by Jack Lee
In 2003 oil speculators controlled approximately 13 billion dollars worth of oil contracts, but they didn’t like the rules in the USA, so they setup shop in England and today the speculators on England’s exchange now control over 260 billion in oil contracts.
Who are these guys? They represent hedge funds, banks, pension funds and some of the key players are former Enron traders using the skills they acquired under the Enron model. Isn’t that great? This is driving up the price of crude oil far beyond the supply and demand levels with unfair and illegal trade practices.
Back in the USA our oil companies use the speculators price to justify their crude price, they say, hey look at the price of oil (on paper) and they immediately jack up their crude price. Almost everywhere you look, be it in the USA or England, traders or producers, are cashing in. They (and this is a big number of diverse elements) are doing to us what they did back in the so-called energy crisis days where California paid through the kazoo for electricity until this state was nearly bankrupt. There was plenty of electricity, but the market was manipulated by contracts on paper that made it appear there just wasn’t enough electricity to go around. And the energy producers just shrugged their shoulders and said well, if thats the price, thats the price and WE PAID. History repeats itself, just as there is plent of oil now, but the market is being manipulated by contracts, the price on paper and the oil producers, at least in the US, just shrug their shoulders and say well that’s the spot price for crude so thats what we must charge you….and they feel so bad, I’m sure.
It’s a sweat deal for our oil companies, for the traders, speculators and producers, but not for you at the pump. But oddly enough it’s OPEC that is blowing the whistle on these guys because the long term effect on OPEC will be for other nations, especially the US, to develope alternative fuels and drill our own oil. On the other side of this one is our Democrats and their zealot friends, they have an interest in seeing us hurting at the pump and not drilling. They want green vehicles and alternative fuels now.
People, this is a complicated mess and if you threw a rock in Washington right now you’re going to hit a lobbyist for somebody who had something to do with these high pump prices!
Last week the Commodity Futures Trading Commission revealed a wide-ranging investigation into crude oil trading practices “amid increasing congressional concern over the role of speculators in record energy prices.” (FT.com) Commodities as an asset class have out-performed all other types of investing and this has attracted huge amounts of new money into this sector….and that is also driving up prices across the board. CFTC is coming under increasing pressure to explain how oil prices could have doubled since last June.
Oil was at $50 a barrel in January 2007, then $75 a barrel in August 2007. Now at $130 or so a barrel, it is clear that oil pricing is speculative activity, having very little to do with physical supply and demand.
What we have now in the commodity markets is another “super-bubble” that could result in the same kind of collapse we saw in the dot.coms, the same kind of collapse from the Enron energy era and most recently in housing bubble that has fleeced so many.
The end of a bubble always leads to economic instability.
What is now under consideration in Congress is to require the Commodity Futures Trading Commission to broaden it’s authority to regulate trading of U.S. oil futures on foreign markets. Trying to close this loop hole is a new regulation that would require the CFTC to impose limits on oil futures trades by non-commercial, institutional investors, such as banks and pension funds, on foreign exchanges.