Scapegoating Oil Speculators…Again



Take a moment and contemplate these grafs from today's New York Times coverage of a statement by the chairman of the Commodity Futures Trading Commission regarding his "firm belief is that we must aggressively use all existing authorities to ensure market integrity":

Oil prices have swung wildly in the last year, hitting about $145 a barrel last summer, then plunging to $33 in December before rising to about $70.

Much of that gyration stemmed from chaos in the global financial system, as banks and much of Wall Street came perilously close to collapse last September and the global economy fell into the most severe recession in decades.

But a growing number of critics have blamed some of the extreme volatility on the role of purely financial investors — those who are simply betting on the direction of energy prices, as opposed to those who actually use such products, like airlines.

So, to review: Oil price have fluctuated wildly during a period when our financial markets were in nearly unprecedented disarray. Let's blame speculators and regulate the heck out of them! 

Now seems like as good a time as any to link back to my previous rant on this topic and note once again that there is no substantial difference between airlines—who are buying futures because they anticipate future changes in the price of oil—and so-called speculators—who are buying future because they anticipate future changes in the price oil. Eventually taking delivery of the oil is neither here nor there. 

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  1. On the ‘Reason’ surface, speculation is innocent investment.

    In reality, “speculation” is a behemoth like Goldman buying futures on 100-1 margin with $50 billion on account.

    Luckily – the Enron Loophole was closed in July 08 over a Bushpig veto. Commodities are ripe for speculation – I am doing it right now on natural gas – hoping the bottom is in at $3.36 per MBTU – off 70% of its pre-Bush support.

  2. I might suggest Matt Tiabbi’s article in RS for a more interesting perspective.

  3. Onion speculation was banned in 1958. Onion prices have had as high volatility, or greater, than other commodities since then.

    Banning speculation does not reduce volatility.

  4. One must assume from shrike’s comments that he both opposes cap-and-trade, and in fact opposes the entire idea of peak oil and oil scarcity.

  5. Damn John Thacker beat me to it.

    But I come with a link.

    Check out the graphs about 40% of the way through.

  6. Well, a “growing number of critics” disagrees with you, Ms. M-W. Like there used to be two of them, and now there’s three. So that proves you’re wrong.

  7. The government should just quit beating around the bush and put a cap on the percentage of gain an investor can make on oil futures, forcing a sale when the price climbs to that point.

  8. The government should just quit beating around the bush and put a cap on the percentage of gain an investor can make on oil futures

    They can call it a “capital gains tax” or somesuch.

  9. Onion speculation was banned in 1958.

    It’s just gone underground. But I’ve said too much.

  10. Cantarell is in precipitous decline, oil sands investment dried up, opec has squeezed the taps, public debt in the US is threatening the vialibility of the dollar and tensions are highest in the biggest oil producers in the world…and its speculators that are at fault…if I was buying oil, i’d be worrying about the supply side too even in this down economy.

  11. It’s just gone underground.

    Oh, how droll, old chap!

  12. Speculators who buy a commodity low and sell high act to raise it’s price when they buy and lower it when they sell, reducing volatility in the market. We should be thanking them, not scapegoating them.

    Speculators who buy high and sell low increase volatility in the market… but should we punish them? Why bother, when they’ve already thrown away a bunch of money and punished themselves?

  13. The perceived problem may not lie so much with “speculators” as with the individual investor and their advisors looking for the next big commodity play buying oil and gas ETFs because Jim Cramer said they’re cheap. The funds flowing into these are so overwhelming the gas market with levels of production needed to keep pace with the contract orders from the ETFs that far exceed actual need that it can’t help but keep the price artificially low. Possibly good for the consumer now, but when these markets swing the other way, what then? A repeat of last summer’s fuel prices?

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