"Oil Trading Curbs Could Bring Back $2 Gas! [Noel Sheppard]
Two weeks ago, I suggested in “An Unconventional Fix for Fuel Prices” that changes to oil futures trading regulations specifically for speculators could cause a huge decline in energy prices. On Monday, four energy analysts testifying before Congress strongly agreed with my arguments.
As reported by MarketWatch (emphasis added throughout):
Testifying to the House Energy and Commerce Committee, Michael Masters of Masters Capital Management said that the price of oil would quickly drop closer to its marginal cost of around $65 to $75 a barrel, about half the current $135.
Fadel Gheit of Oppenheimer & Co., Edward Krapels of Energy Security Analysis and Roger Diwan of PFC Energy Consultants agreed with Masters' assessment at a hearing on proposed legislation to limit speculation in futures markets.
Krapels said that it wouldn't even take 30 days to drive prices lower, as fund managers quickly liquidated their positions in futures markets.
"Record oil prices are inflated by speculation and not justified by market fundamentals," according to Gheit. "Based on supply and demand fundamentals, crude-oil prices should not be above $60 per barrel." […]
There are two kinds of speculators in the futures markets, Masters said. Traditional speculators are those who need to hedge because they actually take physical possession of the commodities. Index speculators, on the other hand, are merely allocating a portion of their portfolio to commodity futures.
Index speculation damages price-discovery mechanisms provided by futures markets, Masters added.
And here’s the money quote: “Speculators now account for about 70% of all benchmark crude trading on the New York Mercantile Exchange, up from 37% in 2000, said Rep. Bart Stupak, D-Mich., chairman of the investigations subcommittee.”
Since then, oil has risen by more than 300 percent. Any questions? "
From: An Unconventional Fix for Fuel Prices
"In the past, energy price appreciations of last week’s magnitude have typically been caused by supply disruptions — like the 1973 OPEC embargo, or the 4 million barrels per day in lost production that followed the Islamic Revolution in Iran in 1979, which restricted international oil supplies for several years and caused a spike in prices.
In this decade, though, world oil production has continued to rise, making it difficult for simple supply and demand to explain the explosion in oil’s price from $20 in 2002. The Energy Information Association reports that since 2002, world petroleum production has risen from 76.995 million barrels per day to 84.594 million barrels per day in 2007, a 9.87 percent increase. Over the same period, demand has gone from 78.036 million barrels per day to 85.354 million barrels, a 9.38 percent increase. So total world oil production actually rose faster than demand, but prices increased by almost 400 percent nonetheless. Kind of throws a monkey-wrench into blaming this crisis on China and India’s lust for crude, doesn’t it?
The fact is, the explosion in oil futures trading on the various exchanges around the world has unquestionably been a huge factor in the nearly 200-percent increase in oil prices since January 2007. How huge? Estimates vary. . . .
The connection between the recent explosion in oil prices and speculation on futures exchanges is clear: it’s both logical and salutary to reduce or prevent such non-essential price pressures. . .
As a pure capitalist, I’m all for defending the free market. However, with food and energy prices going through the roof largely due to commodities speculation, calling these markets “free” seems a tad oxymoronic.”
"There are all sorts of ways to make money with oil, I suspect. Even by invading Iraq."
it wasn't Bush.
[This message has been edited by Huan Yi (06-24-2008 07:10 PM).]