Jan. 11, 2009
Did Speculation Fuel Oil Price Swings?
60 Minutes: Speculation Affected Oil Price Swings More Than Supply And Demand
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Play CBS Video Video The Price Of Oil The historic swings in oil prices last year were the result of financial speculation from Wall Street and not supply and demand. Steve Kroft investigates.
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(AP Photo/Hasan Jamali)
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"You'd have to say Enron," he replied. "This was something they desperately wanted, and they got."
Greenberger, who wanted more regulation while he was at the Commodity Futures Trading Commission, not less, says it all happened when Enron was the seventh largest corporation in the United States. "This was when Enron was riding high. And what Enron wanted, Enron got."
Asked why they wanted a deregulated market in oil futures, Greenberger said, "Because they wanted to establish their own little energy futures exchange through computerized trading. They knew that if they could get this trading engine established without the controls that had been placed on speculators, they would have the ability to drive the price of energy products in any way they wanted to take it."
"When Enron failed, we learned that Enron, and its conspirators who used their trading engine, were able to drive the price of electricity up, some say, by as much as 300 percent on the West Coast," he added.
"Is the same thing going on right now in the oil business?" Kroft asked.
"Every Enron trader, who knew how to do these manipulations, became the most valuable employee on Wall Street," Greenberger said.
But some of them may now be looking for work. The oil bubble began to deflate early last fall when Congress threatened new regulations and federal agencies announced they were beginning major investigations. It finally popped with the bankruptcy of Lehman Brothers and the near collapse of AIG, who were both heavily invested in the oil markets. With hedge funds and investment houses facing margin calls, the speculators headed for the exits.
"From July 15th until the end of November, roughly $70 billion came out of commodities futures from these index funds," Masters explained. "In fact, gasoline demand went down by roughly five percent over that same period of time. Yet the price of crude oil dropped more than $100 a barrel. It dropped 75 percent."
Asked how he explains that, Masters said, "By looking at investors, that's the only way you can explain it."
The regulatory lapses in the commodities market that many believe fomented the rampant speculation in oil have still not been addressed, although the incoming Obama administration has promised to do so.
Produced by Leslie Cockburn
© MMIX, CBS Interactive Inc. All Rights Reserved.
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See all 346 CommentsTwo days later the price of gold goes up 20%. His ring has raw materials worth 20% more. He could melt down the ring and sell it on the open market and make a profit.
Or he can increase the cost of the ring, since the market now reckons it''s worth more.
This is exactly what happens with gasoline retailers, since the raw material they buy (wholesale gasoline) is publicly traded.
When prices drop, jewelers and gas station owners try to cling to their prices, and will only drop them if competitors do also. And this is what happens, as gasoline (excluding tax) now costs about 65% less than it did last July. For price drops this large, you have to believe either that retailers conspired to lower prices, or that they were competing for market share. There is typically a few weeks'' lag between falling oil and gas prices, and although oil is the major price determinant, there are a number of other factors that affect gasoline prices.
no one seems to have a problem when thier 401K returns dividends paid by energy mutual funds.
I bet the same people who did the 60 minutes report has some.
Israel was supplying hardware to Georgia to support another political boundary, yet, the Georgian president supported the US heavily...
Freeze Europe, thanks to Israel.
Why don''t they acknowledge their own responsibilities to their own nation-state?
Why? Because they might not last that much longer if they keep fighting like a bunch of soccer hooligans.
1) Prices didn''t start climbing until the 4th year of the Bush administration.
2) US companies produce around 5% of the world''s oil. OPEC 40%. Russia 12%. The price drop has cost OPEC $3.4 billion/day, Russia $1 billion/day. Why do you think they have allowed this to happen?
^ agricultural commodities shot up because the cost of fertilizers and transportation shot up due to their dependence oil prices...silver and gold shot up because ..
Nice try. Ever look at recent demand growth for some of these materials? This is called, rationalizing your conclusion.
^ like, for instance, how large buys orders in the oil markets create the perception of high demand and drive prices up?
Why did they buy? Speculators can just as easily make money by selling. You dismiss it all as a conspiracy, yet you probably don''t think that the dotcom or housing bubbles were conspiracies. I think the world is a little more complicated than your comic book.
^ That is called being an apologist for the hedge funds
I don''t support speculation if it causes hardships and if abuse can be demonstrated. That needs to be fixed. But the case for speculation is by no means proven, as the article itself says. You are obviously very uninformed about oil price markets, you''re angry about it, and you want a villain. You don''t have the tools to do the analysis so you discard evidence and say: "It''s all Bush''s fault; the speculators did it."
^^^ the end of the Bush years of "Don''t worry, steal happy!" approaches
2) Many commodities, from gold to wheat, behaved similarly to oil over this time frame.
^^^ agricultural commodities shot up because the cost of fertilizers and transportation shot up due to their dependence oil prices
^^^ silver and gold shot up because of mankind''s lingering belief that they represent safety in uncertain times - such as those brought about by increasing global hunger caused by soaring energy prices caused by rampant speculation
The author fails to note that market psychology is at least as important as any supply/demand arithmetic in pricing commodities
^^^ like, for instance, how large buys orders in the oil markets create the perception of high demand and drive prices up?
[...]
The futures traders did not buy as a result of some evil plot; they bought because they perceived ever increasing demand [%u2026]. The traders did not create high prices; the perception of future high prices in effect created the trades. People are confusing cause and effect.
^^^ That is called being an apologist for the hedge funds and others whose speculation put hundreds of thousands of Americans out of their homes because they couldn''t afford their mortgage payments AND the commute to work.
Posted by Postoak5 at 11:22 PM : Jan 14, 2009
1) If speculators can control prices, how is it that prices have fallen by over 70%. Doesn%u2019t it say that speculators can%u2019t conspire to control markets?
2) Many commodities, from gold to wheat, behaved similarly to oil over this time frame. Why do you single out oil, whose price behavior was so obviously a subset of the broader global commodity price trends? The inference being made is that the oil industry is somehow guilty of high oil prices, but that the recent high prices of silver, wheat, and many other commodities were the result of normal market forces. I see no evidence at all that oil markets behaved fundamentally differently than most other commodities.
The author fails to note that market psychology is at least as important as any supply/demand arithmetic in pricing commodities, or stock prices for that matter. The wisdom of the day was that commodity price pressure was going to increase for the foreseeable future because of new and (perceived) growing developing world demand. So, just as with homes, or gold prices, or dot.com stocks, a buying fever developed. The futures traders did not buy as a result of some evil plot; they bought because they perceived ever increasing demand and were swayed by the prevailing market psychology. The traders did not create high prices; the perception of future high prices in effect created the trades. People are confusing cause and effect.
Check their news paragon oil co - especially the November 27 2007 and link to contact congress.
As this article explains - congess did not pass legislation to stop the manipulation. If they stopped allowing margin on oil speculation oil prices would go down more.
What I want to know is what happens if they cannot sell it for more than they paid, like more recently I presume. Do they sell it at a loss? If not, how does a pencil neck capitalist tool wearing a bright white long sleeve shirt (and silk tie with matching cufflinks) take delivery of barrels of oil?
Perhaps he stores them in his Manhattan apartment right next to the cheese and wine and his copy of Madoff''s book, "Getting Rich At Any Cost", and waits for the price to go back up.
Despite the fact that prices were recently driven by paper buyers rather than users, I think it is almost inevitable that we will see prices spike once again because of supply fears rather than paper demand!
If you are into the macro economics behind the price of oil feel free to visit my blog at http://www.regular87.com
1) It was Wendy Gramm, as head of the CFTC and wife of TX Senator Phil Gramm, who wrote the Enron Exemption Rules that allowed Enron to manipulate California and other states energy prices.
2) Enron made over $40 billion the first year Gramm''''s "Exemption Rules" were in effect mainly in California. Major news networks played Enron broker audiotapes discussing this theft.
3) Ms. Gramm quit as CFTC Head, 3 months after she had her Enron Exemption Rules legally approved, and went to work for Enron as a Board Director and was paid $1.4 to $1.8 million by Enron.
4) Ms. Gramm pulled the same conflict of interest scam with Iowa Beef, and other commodity companies who also paid her off as a Board Director.
5) In 1996, Enron''''s CEO Ken Lay became her husband''''s Phil Gramm''''s Presidental Committee Director and he contributed $1 million to the Gramm''''''''s Mason University think tank. Plus other cash disbursements via campaign contributions.
6) Gramms bought a 1000 acres Texas ranch paid for by Enron and Iowa Beef.
Now for the investment bank payoffs her husband Senator Phil Gramm received for voiding the Glass-Steagle Act? I have only scratched the surface here about the avaricious Gramms.
60 Minutes dropped the ball not reporting the whole truth on oil speculation which they should have known!
1) It was Wendy Graham, as head of the CFTC and wife of TX Senator Phil Graham, who wrote the Enron Exemption Rules that allowed Enron to manipulate California and other states energy prices.
2) Enron made over $40 billion the first year Graham''s "Exemption Rules" were in effect mainly in California. Major news networks played Enron broker audiotapes discussing this theft.
3) Ms. Graham quit as CFTC Head, 3 months after she had her Enron Exemption Rules legally approved, and went to work for Enron as a Board Director and was paid $1.4 to $1.8 million by Enron.
4) Ms. Graham pulled the same conflict of interest scam with Iowa Beef, and other commodity companies who also paid her off as a Board Director.
5) In 1996, Enron''s CEO Ken Lay became her husband''s Phil Graham''s Presidental Committee Director and he contributed $1 million to the Graham''''s Mason University think tank. Plus other cash disbursements via campaign contributions.
6) Grahams bought a 1000 acres Texas ranch paid for by Enron and Iowa Beef.
Now for the investment bank payoffs her husband Senator Phil Graham received for voiding the Glass-Steagle Act? I have only scratched the surface here about the treasonous Grahams.
60 Minutes dropped the ball not reporting the whole truth on oil specualtion which they should have known!
Despite the fact that prices were recently driven by paper buyers rather than users, I think it is almost inevitable that we will see prices spike once again because of supply fears rather than paper demand!
If you are into the macro economics behind the price of oil feel free to visit my blog at http://www.regular87.com
Despite the fact that prices were recently driven by paper buyers rather than users, I think it is almost inevitable that we will see prices spike once again because of supply fears rather than paper demand!
If you are into the macro economics behind the price of oil feel free to visit my blog at http://www.regular87.com
come one, this is supposed to be balanced journalism. you know as well as I do, that if Bush would have signed the de-regulation bill, the crux of the this story would have been oil-man bush lets speculators run wild. instead, nary a mention of clinton''s name.
How is it that when I hedge my future fuel costs in the exact same way big industry players do, that I become an evil ''speculator'' or ''part of the problem'' that needs to be regulated, maybe even taken out of the game completely as if the banks I depend on to make this possible are somehow treasonous in their efforts?
Granted I don''t take delivery, but I am using meager gains now to offset the higher priced gas i will assuredly be buying next year.
"It was created so that farmers could gauge what their unharvested crops would be worth months in advance, so that factories could lock in the best price for raw materials, and airlines could manage their fuel costs..."
pavoldi(dot)com
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