Posted on 05/25/2008 7:16:24 PM PDT by Fred
German leaders are to propose a worldwide ban on oil trading by speculators, blaming the latest spike in crude prices on manipulation by hedge funds.
It is the most drastic proposal to date amid escalating calls from Europe, the US and Asia for controls on market forces, underscoring the profound shift in the political climate since the credit crunch began. India has already suspended futures trading of five commodities.
Car lights are seen streaking past an oil rig extracting petroleum Speculators are split, with some betting that oil will fall
Uwe Beckmeyer, transport chief for Germany's Social Democrats, said his party would call for joint measures by the G8 powers to prohibit leveraged trading on energy contracts. "It's an extreme step but it has to be done," he told the Berlin media.
Mr Beckmeyer said the last 25pc rise in the price of oil to $135 a barrel had nothing to do with underlying supply and demand. “It’s pure speculation,” he said.
Oil has doubled in price over the past year and the concerns are echoed on Washington’s Capitol Hill where irate Democrats want rules compelling traders to take delivery of crude oil, a move which would paralyse the market.
There is now broad support in Germany for a clampdown on “locust” funds. President Horst Köhler said modern capitalism had turned into a “monster”, bringing the entire financial system to the brink of collapse this spring.
The Social Democrats form part of Chancellor Angela Merkel’s ruling coalition. Her own Christian Democrat Party shares concerns that funds are causing a fresh bubble in commodities, risking further havoc for the real economy and society.
In the long run, any scheme to ban futures trading would be extremely hard to enforce as the markets would tend to move offshore. Hedge funds are probably not the culprit in any case.
Speculators are split, with some betting that oil will fall. The mass of money coming into the commodity indexes is mostly from pension funds and long-term investors.
Oil markets are likely to shrug off the moves as political posturing, instead focusing on Norway’s suspension of crude output at three platforms, cutting supply by 138,000 barrels a day.
The news comes as Lloyd’s Marine Intelligence reported Opec oil shipments fell by 1m barrels per day in the four weeks to May 4, confirming suspicions that the market has been chronically short of supply.
The sheer idiocy is mind boggling.
Watch oil prices spike after speculation is outlawed. Make anything illegal and it becomes much more lucrative.
Just pass a bill allowing more offshore drilling plus in ANWR and the speculators will go bankrupt overnight.
Also resulting in the immediate drop in the price of gasoline.
America is like the idiot husband who finds his wife in bed with another man then puts a gun to his own head.
His last words? “Don’t laugh,you’re next!”
This thing is being fueled by vultures like Pickens who claim that oil production has peaked. More likely in 2040 than today. But capital runs scared.It seems we have a bubble, and the money supply has outrun the ability of government to control it.
Since speculators neither use nor store oil..they must sell it upon delivery. So enduser demand or lack of demand drives the price. If the speculator guesses wrong..they loose. It is crazy to try and cut that off. Every other commodity survives speculation...so can oil.
Is it any wonder they were on the losing side in both World Wars? They were not, and are not, ready for prime time.
Stay tune for the Senate’s lame plan along the same lines.
speculators are what makes the market work...without them, no market at all....who are the hedgers going to sell to? Not to mention the speculators add the needed liquidity and efficiency to markets. The world is governed primarily by idiots......we would all be better off if they passed a law banning themselves.
Yeah, it's from the folks who think speculation has had no effect on the price of oil. You among them?
I think its probably had an effect.
The problem is that there is a lot of sheer idiocy that thinks there is just a bunch of people gambling on oil, and that they serve no purpose. They serve a huge purpose. They take on price risk. Speculators bear the risk of rising or lowering prices. Where does that risk come from? They assume it from people who don't want it. For example, oil producers want to know what price they will get for a large portion of their oil so they can plan their capital expenditures. So what do they do? They pass the price risk on to speculators who are willing to take it on because they think they know the direction prices will go.
If you ban speculators, you will force price risk back on to people who don't want it. What will the result be? Less capital flowing into new wells, which in turn will mean less oil produced, and long term, higher prices.
What purpose would that serve? One of the results would be to reduce speculation. Speculators take on price risk for people who don't want it (producers). You reduce speculation, you reduce the ability of people who don't want price risk to pass it to someone else. If producers can't hedge (pass on price risk) they will invest less capital in new wells.
That right, and no oil and no cars. Yes sure!!
Rational speculators also provide two important services: liquidity, and they also keep prices from moving too far away from fundamentals.
Separate the wheat from the shaft! Some of you people think that a silly market created to gamble, really has anything to do with supply and demand. Just what was happening before these silly speculator markets were created. Are maybe it says that on the ninth day god created speculators. That has to be it. They sure aren't mentioned anywhere else and anything I have signed on to.
What the government has created the government, ie, the people, can change.
One of the most concise defenses of speculators I’ve ever seen.
Too bad even many people on this site, of all places, are calling to ban them.
Why do you insist on giving your opinion on a topic you don’t understand? And even worse, dismissing the reply of a poster who actually does understand it?
Surely you didn't type that with a straight face.
Show me how the price hasn't moved too far from market fundamentals when oil consumption is down 8% over this same time last year, and the price of a gallon of gas rises three times in one day at every service station by my house, because the speculators drove oil up nearly $5/barrel on Thursday.
It's chaffe and try posting about something you have some knowledge about next time.
I’d bet you have some sort of degree in under water basket weaving. I’m I correct??
No it’s shaft, the speculators have been giving it to the people of this county for a while, and I for one have really gotten sick of it.
No, actually econ.
What’s your degree in?
And from your posts, it’s pretty clear it’s not English.
Are you talking about global consumption? I'd love to see your data. As far as I can tell, no global consumption figures are available for 2008.
If you're talking about US consumption, that's irrelevant. The price of oil is determined by global supply and demand, not domestic demand.
and the price of a gallon of gas rises three times in one day at every service station by my house, because the speculators drove oil up nearly $5/barrel on Thursday.
If speculators are driving up the price, how come crude stocks aren't rising?
For oil prices to be irrationally high, someone has to be buying up oil and pulling it off the market. I see no evidence of that. If you have some, I'd love to see it.
Which makes me wonder, Did Nader steal the idea from the Germans or did the Germans steal the idea from Nader? Or maybe not-so-great socialist minds think alike.
"irate Democrats want rules compelling traders to take delivery of crude oil, a move which would paralyse the market."
First off ... you can take delivery of the crude if you want...there exists a whole town in Texas that does oil storage for clients world wide...biggest tank farm in the world....and most other commodities have similar storage facilities.
I guess these idiot politicians want to shut down ETF instruments...and so incur the wrath of millions of 401(k) holders...not to mention union pension funds.
and stand by for a BIG JUMP in electricity prices...most utilities buy forward contracts on oil / gas / coal to make sure they have good prices in the fiuture.
Remember couple of years ago when the electric utilites were forced to buy natural gas on the spot market...and electricity prices went through the roof.
. Also a lot of transport companies buy petrol /diesel on the futures market for their trucks - trains.
Adxams Smith's invisible hand will administer a severe beating to these misguided fools.
Speculation is at the core of capitalism. Anyone on freerepublic who is in favor of “reasonable” limits on speculation is a Marxist who would prefer to have central planning to capitalism.
I could go on about speculators providing liquidity to hedgers, helping the market to more accurately predict shortages/surpluses, etc. But I shouldn’t need to justify the role of speculators to my conservatives on freerepublic. They should know that central planning is the only alternative and that speculators should have TOTAL FREEDOM.
Did I mention anything about central planning? My point was that speculation has most certainly affected the price of oil.
Hedge fund speculation by Amarath advisors caused the price to go through the roof.
The purpose is not to aid the survivability of oil.
If it were not artificially propped up by ensuring its monopoly as an energy source, I'd be against it as well.
The US has had central planning for over 70 years.
Maybe longer.
I have yet to see threads on FR about set aside of almost forty million acres of fram land each year.
Isn’t the FED a Central planning agency?
The US is not a capitalist country.
So, Central Planning in some areas justifies central planning in others?
You know nothing of what you talk about. Amaranth wasn't even betting on the direction of oil, they were betting on the price differentials between certain natural gas delivery contracts.
Who said anything about oil. Amaranth specifically and directly caused nat gas prices to double. All of it was speculation.
So? You throw around a lot of hyperbole, but have yet to give any clear reasoning why you think this speculation thing is so bad.
So I guess you have specific and direct support for that statement?
Try your childish insults over at DU!
http://www.star-telegram.com/104/story/651928.html
Gives some insight about Amaranth.
The same thing is happening with oil now, it’s simply spread across many institutional buyers. Demand certainly is a big part of it but speculation cannot be shrugged off. This is costing billions of people directly. When that happens govt’s will take notice and they will get involved and it won’t be good for anyone.
Just another form of Nationalizing a Private industry.
It won’t work. Because then, dictatorships take the rest of the World hostage because it gives them unequivocal power to control the market and the price. And it always goes up, not down.
Like Chavez, he gives his underlings cheap gas to keep them happy and him in power, and then, sticks it to the rest of the World who have to buy his oil. (Saudis included.)
There is no one, so called ,reasons for the futures market when it was established, that is valid in todays world. It is nothing more than a gambling house scam on the consumer.
What’s your solution after you shut down the free market?
I believe it’s called Nationalist Socialism.
(Talk about directing other FReepers to DU!)
Rather loose usage of the term industry. The futures market is gambling, I buy something today, betting it goes up tomorrow, I buy at todays price, betting a price goes down tomorrow.
There were no computers and very little reliable transportation when it was established. That is not the case in a world wide market and electronic instant communication world.
The futures market and speculators are living in a horse and buggy world. They no loner serve any purpose, except to shaft the consumer.
Did the world shut down when the livery stables went out of business, it is a new world.
I would guess then that includes the Stock Market. We should close that down also because because it’s an unecessary gamble for people who are making a living just trading stocks.
After all, it is all about “gambling” isn’t it? But “Gambling” is taking money and risking the outcome of random numbers.
Speculation is not even close to that. It is taking commodities at one price, using knowledge and information in the free market system, that the price will increase at a later date, rendering a profit to the risk taker. Kind of like Farming, Commercial Fishing, etc....
To remove speculation from the free market renders it no longer a free market. Which also tends to drive prices up over all because the element of competition has been removed. The risk factor is transfered to the producer which further diminishes supply.
I'm sorry, you really know nothing of the subject, and I suggest you learn.
Let me ask you something: Would you ban the insurance business? An automobile insurer is simply making a bet on how many of the people they insure will get in accidents. It's just speculation by your standards. Except, of course, they offer a valuable service. In exchange for you paying them a hefty sum, they remove the risk that you will take a 200K hit that you can't afford.
Speculators in commodities futures are just insurers. The oil producer doesn't want to bear the price risk. Doesn't want to bear the chance that oil goes way down between when they start a project and when they extract a lot of the oil. The speculator who goes long oil futures so that the insurer can go short is no different than the automobile insurer.
Your ignorance is simply astounding, and you ought to be embarassed that you are speaking so authoritatively about something you are so simply wrong about.
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