Save Oil Speculation Now!

Katherine Mangu-Ward | August 22, 2008

I wasn't alone in my impotent ink-stained fury over the Stop Oil Speculation Now! website. Normally when an industry creates a write-your-congressman-today rent-seeking front group, they usually try play down their own self-interested agenda, or at least conceal their role in funding the campaign. Oddly, the airlines slapped their names all over the bid to stop everyone else from speculating on the price of oil, even as they carried on with their own fuel hedges.

A competing site has sprung up tearing down the airlines' spin on the oil speculation issue. It's called, with a certain literalmindedness these kinds of sites tend to have in common: The Airline Oil Spin.

While airlines rail against the negative impact of speculating commodity traders on oil prices, it is often overlooked that airlines themselves engage in a form of oil speculation that has been vital to their survival: fuel hedging.

By speculating on the future cost of jet fuel, some airlines have managed to save billions of dollars in potential fuel costs. It seems that airlines are now trying to have it both ways, by condemning the “bad” speculators (the commodity traders) and ignoring the “good” speculators (themselves).

This site has its own non sequitur agenda as well, something about passengers' and workers' rights, which pops up when you click a link that somewhat deceptively suggests that you'll be emailing your congressman in defense of speculators. But at least on the speculation issue, their grasp of economics is slightly better than the gang at Stop Oil Speculation Now!

Comments

Elemenope|8.22.08 @ 4:04PM|#

Speculation is like short selling:

Unseemly, but important.

Paul|8.22.08 @ 4:05PM|#

It's not about economics, it's about low gas prices.

|8.22.08 @ 4:07PM|#

Well,
The site is apparently run by the Reaching Higher Coalition which, at first glance, appears to echo many of the same talking points of a typical labor union. However, it's only apparent member is Henry Watts, a SkyCap at LAX who laments that he gets no tips these days.

So, while Mr. Watts' statements about oil/fuel speculation are correct what he wants is a pay raise.

|8.22.08 @ 4:11PM|#

That image is just wonderful.

Dagny T. (channeling a fellow |8.22.08 @ 4:14PM|#

My friends, these speculators are abusing their free-market privileges and must be stopped. *mutters something about loopholes and drilling*

Elemenope|8.22.08 @ 4:18PM|#

Dagny T. (channeling a fellow cylon)

"Centurions, leave."...
"Why aren't they leaving?"

"I've removed their synaptic inhibitors."

"You WHAT?!"

|8.22.08 @ 4:19PM|#

So it's a Tu Quoque kind of thing?

If groups that might have a self-interested agenda were to disappear, there would be none left (The agenda is the whole point of the exercise, right?) I imagine that would include many of the groups that are looked on lovingly here.

Never mind me though. Despite my receiving no funding from any lobbying groups, I am still in the pockets of big agenda.

ed|8.22.08 @ 4:21PM|#

I never worry about any of these crises because, as a single guy, I'm immune from their relentless attacks on The Children™ and Our Families™, of which I have neither.

|8.22.08 @ 4:26PM|#

Thus will it come to pass. The Dying Leader will know the truth of the Oil Speculation. The missing Three Airlines will give you the Five Airlines, who've come from the Home of the Thirteenth. You are the Harbinger of Mis-Speculation, Kara Thrace. You will lead them all to their End. End of line.

Working Families|8.22.08 @ 4:28PM|#

Tax ed

Elemenope|8.22.08 @ 4:33PM|#

Epi --

We are irredeemable geeks.

|8.22.08 @ 4:33PM|#

Dagny started it. Blame her.

|8.22.08 @ 4:34PM|#

Epi - how sad is it that you're parodying a show that considers a Survivor winner worthy of a "guest-starring" role?...more than ONCE?

oof. that's gotta sting.

Dagny T.|8.22.08 @ 4:37PM|#

I thought you guys might get some mileage outta that. Blame fully accepted.

thoreau|8.22.08 @ 4:39PM|#

Were it not for KMW, there'd be nobody to stand up for the big guy.

|8.22.08 @ 4:40PM|#

Were it not for KMW, there'd be nobody to stand up for the big guy.

I think you're forgetting our favorite caped-Russian female author, thoreau.

|8.22.08 @ 4:41PM|#

Wow Katherine is a dumb bitch. If she would bother to pick up an economics book and actually understand what commodity future trading is, she wouldn't write this stupid article. The airlines of course HAVE to buy and sell oil futures in order to reduce their risk of losing money on the oil they purchase. This is the WHOLE point of the market. The problem the airlines have with the market is the ILLEGAL unregulated price manipulation in the oil market going on mainly in europe (this is done with billions of dollars by large investment banks). Because of course if you don't regulate the market, people will game it, big surprise. How dare the airlines try to stop this and save practically the world economy.

Mob Rule|8.22.08 @ 4:43PM|#

If only those speculators would stop inflating gas prices. I know, let's outlaw them! And if we just taxed BigOil, then the working classes would finally be able to afford gas! And if we nationalized them, then we could get all our oil for free! Obviously our politicians are all in the pockets of BigOil, or else they would have done all of this a long time ago.

|8.22.08 @ 4:43PM|#

Speculation is like short selling:

Unseemly, but important.


And like short-selling, it is being improperly targeted.

Short Selling has been a target throughout history.

Check out this interesting piece by Doug Kass:

"Short-selling runs deep in financial history. Perhaps the first case dates to 1609 when the Dutch trader, Isaac Le Maire, targeted the shares of the shipping company Vereenigde Oostindische Compagnie (the Dutch East India Company). VOC was the first multinational corporation in history and had broad powers. Nonetheless, Le Maire, concerned about threats of attack by English ships, sold VOC's shares short. After learning about Le Maire's tactics, the stock exchange governing VOC's trading banned short-selling (although the ban was later revoked).

In the early 1630s, the Dutch economy fell into a depression following a speculative peak in the trading of tulips. Again, short-selling raised the ire of regulators, many of whom saw it as magnifying the effect on the Dutch economic downturn. As a result, England banned short-selling outright.

Almost 420 years later - in the late 1920s - short-sellers warned of the consequences of speculation. But in the aftermath of the Wall Street crash of 1929, many blamed them and the uptick rule - which banned short-selling on downticks - was instituted (and stayed in effect until 2007). More regulation governing short-selling came into force in 1940, with a ban on mutual funds from short-selling (though that law was lifted in 1997). In early 2005, the SEC again sought to restrict the practice."

|8.22.08 @ 4:44PM|#

Epi - how sad is it that you're parodying a show that considers a Survivor winner worthy of a "guest-starring" role?...more than ONCE?

I'm at a loss here, Steve-o. I would never deign to watch Survivor so who are you talking about?

|8.22.08 @ 4:47PM|#

oh wait, there are two famous people named Richard Hatch? Paint my face red.

|8.22.08 @ 4:55PM|#

I'm simply projecting the world I want to see. You see me standing in a corridor, but I see myself in a very different place. Everywhere I look, I see cheap gas...er...tylium.

Elemenope|8.22.08 @ 5:01PM|#

TAO --

Yah. You fail it.

But since your face is already red, no big.

classwarrior|8.22.08 @ 5:15PM|#

I think it's worth noting that anti-speculation advocates don't have a problem with hedging by businesses that actually produce or use the commodity in question, but with highly leveraged gamblers that grossly exagerate price swings through their bets. What is useful and prudent for one set of players does not imply that the best outcomes flow from an unregulated free-for-all.

|8.22.08 @ 5:51PM|#

The problem the airlines have with the market is the ILLEGAL unregulated price manipulation in the oil market going on mainly in europe

And the only problems the Minutemen have is with "illegal" immigration, right?

I sense the analogy reveals that the motivations are equally sinister. Damn those eeeeevil speculators! "Our speculation is cheeky and fun; his speculation is...cruel, and tragic."

Poindexter G. McNerdleson III|8.22.08 @ 9:16PM|#

What makes the fail 'epic' as the kids say, is that Richard Hatch was also in TOS BSG.

Poindexter G. McNerdleson III|8.22.08 @ 9:19PM|#

Although I too had to consult the ol' IMDB when I first saw the screen credit in the first season, because I had the same 'huh? the survivor tax avoider guy? wtf?' reaction

|8.23.08 @ 5:41AM|#

Wait wait wait wait. What happened to the Matt Welch/Paul Krugman "there is no speculation/oil prices are 100% supply & demand driven" school of thought? I mean, is KMG actually admitting that there is speculation in the oil market place, done by actors who don't actually receive/deliver oil?

She'd best get back on the MW/PK train.

Or she could ride mine, the "$148/barrel price was largely driven by oil speculators" train. This train is not an attack on speculation, but simply a recognition that it exists, a fact that MW/PK totally deny, and that many around here deny as well (except, oddly, on this thread).

|8.23.08 @ 3:18PM|#

Hedging is not the same as speculating. Hedgers want to avoid exposure to moves in commodity prices, whereas speculators want precisely the exposure that the hedgers are avoiding.

The airlines hedge because they don't want to sell tickets for $400- a head and then find that when it's time to fuel the flight, it costs $450- a head to run that flight because prices went up. Better to lock in the fuel prices today so that you know what your costs are and can structure your business operation accordingly.

Having stated all that, it seems to me that the airlines should be careful what they wish for in calling for an end to speculation. If they want any sort of constraint on prices, someone has to be willing to short oil, and who but speculators ?

Wouldn't removing hedge funds from the oil futures markets (yes, someone appears to have actually proposed this ! http://www.msnbc.msn.com/id/25267047/)
do more to cause a bubble by removing the only major actors who are willing to adopt short positions in oil ?

To MP: I doubt that PK actually believes that there is no oil speculation. The point is that the jump in futures prices was not driven by a speculative bubble.