Published on FOXNews.com on July 18, 2008.
For once, it is the Democrats who have the right idea…we can only hope that the Republicans come along.
Senators Chuck Schumer and Harry Reid are pushing legislation to restore the controls over the oil future’s market speculation that existed before brokerage houses like Goldman Sachs and Morgan Stanley set up a commodities exchange in London to evade restrictions imposed by the Federal Commodities Trading Corporation.
The FCTC had allowed those in the oil biz to buy and sell oil futures - essentially bets on how the price will change - but restricted investment by speculators. After the brokerage houses went offshore so as to be able to indulge their passion for a quick buck, the total traded in oil futures soared from $13 billion in 2003 to $260 billion now. It is this tail that is wagging the dog in pushing up the price of oil and gas at the pump.
The FCTC regulations remained in effect all through the Reagan and Bush years. Indeed, they were only repealed after they had been obviated by the off shore move so as not to disadvantage domestic commodities exchanges. We realized that oil is too valuable a strategic and economic commodity to permit its price to be determined by gamblers betting on the future price. So the FCTC let those in the industry, like oil companies and airlines, invest in oil futures but stopped outsiders from doing so.
The Democrats are pushing legislation to restore the status quo ante and stop the brokerage firms from playing the oil futures game. Their bill would apply the restrictions on oil futures’ purchases to domestic American companies even if they trade off shore.
If there is any doubt that it is speculation, not the supply and demand for oil, that is driving up the price, look at this week’s history of oil prices. After Bush announced that he was rescinding his father’s executive order and permitting off shore drilling and after OPEC announced a weakening of oil demand, the futures market price dropped $15 per barrel. No new oil gushed through the system. The speculators just switched their bets from up to down. With the Democratic bill, they will just have to double their bets on horse racing and leave oil futures alone!
Some Republicans are reflexively opposing the Democratic proposal, citing the sanctity of free markets. But even Reagan didn’t want to allow unbridled gambling in oil futures. There is nothing wrong with letting the free market in oil determine the price of the product. And there is a lot right with letting it do so. But it is insane to let gamblers magnify the effect of anticipated changes in supply and demand, that may not materialize, by buying and selling oil futures. Oil is just too important strategically and economically to allow that kind of speculation.
Ultimately, the answer to high gas prices is to do everything. We should drill for oil offshore and in Alaska. We should extract it from shale. We need more nuclear power. We have got to expand wind, geothermal, and solar energy. We need more coal, particularly if we can capture and bury the carbon emissions. We need flex fuel cars. We need more ethanol - from domestic production and from imports. We need methanol, which is just like ethanol but comes from inedible parts of the plant. We need everything.
But to those who doubt the efficacy of off shore drilling, just look at how the mere threat to move in that direction sent oil prices crashing. We need more of same.
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“Ultimately, the answer to high gas prices is to do everything. We should drill for oil offshore and in Alaska. We should extract it from shale. We need more nuclear power. We have got to expand wind, geothermal, and solar energy. We need more coal, particularly if we can capture and bury the carbon emissions. We need flex fuel cars. We need more ethanol - from domestic production and from imports. We need methanol, which is just like ethanol but comes from inedible parts of the plant. We need everything.”
I 100% Agree!
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Dick, you have lost your mind, respectfully speaking.
At these prices, if there was a surplus of oil production capacity, those controlling that capacity would be selling futures on their ability to produce like oil was going out of style. If more oil was pulled out of the ground to fulfill those contracts than could be utilized, tank farms would fill, tankers would fill, and eventually there would be a crowd of unhappy folks with expensively purchased oil contracts and no means to take delivery prior to the expiration of their contracts. Prices would plunge in a manner reminiscent of silver prices in the first quarter of 1980. You should know this.
Supply and demand works. Oil is a global commodity. Even if Mr. Reid and Ms Pelosi wanted oil & gasoline prices to come down, it is unlikely that their legislation would bring about such an eventuality. Allowing speculators to gamble in the marketplace adds liquidity and provides a buffer for both suppliers and consumers. If Ronald Reagan were alive today, the best you could expect would be an appointment at the woodshed.
In a free marketplace, greed rules. At $140 per barrel, eventually producers will produce more oil than the market can handle. The price will then drop and the speculators who have bet on the wrong side of the move will get the spanking they deserve.
Drill here, Drill Now. Expand domestic refining capacity. Trust in the American consumer to fill their tanks today or wait until tomorrow on the speculation that gas may be cheaper.
Huh? It’s the Commodity Futures Trading Commission (CFTC). Don’t you do your homework? www.cftc.gov. The issue is index speculation -funds, like Calpers, that have invested a specified, but rising, percentage in commodities just to park cash in oil via investment vehicles like the S&P GSCI- commodities as an asset class. These funds don’t care what the price of oil is, they just invest in futures to hold the commodity as a hedge against inflation. Now, with oil off $17 this week, these funds may start thinking about reducing the percentage that they hold in oil derivatives, but that reallocation, and the subsequent selling, isn’t going to happen overnight. Moreover, the reason why short sellers returned to the market this week has everything to do with the weakening economy and demand destruction and very little to do with Bush’s offshore drillling. Just exactly how soon would you expect that oil to come online? The Lieberman Bill might be a more worthy subject for an article on this topic, in that it will actually address the real issue, under-regulation, specifically inadequate transjurisdiction position limits and no distinction between speculative margins and hedge (bona fide oil market participants) margins. Do you even know what I’m talking about?
I have worked for Big Oil since ‘82. Usually we search for oil & gas in extremely unprofitable price environments. In the late ’70’s we thought the price of oil might hit $80-$100 following the ‘73 Arab embargo. Subsequently we got hammered with Carter’s Windfall Profits Tax when oil was pushing $40/bbl. No one seems to care that Americans still enjoy some of the lowest gasoline prices in the world.
Our CEO has stated that a fair price today for a barrel of oil is somewhere around $75, factoring in normal supply & demand. In stark disagreement to what Bill O’Reilly rants about, Big Oil deserves to take profits when the price for oil & gas are high. We take these profits and reinvest a large portion into developing fields & future exploration projects. It doesn’t bother me a bit that our CEO’s are well-compensated–they deserve to be. Big Oil always gets kicked around by the public, government, and the media–even if they are ‘fair and balanced’.
But where Morris and O’Reilly are wrong about the greediness of U.S. based Big Oil, they are right about speculation and non-normal market forces contributing to the high oil prices.
If a willing buyer reaches agreement with a willing seller and they agree that the price of oil should be $75, it must be speculation and market-manipulative practices driving the remainder. Speculators force well-intended hedging strategies to participate in their pursuit of greed. National subsidy programs exaggerates demand and adds to the price increase. But that is the American free-enterprise dream–love it, introduce regulation, or renounce your U.S. citizenship.
Has anyone noticed that as we entered a “bull market” the price of a barrel of oil began to rise. Do you suppose the billions of dollars that fled the equity market might have something to do with the rise in the price of a barrel of oil?
Sorry I meant “bear market”. I guess I was thinking about all the bull sh** promoting the idea that the cause is simple supply and demand.
I think the acute rise of oil prices from $70/bbl to the present ~$130/bbl is an unnatural occurence. Once the Federal Reserve signaled their willingness to bail out the subprime mortgage fiasco by increasing the money supply at the price of heating up inflation, the game was afoot. No doubt there were money managers who fearing eventual inflation diverted funds to commodities like precious metals and oil as a hedging strategy. In a bear market, capital preservation and limiting your losses means survival.
This was also too good of an opportunity for the S&L/junk bond/dot-com/subprime mortgage thieves to pass up. The investment capital was easy to get, future trading in commodities required a very slim margin, and inflation became a natural cover for speculating in a monopoly-manipulated commodity that unlike diamonds is burned-up during consumption and is controlled largely by supply and demand.
The world oil supply of course is largely manipulated by OPEC to just keep pace with demand. Even they could not have expect this upward assault. OPEC realizes that there is a price of oil that once exceeded would cause the end of their stranglehold on the U.S. It serves OPEC better to have a price of oil low enough to hinder the U.S. and non-OPEC oil companies from exploring for more reserves but high enough to make OPEC tons of money. At today’s oil prices the U.S. oil companies (XOM, COP, CVX) and foreign oil companies (BP, Shell, PetroBras) are pulling out all the stops (oil shale, tar sands, shale gas, heavy oil, ultra deep water, alternative fuels, etc.) to answer the demand for energy. That is bad for OPEC market share.
There are a lot of needs; lift the oil band; solar energy; wind energy; water energy……We knew this for almost 25 years……and what did we do…….nothing….bought more oil. Now the Democrats are going to develop legislation to control the speculative and future buying of oil. In the meantime, everyone is making money……maybe not as much, but they are significant profits, and by the time legislation is passed, they are all going to retire. Nothing but a band-aid that will only slow the hemorrhage down, but it will still continue to bleed America.
Just as the USDA puts out food stamps, I can forsee a future where the Department of Energy will start putting out Fuel Stamps. With the prices high, the masses will beg for government mandated $75 per barrel oil. Once we are there, it will be hard to turn back.
How much gas should a family of four get per month? 30 gallons? How long should they have to wait in line to get their gas?
Maybe the government can give us all a single card that will get us our Food, Fuel, and Health Care. With that, we can eliminate the payment of Social Security Benefits and Medicare (just the benefits, not the taxes).
Once the Gas stations are nationalized and run like post offices, we will know that nobody is getting rich that doesn’t deserve it.
Hey Dick… How about that supply & demand you had so little faith in?
[…] Originally Posted by Visvaldis Have Any Radio Talk Show Hosts or Fox News Heads Ever Criticized Capitalist Greed or Corporate Exploitation of Labor? So far, only a bit about O’Reily. Anything else? Your question was "have any?" That’s been refuted, but to make you happy, here is a link to one by Dick Morris. STOP OIL SPECULATION NOW! By Dick Morris And Eileen McGann STOP OIL SPECULATION NOW! at DickMorris.com […]