strongly a portion of the recent run up is due to speculation and not only due to the dynamics of global oil supply and demand. If you don't think moving dollars from consumers hands to speculators pockets (and on to the actual suppliers as well) hurts this economy you are just plain retarded!!!

Interesting that it seems a bunch of you believe it's a god given right to use a partial lack of (or weak) oversight to allow a "group" (I use the term very loosely) to try and corner the oil market? If you'll go back to the OP (for those who don't have ADD and have the ability to read it) and/or the link provided, you'll notice no one is saying there should be no commodities market, simply that the "leverage" should be adjusted to prevent abuse of the market.

I'll even repost a portion of my OP quote for those of you who take the short bus to Wall Street (like me);


"At current oil prices, the U.S. is going broke, and the rest of the world is sure to follow," he said. "At $135 per barrel, the U.S. will spend $1 trillion per year on oil, which is equal to 15 percent of the $6.8 trillion in take-home pay of everyone who pays taxes."

Mr. Biderman said regulators need to take aggressive action to burst the speculative bubble, but have not done so despite much talk at the Commodity Futures Trading Commission about investigating and pursuing illegal manipulation in the oil market.

"Oil prices would collapse if regulators increased" the cash requirement for oil futures contracts to 25 percent from the current 7.5 percent, he said. Other analysts suggest raising the cash requirement as high as 50 percent and imposing an overall limit on participation by financial players in oil trading on the New York Mercantile Exchange.

Does using this approach to curb cornering in a market sound familiar to anyone??? Remember the Silver Market and the Hunt Brothers (http://www.traderslog.com/hunt-brothers.htm)???


Nelson Bunker and William Herbert Hunt were the heirs of oil tycoon H.L. Hunt. The family was one of the richest in America at the time. In the early 1970's the family decided to buy silver as a hedge against inflation, and amassed it in great quantity. In the fall of 1979, the Hunt Brothers, along with some wealthy Arabs formed a silver buying pool and bought up 200 million ounces- the equivalent of half the world's deliverable supply. The price of silver had moved from $2 per ounce in 1973 to $5 per ounce in early 1979 and then rocketed as high as $54 in early 1980.

The officials at COMEX moved to check this cornering of the silver market by raisng margin requirements. The highly leveraged Hunt Borthers were unable to meet their margin calls, and were forced to sell. The price of silver fell dramatically; on March 27th 1980 the price fell 50% in one day, from $21.62 to $10.80. The Hunt Brothers were forced to declare bankruptcy. Bache Group, which handled of the trades for the brothers, was financially ruined.

Oh, and that shit was great inspiration for a funny ass movie too!!!

[Tippster]

Its political manuever as usual. It doesn't require any sacrifice from Americans so it as seen as a safe move. I highly doubt speculation among futures traders is playing much more than a few dollars into the price of oil. If it is, like Cono says, the dudes will get burned eventually...
The problem is you and I are getting fucked by a bunch of assholes playing a legal version of the Pyramid Scheme. It's nice to know that it's all OK with you guys as long as somebody (one assumes you) is making money.

[uglymoney]

Does using this approach to curb cornering in a market sound familiar to anyone??? Remember the Silver Market and the Hunt Brothers (http://www.traderslog.com/hunt-brothers.htm)???

I'm familiar with that fiasco and the comparison has never held water in my mind.

Where exactly are the oil futures traders stockpiling all of the oil they are hoarding? The oil market is so big, so huge. How could anyone corner the market by buying up all the supply?

I just don't see it.

[uglymoney]

The problem is you and I are getting fucked by a bunch of assholes playing a legal version of the Pyramid Scheme. It's nice to know that it's all OK with you guys as long as somebody (one assumes you) is making money.

I'm losing my ass on the whole deal. Drove to Wisconsin this weekend and spent all kinds of money for gas. Costs me $100 to fill my boat (part way!). Thankfully thats usually a few mornings on the lake. Mowing my yard costs like a dollar now.

I don't think speculators can move a market this big more than a few dollars, and even then I think they can only do it temporarily. Its just too big a market with too much money involved, and thats even with crazy margin and leverage strategies. Yes, I could be wrong by a lot or a little. I'm not against closing the Enron loophole just to see what happens.

[timvwcom]

I'm familiar with that fiasco and the comparison has never held water in my mind.

Where exactly are the oil futures traders stockpiling all of the oil they are hoarding? The oil market is so big, so huge. How could anyone corner the market by buying up all the supply?

I just don't see it.

What? I think the point of that recommended approach is to curb the use of leverage/margins... Doesn't have anything to do with taking delivery or not???

[Tippster]

It did in your Silver example.

[uglymoney]

What? I think the point of that recommended approach is to curb the use of leverage/margins... Doesn't have anything to do with taking delivery or not???

Your comparing this oil market to a silver play which involved buying up silver which was hoarded in a scam designed to raise the price by making the commodity appear to be scarce and the demand high. Oil can't be easily hoarded. Thats all I'm saying.

These guys have to sell the oil contracts they buy or they are out of the game.

[Adolf Allerbush]

"At current oil prices, the U.S. is going broke, and the rest of the world is sure to follow," he said. "At $135 per barrel, the U.S. will spend $1 trillion per year on oil, which is equal to 15 percent of the $6.8 trillion in take-home pay of everyone who pays taxes."

This statement does not include what portion of the $1 trillion a year the US pays on oil is for moving supplies around, mass transit, trains, aircraft, etc. To me it's trying to make the claim that 1/7th or so of every person after tax pay is being paid on oil. I think that's skewed.

[Brock Landers]

To me it's trying to make the claim that 1/7th or so of every person after tax pay is being paid on oil. I think that's skewed.

Even skewed a bit, its still a ton. Increasing the margin decreases the amount people are going to be willing to throw into contracts by decreasing leverage. Im not sure if they would hold this margin only for oil? Or maybe take a higher level look at commodities in general to reduce another bubble that could "hurt" other staple products (grain, etc). Free market is good, bubbles are fine. But the whole point of government (at least financially/economically speaking) is to protect the masses from the fallout that can and does arise. I think this is one of those instances where the "greater good" is served with a bit more regulation in these areas.

[Cono Este]

The problem is you and I are getting fucked by a bunch of assholes playing a legal version of the Pyramid Scheme. It's nice to know that it's all OK with you guys as long as somebody (one assumes you) is making money.

Hows that haliburton stock treating you Tip?

[Spats]

The quantity of open oil futures contracts is a public number, at least for the US exchanges, where most of this trading goes down.
http://www.cftc.gov/dea/futures/deanymesf.htm

AFAIK, the quantity of open contracts represents about 8 hours of worldwide oil consumption. I'm not sure this makes a meaningful long-term impact on prices.

[Stu Gotz]

Saudi Arabia, the UAE and the rest of those knuckleheads shouldn't be allowed to keep oil reserves as a state secret.

At this point the U.S. has done enough for the House of Saud to get that information to be public.

Either oil goes to $250 a barrel or it drops to $20. Enough of this "we can pump more oil if needed bs."

[Tippster]

Hows that haliburton stock treating you Tip?

Ask the 10000 employees who lost their whole future. Fuck you for suggesting that's just the breaks.

[timvwcom]

Does using this approach to curb cornering in a market sound familiar to anyone??? Remember the Silver Market and the Hunt Brothers (http://www.traderslog.com/hunt-brothers.htm)???


I'm familiar with that fiasco and the comparison has never held water in my mind.

Where exactly are the oil futures traders stockpiling all of the oil they are hoarding? The oil market is so big, so huge. How could anyone corner the market by buying up all the supply?

I just don't see it.


What? I think the point of that recommended approach is to curb the use of leverage/margins... Doesn't have anything to do with taking delivery or not???


It did in your Silver example.

First, I don't think the difference in taking physical delivery or just holding the rights to that physical delivery at some future date have opposite effects or anything on a commodities market?? I would assume a shorter supply (of either) with level or rising demand would cause a rise in price. That's just simple Supply/Demand, no?

Second, do you think the Hunt's did take physical delivery??? It's clear you didn't mean that regards the oil in question, so can only assuming you are referring to the silver, right? You think they filled up their basements with silver, or had warehouses to fill in their market cornering attempt??? HELL NO friends... they were trading "futures contracts" (http://www.wallstraits.com/main/viewarticle.php?id=1298);


The commodities futures markets provided an excellent vehicle for the Hunts' mechinations. A "futures contract" is simply a transaction entered into by a buyer and a seller that will be consummated ("settled") at a specified date in the future. On that date, the seller is obligated to deliver to the buyer a stipulated amount of the commodity in question, unless the seller has reversed his position in the futures market by buying back a like contract for delivery on the same date.

The advantage to the Hunts (and other market participants) is that until the actual settlement date, the buyers and sellers are only required to put up a minimal margin (typically totaling 5%) of the value of the contract, and to post additional "maintenance margin" if the prie of the contract moves against them in the market.

The Hunts poured their billions into silver. By January 1980, the Commodity Futures Trading Corporation (the regulatory body supervising the commodities markets) became alarmed, estimating that the Hunts and their allies controlled contracts for 77% of all the privately held silver in the world. The regulators increased margin requirements, but this only made matters worse; the shorts were forced to come up with tens of millions of dollars to meet their obligations under the new rules. Silver prices spurted higher, incredibly breaking through $50 per ounce on January 21, 1980, up from about $9 per ounce only six months earlier.

Now someone smarter than me tell my why either the Hunts and Arabs with silver, or the current crop of speculators with oil have some god given right to free reign in a commodity market??? Our US government regulates our markets for monopolies, cartels and all sorts of market strategies to push a market... why should (the especially critical) oil market be immune from oversight activites???

[timvwcom]

Your comparing this oil market to a silver play which involved buying up silver which was hoarded in a scam designed to raise the price by making the commodity appear to be scarce and the demand high. Oil can't be easily hoarded. Thats all I'm saying.

These guys have to sell the oil contracts they buy or they are out of the game.

Oops, missed reading and quoting this one earlier... It's still incorrect though. The Hunts used futures contracts. Though even if it were not similar, if you read my posts carefully you'll see I was clearly focused on discussing the method to curb the speculation, not exactly what kind of speculation was going on. :)

[Nathan Explosion]

Yeah, because speculators driving up the cost of oil is OK, since people are making money off it, and that's all that matters. Who cares that it's really not demand driving up the price but greedy fuckers buying up futures? Who cares that OPEC said that oil is overvalued and is not in short supply? Who cares that demand went up globally by .5% yet the price nearly doubled? It's all good in this free market economy as long as some motherfuckers are getting rich off it, right?

Get over yourselves. None of you were going to vote for him anyway.

Hate to break it to you, Tipp, and Tim, but this is not how the oil market works. Both of you are missing the real source of the price increase, and I'll be damned if I'm going to repeat myself again, so you can just look it up.

And since when do we consider OPEC truthful? Do you really think that the pledge to release 500,000 more barrels per day of production is actually going to do anything?

[haydukelives]

about to crash.
speculators turn and run for their life with any hint of a change in tide. otherwise they lose big. musical chairs
the democrats have prevented drilling, building refineries, and building nuclear for 30 years. and they still have no plan to drill, increase supply, increase nuclear, or anything else useful.
and cafe standards should have been at 30+ mpg in 1973.

[Obstruction]

Speculators are not manipulating the market. They are greedily chasing unearned profits which drive the market ever higher. As they do it more greedy fucks pile in and the price continues to rise. That is until the last chump takes it in the poopenhausen. Oil traders have all of the discipline of a sugar soaked three year old. They trade based on what they can make by the closing bell.

A barrel of oil is simply not "worth" twice what it was last year. If it is, why not three times or four time? Fundamental price factors, i.e. cost of production, supply and demand and exchange rates can't and don't explain a doubling of the cost of a barrel. No how ... no way.

It is a tremendous mistake to think that oil prices are driven by a rational market. If you are willing to credit the minds behind the investment market with any true intelligence I have a suitcase full of CDOs you can have cheap.

[Core Shot]

Oil traders have all of the discipline of a sugar soaked three year old.
They trade based on what they can make by the closing bell.


^^^^^^^^

[timvwcom]

Hate to break it to you, Tipp, and Tim, but this is not how the oil market works. Both of you are missing the real source of the price increase, and I'll be damned if I'm going to repeat myself again, so you can just look it up.

And since when do we consider OPEC truthful? Do you really think that the pledge to release 500,000 more barrels per day of production is actually going to do anything?

We'll/I'll give you a pass... I do recall several LONGISH posts of your on this subject in recent weeks/months, of which THIS (http://www.tetongravity.com/forums/showpost.php?p=1893191&postcount=11) is just one. This subject clearly gets you going! :D

HOWEVER, since you argue this increase is due primarily/entirely to a MILLION BARREL PER DAY SHORTFALL in global production vs demand, versus a "speculative bubble"... just agree that when/if there is an oil price crash, you'll at least come back and admit there was a "bubble" after all???

[TyWebb]

Cono...regardless of your knowledge of the fine grain details of futures trading, it is impossible to deny the effect of the speculative traders. Even the finest realist, financially based, Buffetesque trading is riding on some degree of speculation. I have to imagine that a overwhelming percentage of sequirities trades (in any market) are based on consumer confidence (or the perception of consumer confidence) and trends rather than due diligence and realistic valuation.

That is the nature of the beast, to deny it is silly. The question is whether or not gov't regulation is needed, or if consumers simply need to expect a boom and bust cycle typically of all industries. Talk about pure speculation: I heard an NPR economist today claim that if additional exploration agreements are reached before the end of the year, we will see $60-$70 a barrel prices shortly after, even though any of the newly agreed upon exploration will not reap a single drop of oil for more than 10 years in most cases.

[Cono Este]

Something is worth only what another person is willing to pay. You guys want to break down a trillion dollar mkt and blame it on a handfull of banks, hedgefunds or etrade customers, your fucking nuts.

The only people that control the price of a mkt this large is the people with their hands on the tap and the oil under their feet.


Get over it.

[timvwcom]

Hate to break it to you, Tipp, and Tim, but this is not how the oil market works. Both of you are missing the real source of the price increase, and I'll be damned if I'm going to repeat myself again, so you can just look it up.

And since when do we consider OPEC truthful? Do you really think that the pledge to release 500,000 more barrels per day of production is actually going to do anything?
We'll/I'll give you a pass... I do recall several LONGISH posts of your on this subject in recent weeks/months, of which THIS (http://www.tetongravity.com/forums/showpost.php?p=1893191&postcount=11) is just one. This subject clearly gets you going! :D

HOWEVER, since you argue this increase is due primarily/entirely to a MILLION BARREL PER DAY SHORTFALL in global production vs demand, versus a "speculative bubble"... just agree that when/if there is an oil price crash, you'll at least come back and admit there was a "bubble" after all???

So... price for "U.S. crude for December delivery fell $4.22 to $67.96 a barrel in electronic trading." = a drop of 54% since it's peak of $147.27 a barrel less than 3 months ago in July.

Certainly demand has lessened, but anyone think there was a "speculative bubble" in the price of oil now? :rolleyes:

[Blurred]

Certainly demand has lessened, but anyone think there was a "speculative bubble" in the price of oil now? :rolleyes:

Obviously there was a bubble, but Tim....do me some research.
Why don't fuel prices reflect the drop in the price of crude more accurately?

[timvwcom]

Obviously there was a bubble, but Tim....do me some research.
Why don't fuel prices reflect the drop in the price of crude more accurately?

Sorry, headed out the door for skiing. :fuckyou:

[Patches]

So... price for "U.S. crude for December delivery fell $4.22 to $67.96 a barrel in electronic trading." = a drop of 54% since it's peak of $147.27 a barrel less than 3 months ago in July.

Certainly demand has lessened, but anyone think there was a "speculative bubble" in the price of oil now? :rolleyes:

I stopped saying the free market worked great after the Enron-fueled rolling blackouts in CA in 2000. Granted that was hardly the free market at work... it was traders gaming the system. The current huge spike/drop in oil prices seems like the same thing to me.

I'm not sure if the question is "why did the free market fail?" (in this and the mortgage crisis), or if the question is, "are there really any free markets, or just a bunch of markets that appear to be free but are gameable if you have economic/political clout?"

[Blurred]

Sorry, headed out the door for skiing. :fuckyou:

Dear Tim. My Googles and my Yahoo! is broken and I really want to know.
Quit being so prude with your graphs, charts and links.

Slut me up some research you dirty hooker! :yourock:

[ak_powder_monkey]

What's next state sposnored oil companies?

Probably a good idea if we are going to run our entire economy on cheap oil.

[Spats]

So... price for "U.S. crude for December delivery fell $4.22 to $67.96 a barrel in electronic trading." = a drop of 54% since it's peak of $147.27 a barrel less than 3 months ago in July.

Certainly demand has lessened, but anyone think there was a "speculative bubble" in the price of oil now? :rolleyes:

Clearly you don't understand the impact of very small demand fluctuations on a market very close to peak production capacity. You also don't understand the impact of the exchange rate on oil prices: since oil is denominated in dollars, and the US dollar has gained substantially since its lows earlier this year, part of the "price decrease" is just a stronger dollar relative to the currencies of oil-producing nations.

Here's an example: let's say the company cafeteria can cook 100 lumches per day. If the company has 80 employees, hiring or firing a few people won't make much difference: the cafeteria can simply make more or less food. (We assume for simplicity's sake that there are no local restaurants, so everyone is currently eating lunch in the cafeteria.) Even 99 employees is no problem.

But what happens when the company goes from 99 to 103 employees? The cafeteria can only cook 100 lunches. Suddenly three people are *going hungry*. Since going hungry all afternoon really sucks, the price of lunch will have to go up quite a bit before even three people are convinced to stop eating it.

But then what happens if some people start getting used to going hungry, or everyone agrees to accept a slightly smaller portion? Suddenly the crisis is over, everyone gets to eat, and prices will very quickly fall back to the pre-crisis level -- even though the change in demand was very small (less than 4%).

This is exactly what happened with the oil market. Demand outstripped the ability to supply, and since the entire world runs on oil and has no substitutes for it, it took a huge price increase to get people to choose the only option: consuming less of it.

[squatch]

So... price for "U.S. crude for December delivery fell $4.22 to $67.96 a barrel in electronic trading." = a drop of 54% since it's peak of $147.27 a barrel less than 3 months ago in July.

Certainly demand has lessened, but anyone think there was a "speculative bubble" in the price of oil now? :rolleyes:

Somebody hinted at this, but I'll make it more blunt:

It's all part of the global market situation. If economies are humming along nicely, oil use goes up, and people can afford it. But, as the credit market issues that plague the US ripple out to less liquid nations, global use, at least for the short term, will go way down. Since the US tends to be the most liquid of nations, this hits other countries way harder than us, and we get the secondary benefit of the dollar rising compared to other countries. This causes another drop in oil prices, since they are in dollars. If you are in yurp, oil prices will not drop as much since euros are worth less, and therefore buy less oil per euro.

[Joey Joe Joe Junior Shabadoo]

By "lessened" do you mean the lowest demand since 1999?? http://www.nytimes.com/2008/10/22/business/worldbusiness/22oil.html?pagewanted=1&_r=1&partner=rssnyt&emc=rss

[mock vomit]

(I had to remove less relevant portions of quotes to get under 10,000 characters... see full posts above for correct context of each posters comments)


New Rule.

Anyone politician who blames the long term oil crisis on speculators and believes we should restrict the avg. person from buying oil futures is a fucking idiot and will not get my vote.


Very true,

...


methinks the price of oil has more to do than the dollar tanking than speculation.


This is true.

...

I don't know if Obama is simply too naive to know this(in which case I would have to ask why he is meddling with something he doesn't understand) or if he is counting on the ignorance of the American people in order to create this new bogey man.

OOOOOO<shudder>! The evil speculator!

If the guy had a single viable idea rattling around in his head of how to improve the situation he wouldn't be positing such an absurd non sequitur


I hate to do this to you guys, but you all share the same opinion as Bill Oreilly, Obama included. Blame it on the speculators etc.. That asshole (not you) does not know a a futures mkt from a fruit stand.


Its political manuever as usual. It doesn't require any sacrifice from Americans so it as seen as a safe move. I highly doubt speculation among futures traders is playing much more than a few dollars into the price of oil. If it is, like Cono says, the dudes will get burned eventually.

...

I'm thinking if we put the curbs on some of the guys sitting around making these plays, they will have to go spend their brilliance on an activity which actually adds value to our economy - like developing ways of using energy more efficiently or brewing an even smoother and tastier can of Pabst. Unfortunately for those looking for easy solutions to our oil porblems, they might be leeches but they aren't the snakes we need to kill.


...

I don't think speculators can move a market this big more than a few dollars, and even then I think they can only do it temporarily. Its just too big a market with too much money involved, and thats even with crazy margin and leverage strategies. Yes, I could be wrong by a lot or a little. I'm not against closing the Enron loophole just to see what happens.


The quantity of open oil futures contracts is a public number, at least for the US exchanges, where most of this trading goes down.
http://www.cftc.gov/dea/futures/deanymesf.htm

AFAIK, the quantity of open contracts represents about 8 hours of worldwide oil consumption. I'm not sure this makes a meaningful long-term impact on prices.


Hate to break it to you, Tipp, and Tim, but this is not how the oil market works. Both of you are missing the real source of the price increase, and I'll be damned if I'm going to repeat myself again, so you can just look it up.

...


Something is worth only what another person is willing to pay. You guys want to break down a trillion dollar mkt and blame it on a handfull of banks, hedgefunds or etrade customers, your fucking nuts.

The only people that control the price of a mkt this large is the people with their hands on the tap and the oil under their feet.

Get over it.


Clearly you don't understand the impact of very small demand fluctuations on a market very close to peak production capacity. You also don't understand the impact of the exchange rate on oil prices: since oil is denominated in dollars, and the US dollar has gained substantially since its lows earlier this year, part of the "price decrease" is just a stronger dollar relative to the currencies of oil-producing nations.

...

This is exactly what happened with the oil market. Demand outstripped the ability to supply, and since the entire world runs on oil and has no substitutes for it, it took a huge price increase to get people to choose the only option: consuming less of it.



ORLY?



CFTC: Speculators caused 2008 oil price crisis

By Daniel Tencer

Published: July 28, 2009
Updated 2 hours ago

In a major U-turn from its claims during the Bush administration, the Commodity Futures Trading Commission is now set to admit that speculation in oil markets — and not the forces of supply and demand — are behind last year’s massive oil price spike.

In the summer of 2008, oil prices on the open market reached an unprecedented $147 per barrel. Many economists argue the spike helped push the US into an economic free-fall last autumn.

At the time, the CFTC — which is tasked with regulating commodity and financial futures — said that the huge price spike was a result of supply and demand. That explanation was met with ridicule from many market-watchers, who said it was impossible that demand for oil increased by such a huge margin even as the North American, European and Japanese economies were slowing down.

Now, according to a scoop in the Wall Street Journal, the CFTC is about to reverse its Bush-era position, and admit that market speculators — investors who bought oil futures on the expectation they would rise in value — “played a significant role” in the oil spike.

Bart Chilton, a CFTC commissioner, told the WSJ that the original assessment was based on “flawed data.” He told the newspaper that the CFTC’s report, which will be released next month, will acknowledge the role of speculators in oil markets.

The CFTC’s admission highlights the often dangerous role that Wall Street speculators play in Main Street’s economic health. Many policymakers are now beginning to wake up to the reality that speculation in commodities markets can cause massive damage to the pocketbooks of ordinary citizens.

The Columbia Journalism Review reminds readers that, in his Rolling Stone article “The Great American Bubble Machine,” Matt Taibbi describes how major Wall Street players gamed the oil market:


With the public reluctant to put money in anything that felt like a paper investment, the Street quietly moved the casino to the physical-commodities market — stuff you could touch: corn, coffee, cocoa, wheat and, above all, energy commodities, especially oil.

Oil futures in particular skyrocketed, as the price of a single barrel went from around $60 in the middle of 2007 to a high of $147 in the summer of 2008…

But it was all a lie. While the global supply of oil will eventually dry up, the shortterm flow has actually been increasing. In the six months before prices spiked, according to the U.S. Energy Information Administration, the world oil supply rose from 85.24 million barrels a day to 85.72 million. Over the same period, world oil demand dropped from 86.82 million barrels a day to 86.07 million. Not only was the shortterm supply of oil rising, the demand for it was falling — which, in classic economic terms, should have brought prices at the pump down…

So what caused the huge spike in oil prices? Take a wild guess.

The CJR writes: “Note that Taibbi’s hardly the first person to say that the money from the housing bubble moved to form the commodities bubble, which remember, not only sent gas prices skyrocketing but helped cause dangerous food disruptions around the world.”

The CFTC’s turnaround comes after many other major oil-market regulators already came to similar conclusions. Last month, the European Union and OPEC agreed at a meeting that regulation of oil markets would be necessary to prevent future oil bubbles.

“The 2008 bubble could be repeated if adequate regulatory reforms, including greater transparency, (are) not made as part of an overall reshaping of the global financial sector,” Reuters quoted EU officials as saying in a statement.

The CFTC now seems to agree with this view, but the WSJ points out that there is no consensus on this issue. Wall Street speculators may fight hard to keep their ability to profit off of commodity bubbles — potentially setting the stage for an international political showdown over financial market regulation.

“These decision makers don’t present a united front,” the WSJ reported. “The U.K.’s Financial Services Authority has found no evidence that speculators are behind big oil-price swings, people familiar with the matter said.”

[/classic rainbow brite] :cool:

[Rubicon]

Surprise, surprise, surprise.


Senate committee approves Gensler to head CFTC

Mon Mar 16, 2009

WASHINGTON (Reuters) - President Barack Obama's nominee to oversee U.S. futures markets ... was approved by the Senate Agriculture Committee on Monday.

http://www.reuters.com/article/politicsNews/idUSTRE52G0BI20090317


And suddenly the stars align to give Obama the justification to do what he has wanted to do for a long time. How convenient.

[mock vomit]

Surprise, surprise, surprise.

And suddenly the stars align to give Obama the justification to do what he has wanted to do for a long time. How convenient.

Hmmm... you ever considered that maybe;

-It actually WAS speculation that drove the oil market way way up

-By some chance the prior Bush Co appointee was the one obfuscating the truth?

-Plus, your linked material makes this new guy sound like a typical looney lefty to me. NOT!;


Senate committee approves Gensler to head CFTC
Mon Mar 16, 2009 11:12pm EDT
By Christopher Doering

WASHINGTON (Reuters) - President Barack Obama's nominee to oversee U.S. futures markets, who has confessed he should have done more to rein in exotic financial instruments that have battered global markets, was approved by the Senate Agriculture Committee on Monday.

The approval of Gary Gensler, a former Goldman Sachs executive, clears the way for a Senate vote putting him in charge of the Commodity Futures Trading Commission.

He was approved by a roll-call vote. A spokeswoman for the committee could not provide a tally, but said there were no negative votes.

During his February confirmation hearing, lawmakers grilled Gensler on his involvement as a high-level Treasury official in a 2000 law that exempted the $58 trillion credit default swap market from oversight.

The financial instruments have been blamed for amplifying global financial turmoil.

During the hearing, Gensler said he and other officials "should have done more to protect the American public through aggressive regulation, comprehensive regulation."

Lawmakers, including Sen. Tom Harkin who heads the Senate Agriculture Committee, pressed Gensler on whether he could commit to regulating the same financial instruments he once worked to exempt from oversight.

"With our current economic crisis, it is painfully clear that our nation's financial system requires a much stronger and more effective regulatory scheme, and it is important that we have an effective leader at the Commodity Futures Trading Commission," Harkin said in a statement on Monday.

"I am hopeful that he will lead effectively in reforming and restoring regulation of trading in futures and other derivatives contracts," he said.

Gensler also has supported position limits on physical commodities, said that clearing should be mandatory for standardized over-the-counter derivatives and opposed a merger of the CFTC and the Securities and Exchange Commission, the regulator of equities markets.

The CFTC has been criticized for not doing enough to monitor trading volatility when a range of commodities, particularly oil, were roaring to record highs in 2008.

But of course, this is just a misdirection from the actual point. It WAS speculation in the oil markets that made the recent bubble. Your post doesn't get anywhere close to refuting that point, no?

[OSECS]

But of course, this is just a misdirection from the actual point. It WAS speculation in the oil markets that made the recent bubble. Your post doesn't get anywhere close to refuting that point, no?

Airsatzs recent 3 or 4 part post pointed out this very fact. Goldman Sachs was hugely responsible for the increase in oil speculation and the rewriting of regulations which allowed them to bend the rules over the hood of a car and give them a good rodgering.

[Rubicon]

It WAS speculation in the oil markets that made the recent bubble.




08-06-2008

You misunderstand what is being said. The information the speculators are reacting to is driving the price. The speculators are merely reacting to what will be if nothing changes. If politicians were smart they would say to hell with focus groups and just watch the futures markets when it involved economic matters(then again, that is giving them credit for actually caring about the results of their decisions, beyond how many votes it gets them). On July 15th Bush rescinded the exec order prohibiting off shore drilling. Crude oil scheduled for Sept 08 delivery dropped over $6 that day and has been dropping ever since.

Blaming speculators for the price of oil(of any large market commodity) is like blaming the speedometer for how fast you are going. They both give you a visible representation of the current, or expected(they are not called the futures markets for nothing)state of affairs, and they are both reacting to forces much bigger than themselves.

http://www.pbase.com/quath/image/101319523/original.jpg




........

[mock vomit]

........

Was that agreeing it was speculation, or trying to redefine which part was chicken vs which part was egg???

[Rubicon]

Was that agreeing it was speculation, or trying to redefine which part was chicken vs which part was egg???

It was the same conversation you and I have had in the past where I have told you that your assertion that speculation drives prices demonstrates a lack of understanding of the subject matter. To assert that speculation causes price movement is, on one level not entirely incorrect, but it ignore the larger picture and gives the false impression that more regulation will prevent large price swings in the future.

[Sir Jongalot]

It was the same conversation you and I have had in the past where I have told you that your assertion that speculation drives prices demonstrates a lack of understanding of the subject matter. To assert that speculation causes price movement is, on one level not entirely incorrect, but it ignore the larger picture and gives the false impression that more regulation will prevent large price swings in the future.

YOU = STUPID

[mock vomit]

It was the same conversation you and I have had in the past where I have told you that your assertion that speculation drives prices demonstrates a lack of understanding of the subject matter. To assert that speculation causes price movement is, on one level not entirely incorrect, but it ignore the larger picture and gives the false impression that more regulation will prevent large price swings in the future.

http://sturmdesjahrhunderts.files.wordpress.com/2009/06/facepalm.jpg

[neck beard]

Nice work Tim.

July 15 2008, "July 15th Bush rescinded the exec order prohibiting off shore drilling. Crude oil scheduled for Sept 08 delivery dropped over $6 that day and has been dropping ever since."

Yes, it dropped all the way to low $40... all because Bush said go for the offshore oil?

No. It dropped since then because:

1. long speculators unwound positions
2. global economic decline reduced demand
3. speculators went short on the back on point 2.

D v S is always at play in finding equilibrium. Speculators are always at play in finding the fat tails ($140 and $40) either side of it. Neither 140 or 40 are equilibrium prices where D=S. Speculative activity took price to both extremes, plain and simple.

Industry producers are speculating everytime they place a futures hedge.

Oil buyers are speculating every time they place a futures hedge.

Banks with commodity desks are speculating and hedging simultaneously.

Trading funds are speculating.

Banning pure speculators will do nothing since most industry participants speculate every day.

[Rubicon]

Yes, it dropped all the way to low $40... all because Bush said go for the offshore oil?



Also from that thread.





So are you saying that the decision to rescind the ban on offshore drilling had an impact on futures for Sept 08 delivery,

Causation? Dunno. But the correlation is clear.




My point was that if you want to change the price of a commodity in any meaningful way you have to change the fundamentals(or the expectation of what the fundamentals will be). Speculators can't do that. They, as you put it, can only push the price to an extreme.

[neck beard]

My point was that if you want to change the price of a commodity in any meaningful way you have to change the fundamentals (or the expectation of what the fundamentals will be). Speculators can't do that.

No, speculators can't change fundamentals. No one said that. But they sure as hell can change price beyond fundamental underpinnings.

Fundamentals would have had oil at about $70 mid last year.

Speculators (including hedging decisions) had it double that.

Fundamentals would have had oil at about $70 at the start of this year.

Speculators (including hedging decisions) had it half that.

Fundamentals today appear have oil at about $70 with no clear fear driven thrust in either direction upon which speculators can jump on and push to an extreme.

I am not anti-speculators, that is not the motivation for my post. Nor am I anti-regulation.

I am pro observation of fact.

If you said that such speculative driven excursions away from D=S were unsustainable, particularly bubbles, then I would agree with you.

(FWIW, my expectation of fundamentals is biased towards ever increasing oil prices so long as we live in a world that resembles today's world)

[Rubicon]

If you said that such speculative driven excursions away from D=S were unsustainable, particularly bubbles, then I would agree with you.




I thought that would have been implicit in the assertion that fundamentals drive the market since they are forever changing, as is the price. maybe I have spent too much time with my nose in books and staring at charts(and not enough time talking to others about it) to be conversant on this subject.

[neck beard]

I thought that would have been implicit in the assertion that fundamentals drive the market since they are forever changing, as is the price.

Not being rude or anything buddy, but that does read a little like a self-defence response engineered for the sake of a self-defence response.

[mock vomit]

Sorry to do this to my very good friend Rubi here... and I am about to waltz out the door of my office for a beer, so could easily skip making this post... but honestly I'm finding it almost impossible to pass on this one. :redface:

So... I don't think I'm changing your language or meaning here by rephrasing your words as;


...My point was that if you want to change the price of a commodity in any meaningful way you have to change the fundamentals(or the expectation of what the fundamentals will be). Speculators can't do that.

Speculators can't change the fundamentals (or expectations thereof) and as such CAN'T change the price of a commodity in any meaningful way.


...They, as you put it, can only push the price to an extreme.

However... Speculators CAN push the price to an extreme.






























































http://msnbcmedia2.msn.com/j/MSNBC/Components/Photo/_new/._00_090305-jon-stewart-vmed-1pm.widec.jpg

[Rubicon]

Not being rude or anything buddy, but that does read a little like a self-defence response engineered for the sake of a self-defence response.

LOL! Take it however you will. But I assumed that anyone engaging in this conversation had a basic understanding of macro economics. In any market driven by fundamentals the intersection of supply and demand is the price. If the price deviates from that intersection(such as might be caused by speculation) it is going to be temporary otherwise the market, by definition, is not being driven by fundamentals. <shrug> Seemed obvious to me.

[neck beard]

In any market driven by fundamentals...

If a lightly regulated market isn't driven by fundamentals... then is it driven by speculators? I thought you said that they couldn't drive markets?

You are going around in a circle, making no new points, coming very close to contradicting yourself and getting tangled. Tim said it better with his last post.


But I assumed that anyone engaging in this conversation had a basic understanding of macro economics.

I do. Suggesting that I do not tells me you really didn't understand or perhaps digest my numerical example above. Or that you just want everyone else to be wrong because a statement once made can never be backed away from.

Feel free to continue to novate your evident but harmless wrong-headedness by falling back on 'I assumed you saw what I implied but if you didn't then I was wrong to assume that you understood the basic of the topic'. It's like pulling some wildcard response from a hat, a one-size-fits-all canned retort and superficially removes you from any error or omission. And makes my engaging this topic pointless.

A mute once told me that men have egos and women are irrational. He concluded to never engage in topical conversation with either gender. I wish I'd listened to him.

[woodstocksez]

http://www.ratemyeverything.net/image/21317/0/Double_Facepalm.ashx

[Rubicon]

Sorry to do this to my very good friend Rubi here... and I am about to waltz out the door of my office for a beer, so could easily skip making this post... but honestly I'm finding it almost impossible to pass on this one. :redface:

So... I don't think I'm changing your language or meaning here by rephrasing your words as;



Speculators can't change the fundamentals (or expectations thereof) and as such CAN'T change the price of a commodity in any meaningful way.



However... Speculators CAN push the price to an extreme.


Like I said Tim, we have already had this conversation once before.





Have you let California know that speculators couldn't possibly have affected their electricity market?
Have you read a post of mine where I said that speculators have no effect on price?

"affecting" and "driving" are two very different things.

[Sir Jongalot]

Ruby,

Your problem to me seems to be that you've decided to take what you think is your sophisticated knowledge of economics take from some books or a class or two and try to apply it to every scenario like religious dogma. Seemingly to you Milton Friedman et al are prophets and efficient market hypothesis is equivalent to the 10 commandments.

If you choose to study economics beyond the synopsis level and beyond the basic mechanisms of econ 101 or 102, ie Supply and Demand will clear a market efficiently, you'll find that the real world does not fit that terribly simplistic model very well at all. The exercises of economics with pure S and D are useful for understanding fundamental dynamics, but they rarely explain what is really happening in a market in the real world. There are many different assumptions being made to produce an efficient market that will clear and always produce the most efficient price. Perfect information/complete knowledge, rational expectations, ceteris paribus, no systematic bias, etc.

But the reality is that many of these things are not true in any specific market, particularly over the shorter term. And to real market participants the short term does matter because many times they have to buy and sell in the market.

Maybe the oil markets DO clear efficiently over the long run, heck prices fell late last year back to historical means based up real levels of supply and demand, but that does not mean no real undue damage was done to the market participants over that shorter term. US and world consumers paid a heavy price and inefficient profits flowed into the hands of speculators and oil producers. Don't forget that many goods including food, esp in 3rd world countries have oil as a key input and many people suffered as those prices skyrocketed.

Here is one short list of the likely problems with efficient market theory in real markets.


* Economic agents are not atomistic.
* Economic agents are not homogeneous.
* Speculators do not speculate with their own money.
* Incentives may be perverse.
* Short term gains matter a lot.
* Expectations may not be rational.
* There are systemic biases.
* Horizons are not infinite.
* Knowledge is not complete.
* There are unknowns.
* There are unknown unknowns. (Knightian uncertainty)
* There are idiots. (Larry Summers)
* Information is not interpreted identically by everyone.
* Herd behaviour is common.
* There are self-fulfilling prophecies. (Sunspots)
* Irrational prices can persist for longer than one expects.

Even your vaunted Friedman had his doubts about the efficiency of markets, at least over the short term:


You don’t have to believe it. I don’t believe it. We all know the market is not efficient in a descriptive sense.

[Rubicon]

A mute once told me that men have egos...


Yes, I think your mute was correct. I would add that no one is an exception.


Suggesting that I do not...

I know that you know what you are talking about, and never thought otherwise. I don't disagree with anything you have written about the markets.

Good talking to you.

[Rubicon]

Ruby,

Your problem...


So wait, is your clown nose on or off this time?


Doesn't work this way jongy. I'm not going to have a serious conversation with you as long as you are hiding behind that alias.

[woodstocksez]

http://images.roflposters.com/images/rofl/myspace/1212348932002.jpg.[roflposters.com].myspace.jpg

My God! Someone's going to get hurt.

[Rubicon]

To get this thread back on track:




The CFTC has targeted excessive speculation in energy and commodity trading, especially in oil, which soared to $147 a barrel a year ago. Oil and other commodity prices, while volatile, have largely fallen from last year's highs.

The hearing "seems to me to be a euphemism for what we can do to make sure that crude doesn't trade over $140 again," said Henry Jarecki, chairman of Gresham Investment Management. "Oil prices were indeed remarkably high last year. But such high prices were also found in steel, coal, and cobalt, and they don't trade on the futures markets at all."

Gensler defended the agency and stressed that the CFTC's review of position limits was not politically motivated.

http://www.reuters.com/article/newsOne/idUSN2925698720090729



Jarecki is echoing my thoughts on this subject, both now and last year when it first became part of the public discourse.

It's interesting that Gensler felt the need to preemptively stress that there was no political motivation, must be sensitive about that for some reason:rolleyes2.

[mock vomit]

...
The CFTC has targeted excessive speculation in energy and commodity trading, especially in oil, which soared to $147 a barrel a year ago. Oil and other commodity prices, while volatile, have largely fallen from last year's highs.

The hearing "seems to me to be a euphemism for what we can do to make sure that crude doesn't trade over $140 again," said Henry Jarecki, chairman of Gresham Investment Management. "Oil prices were indeed remarkably high last year. But such high prices were also found in steel, coal, and cobalt, and they don't trade on the futures markets at all."

Gensler defended the agency and stressed that the CFTC's review of position limits was not politically motivated.

http://www.reuters.com/article/newsO...25698720090729
Jarecki is echoing my thoughts on this subject, both now and last year when it first became part of the public discourse.

It's interesting that Gensler felt the need to preemptively stress that there was no political motivation, must be sensitive about that for some reason:rolleyes2.

This first part echo your thoughts too?

Oh, and nice selective editing without leaving at least some elipses or something to show you've snipped & pasted and likely changed the context and/or point of the whole story. :rolleyes2


WASHINGTON (Reuters) - The top U.S. futures regulator on Wednesday expressed concern that exempting some investors from proposed position limits on futures contracts could undermine efforts to clamp down on excessive speculation in energy trading.

The Commodity Futures Trading Commission aims to rein in speculation in energy and commodity trading, especially in oil, which soared to $147 a barrel a year ago. Prices for oil and other commodities have largely fallen from last year's highs.

"While I believe that we should maintain exemptions for bona fide hedgers, I am concerned that granting exemptions for financial risk management can defeat the effectiveness of position limits," CFTC Chairman Gary Gensler said at a second hearing looking into tightening regulatory oversight of U.S. futures markets.

The CFTC is holding hearings on proposed position limits to prevent manipulation of energy markets by dominant players. It also is examining whether some traders should be able to exceed whatever limits are imposed.

Gensler said he saw support for CFTC limits on how many futures contracts can he held.

"There seemed, at least, that the commission is hearing support," Gensler said following the hearing. "I think it's more a question of how, than whether."

But top Wall Street firms expressed concern that a regulatory crackdown would scare business to foreign exchanges, shrink trading volumes and impair market efficiency.

"We believe that eliminating or limiting swap dealer hedge exemptions not only will not address the 'swap loophole' but actually will have several negative consequences," said Donald Casturo, managing director of Goldman Sachs Group Inc.

Swaps, private transactions tailored to the needs of the buyer and seller, have grown more popular as a way of avoiding big margin calls on futures exchanges while obtaining a hedge for bank financing.

"Those transactions are vital to the counterparties entering into them for risk-management or investment purposes, both of which are legitimate and important objectives," said Blythe Masters, managing director and head of the global commodities group at JPMorgan Chase & Co.

Gensler questioned the proposal from the two investment banks that end users be subject to position limits, while swaps dealers still receive some exemptions.

"I don't see a Goldman Sachs swap desk or J.P. Morgan swap desk as a passive mechanic," said Gensler, a former partner at Goldman Sachs. "It is a highly sophisticated risk business and it's an important component of our financial market."

The representatives of the two financial companies maintained they were not asking for special treatment.

"Any time you restrict players in any market, speculators or hedgers, which are what makes markets, will often see more harm done in the long run," said Chris Jarvis, President of Caprock Risk Management in New Hampshire.

To keep speculators in check, Jarvis said it would be better for regulators to increase the amount of money, or margin, that investors must put up to trade futures.

"Speculators' tool of choice to manipulate markets is leverage, and that can better be controlled by raising margin requirements," he said.
The hearing "seems to me to be a euphemism for what we can do to make sure that crude doesn't trade over $140 again," said Henry Jarecki, chairman of Gresham Investment Management. "Oil prices were indeed remarkably high last year. But such high prices were also found in steel, coal, and cobalt, and they don't trade on the futures markets at all."

The CFTC's hands-off approach toward regulation drew criticism last year when commodity and energy prices rocketed. Gensler said the review of position limits was not politically motivated.

"We are not price setters ... but we are about making sure markets are fair and orderly and work for the American public," he said.

(Editing by Tom Doggett and David Gregorio

[Sir Jongalot]

So wait, is your clown nose on or off this time?


Doesn't work this way jongy. I'm not going to have a serious conversation with you as long as you are hiding behind that alias.

Ayyyyyyy matie it does work this way.

What if NOT speculation caused the bubble in oil prices might you postulate?

I suppose you could make an argument for the rampant speculation as some sort of public good, perhaps as a financial enema for us all.

[Rubicon]

This first part echo your thoughts too?

"The top U.S. futures regulator on Wednesday expressed concern..."

So let me get this straight. You spend years saying that Bush's people were saying whatever was needed to justify what Bush wanted to do; Obama spends a year(at least) saying that speculation needs to be more heavily regulated; Obama gets into office, appoints his own people and suddenly new revelations come to light that seem to justify what Obama has wanted to do all along, then you run around quoting Obama's people saying "See! I told you so, I told you so" and expect to be taken seriously?

You are nuts.




Oh, and nice selective editing without leaving at least some elipses or something to show you've snipped & pasted and likely changed the context and/or point of the whole story. :rolleyes2

Did you really think the entire Reuters article was six sentences long? Do you really think anybody else would think the entire article was six sentences long?

This is why we don't have conversations like we used to, this and posts like the one with the picture of John Stewart in it. You are just in it for the 'gotcha'.

Sorry, not interested.

[woodstocksez]

"The top U.S. futures regulator on Wednesday expressed concern..."

So let me get this straight. You spend years saying that Bush's people were saying whatever was needed to justify what Bush wanted to do; Obama spends a year(at least) saying that speculation needs to be more heavily regulated; Obama gets into office, appoints his own people and suddenly new revelations come to light that seem to justify what Obama has wanted to do all along, then you run around quoting Obama's people saying "See! I told you so, I told you so" and expect to be taken seriously?

You are nuts.

I'm trying to understand your point of view here. What new revelations came to light? What in the article constitutes the bold-faced part above? I thought it was just a matter of the Obama administration getting around to doing what Obama had already indicated he wanted to do. I didn't see in the article that anyone identified something new to support that. What did I miss?

[Rubicon]

I'm trying to understand your point of view here. What new revelations came to light? What in the article constitutes the bold-faced part above? I thought it was just a matter of the Obama administration getting around to doing what Obama had already indicated he wanted to do. I didn't see in the article that anyone identified something new to support that. What did I miss?

No quadruple face palm? You are letting me down.:biggrin:


From the article in Tim's post that reserected this thread:

"Bart Chilton, a CFTC commissioner, told the WSJ that the original assessment was based on “flawed data.”"

[woodstocksez]

From the article in Tim's post that reserected this thread:

"Bart Chilton, a CFTC commissioner, told the WSJ that the original assessment was based on “flawed data.”"

OK. I was just looking at the article you cited on this page of the thread.


No quadruple face palm? You are letting me down.:biggrin:

Don't count me out yet. I've already started searching, but haven't found what I want. I'm not even sure a quadruple face palm on a single face even exists. The occasions for its use are so extraordinarily rare. (Edit - I do have a Jesus Face Palm in the wings though. I pray I won't need to use it.)

Edit to add ...

It seems clear that speculation has been whipsawing the price of oil. That kind of price instability is not a good thing. I'm in favor of regulation intended to (ideally, that will) reduce that instability (which isn't "real"). I gather I lost your support in some or all of that. Which part(s) don't you like or agree with?

[Adolf Allerbush]

"Bart Chilton, a CFTC commissioner, told the WSJ that the original assessment was based on “flawed data.”"

Oh fuck, here we go again with the flawed data argument.

[mock vomit]

...This is why we don't have conversations like we used to, this and posts like the one with the picture of John Stewart in it. You are just in it for the 'gotcha'...

THIS part is SO almost true!!!

[Rubicon]

It seems clear that speculation has been whipsawing the price of oil. That kind of price instability is not a good thing. I'm in favor of regulation intended to (ideally, that will) reduce that instability (which isn't "real"). I gather I lost your support in some or all of that. Which part(s) don't you like or agree with?

The road to hell is paved with good intentions. That being said, markets simply don't work without proper regulation. So I'm not anti regulation. But I am against regulations in response to a unique, traumatic event(did we learn nothing from the aftermath of 9/11? TSA, Patriot act, no nail clippers, etc?) spear headed by people who have a demonstrated anti capitalistic bent('spread the wealth around', 'now is not the time for profits', tax the rich to pay for the poor, etc.) riding a wave of whipped up public angst.

This is a publicity stunt to show the brave politician slaying the evil speculators with his sword of good intentions and saving the public from higher prices.

The odds of something good coming from this are very small, IMO.

[neck beard]

As I said in an eatlier post, regulating to reduce speculative positions won't do much since most market participants transact in a speculative manner anyway, not just those that ticked the 'speculator' box when they opened a futures account.

Risk mmanagers speculate every time they transact unless their internal SOP manual forces them to hedge in a certain manner by a certain time. Most have some type of internal requirement, and most are also free to 'trade around' their position by under or over hedging based on their speculative view. This is common, especially for banks, and in some countries, for market makers. Enron as well.

If I was an oil producer watching last year's bubble, I sure as hell would have under hedged as much as possible, rather than short-hedging my full physical exposure. As the market tipped below say 130 after hitting 147, I would have only then fully hedged my short spot position (oil production). And as I watched the bubble burst and break out below about 90-ish, I would have over-hedged, ie, sold more contracts than I had physical oil to sell.

These actions of a hedger would have pushed the speculative bubble higher (refrain from selling my hedge on the way up) and forced the bubble burst to overshoot downwards as well (over hedge... selling more futures than I needed to).

It would be impossible to regulate against that. They should forget the whole idea as a Government and perhaps instead investigate and address why the economy is so sensitive to oil prices and volatility thereof.

ps - it isn't really price that is the concern anyway, it is volatility. Oil heading to $300 at an average appreciation of $1 per quarter with a quarterly high-low range of $5 would not hurt us much at all. But if it went there in a year... cluster fuck.

pps - regulating to minimise price would simply remove participants and therefore volume, and a thin low-volume market is obviously more volatile. It's all really a bad idea. Leave the market be, that money will just go somewhere else if they do manage to effectively regulate meaningful volume out of play. It will go into a correlated commodity. Like sugar a few years ago. I made a killing on that sweet bubble... as a speculator. What is the end game? Ban speculative trade on all commodities?

pps - there already are speculative limits on CL. And volatility limits. http://www.nymex.com/CL_spec.aspx

[woodstocksez]

The road to hell is paved with good intentions. That being said, markets simply don't work without proper regulation. So I'm not anti regulation. But I am against regulations in response to a unique, traumatic event ...

I agree with you.


ps - it isn't really price that is the concern anyway, it is volatility. Oil heading to $300 at an average appreciation of $1 per quarter with a quarterly high-low range of $5 would not hurt us much at all. But if it went there in a year... cluster fuck.

I'm not sure if this was a response to me, but price volatility, not any particular price level, is what I meant by price instability. Perhaps volatile prices are OK if they are a function of underlying economic fundamentals, though I think any volatility is probably undesirable because of associated uncertainty. Volatility that is not related to underlying economic fundamentals seems clearly undesirable and we should eliminate it if we can.


As I said in an eatlier post, regulating to reduce speculative positions won't do much since most market participants transact in a speculative manner anyway, not just those that ticked the 'speculator' box when they opened a futures account.

...

It would be impossible to regulate against that. They should forget the whole idea as a Government and perhaps instead investigate and address why the economy is so sensitive to oil prices and volatility thereof.

First, as I think you're suggesting, it may not be useful to refer to "speculation" and "speculators." The problem is pricing that is unrelated to economic fundamentals and, more particularly, such pricing that is undesirably volatile.

The positive feedback you describe is common in many systems, including economic systems. The same sort of thing happens in the housing market, for example: some catalyst(s) cause a reversal in, or initiation of, price movement, and the new movement is exacerbated by people delaying action to take advantage of it (wait on the sidelines expecting prices to come down more) or hurrying action to avoid it (buy now to avoid price increases in the future).

I doubt that it's impossible to regulate to reduce or eliminate such feedback in a particular market, though even if it's possible, it's probably difficult to figure out just how to do it. It may be that regulation directly in a particular market will be ineffective (or even counterproductive), while regulation in a related part of the economic system achieves the desired end. For example, appropriate regulation of CMOs and CDSs (maybe some other things as well - ratings agencies?) may have helped reduce the disconnect from fundamentals, and the volatility, of prices in some housing markets that we've recently experienced. I don't know what, if anything, would be appropriate to regulate to achieve the same end with respect to oil prices, but I don't think I accept that it's impossible to do.

[neck beard]

That wasn't aimed at anyone on particular, I was just putting down my thoughts.

Agree with what you say, and I should not have used the word 'impossible'. It is too absolute and not what I meant.

Would regulation just force participants into less regulated exchanges in other countries? And if the price of oil was climbing and participants were unable to express themselves in CL, I'm quiet sure they would find a way to express themselves in an unregulated correlated commodity.

When I was young, spot markets drove derivative prices. It really seems that this is now reversed, at least for crude. Perhaps not. I do think that some futures markets no longer function to remove/reduce/manage spot volatility, as originally intended

[woodstocksez]

Would regulation just force participants into less regulated exchanges in other countries?

Seems reasonable. I don't know enough about it (e.g., what other exchanges are there, how big are they, how desirable/undesirable do market participants find other rules/characteristics of those exchanges) to have an idea about the extent to which that would happen and what could be done to address it (is that the type of thing some of the Euros were talking about a while back when they talked about a global coordinated response to the financial crisis being necessary?).


And if the price of oil was climbing and participants were unable to express themselves in CL, I'm quiet sure they would find a way to express themselves in an unregulated correlated commodity.

Regulate 'em all. I have no idea how easy or difficult that is in practice. The other thing is that if the effective regulation lies in some part the economic system other than directly in a particular market, that regulation may have the desired effect not only in the particular market, but in other markets as well. Anyway, even if that's true, it's easy to discuss in the abstract, not so easy to effect in real life.

[neck beard]

You are right. It isn't a very easy topic to tackle in the real world. I got nothing more on the topic right now. It is interesting though.