Skip to comments.Instant view: Obama team to probe oil market manipulation (What a Laughable Deflection)
Posted on 04/21/2011 1:19:52 PM PDT by MissesBush
NEW YORK - President Barack Obama said on Thursday the U.S. attorney general was assembling a team to root out any fraud and manipulation in the oil markets that might be contributing to higher U.S. gasoline prices.
Earlier, the Justice Department announced the working group, which will include representatives from the Commodity Futures Trading Commission, the Federal Trade Commission, the Federal Reserve Board, the Securities and Exchange Commission, as well as the Departments of Agriculture, Energy, Justice and Treasury.
Rising fuel costs have raised concerns about the strain on the economic recovery, with U.S. gasoline prices now averaging over $3.80 a gallon. Fuel costs that soared to over $4 a gallon in 2008 set off public outcry in the United States and caused motorists to scale back driving.
U.S. crude oil prices shot to over $113 a barrel this month, the highest level since September 2008, lifted in part by concerns about supplies due to unrest in Libya and the Middle East.
Following are comments from analysts:
CARL LARRY, PRESIDENT, OIL OUTLOOKS, HOUSTON, TEXAS
"Here's the interesting thing, they are going to have a hard time rooting out speculators when even Dodd-Frank can't determine what a speculator's limits should be.
"Oil is financially a free market so people are expected to make money at some time, so short term gains seems to be odd wording if they are thinking about levying higher taxes on capital gains in oil that may be an avenue, but it would get a bit messy for index funds.
"So an interesting idea, but hard to imagine a smart way to implement it that would make an immediate difference."
PHIL FLYNN AT PFGBEST IN CHICAGO
"This is political cover for a failed energy policy. People are angry at the prospect of $4 gasoline and Obama needs a scapegoat. Oil companies have been blamed too many times so now it's the turn of the speculators.
"Rather than searching for a boogeyman I can tell the President why oil prices are so high. There are obvious fundamental reasons for it: We've got the biggest threat to oil supplies since the Arab oil embargo while the U.S. dollar has plummeted as a result of the budget deficit and Federal Reserve policy.
"Really, if the president wants to investigate anyone to find why oil prices are so high he should be investigating the Federal Reserve. QE2 has weakened the currency and stoked inflation.
"I am concerned. This isn't the kind of investigation you expect in America, it sounds more like something out of Russia."
GUY CARUSO, FORMER EIA HEAD AND ENERGY ANALYST AT THE CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES
"Let it be noted that the 2012 campaign has begun, if there was any doubt."
"Obviously, it's always a good thing to have oversight and competent people looking at these things."
"I would be surprised if there was anything uncovered that was systematically affecting the price of gasoline. I'm not saying they wouldn't find somebody in Northwest Washington, DC charging $5 a gallon and they shouldn't be."
CHRISTINE TEZAK, ENERGY ANALYST AT ROBERT W. BAIRD & CO.
"It's easy and logical for the administration to promise increased vigilance and oversight, but it's not clear to me they will find anything."
"Importantly the AG's memo today admits 'It is also clear that there are lawful reasons for increases in gas prices, given supply and demand.' With the CFTC in a much more aggressive regulatory posture than in 2008, I'm hard pressed to see where the administration will be able to find "speculators" to hang the blame on."
"No easy answers there will mean will have to get back to the hard fundamentals - like understanding that oil is global and that as a nation we've chosen to be hooked on it, because we do prefer the easy least cost alternative!"
MICHAEL GREENBERGER, EX-CFTC DIRECTOR AND UNIVERSITY OF MARYLAND LAWSCHOOL PROFESSOR
"President Obama knows there is major outcry about rising oil and gasoline prices, and this group he's setting up is going to be all over the issue. They will have both the prosecutorial expertise and the market expertise to go after the kind of manipulation that may be going on in energy markets."
"I think it's an important step. It should have a deterrent effect on excessive speculation in the market. But it should also be coupled with implementation of Dodd-Frank in a way that strengthens position limits in energy markets."
"There are already several investigations into these markets, but we haven't seen the will or enforcement to accelerate them, and I think now that will happen."
"Brian Hunter, who was fined $30 million today (for natural gas market manipulation), is really the poster boy for the kind of things that may be going on in these markets and could be rooted out by this new group."
TIM EVANS, ENERGY ANALYST, CITI FUTURES PERSPECTIVE, NEW YORK
"You can almost set your watch on these kinds of things. Every time we see a significant rally in oil prices, people start calling their legislators and encouraging them to launch an investigation.
"Will they find evidence of manipulation? I have no idea. The vast majority of past investigations have found no evidence of wrongdoing. Many times somebody gets hurt by a price move, the CFTC investigates and they find it was a market doing what markets do and someone got caught short or got caught with a long position in a falling market and got hurt that way."
AMERICAN PETROLEUM INSTITUTE CHIEF ECONOMIST JOHN FELMY IN WASHINGTON DC
"Strong growth in oil demand around the world and tighter supplies in part caused by the Libyan conflict have produced the higher gasoline prices the administration is about to investigate."
"The administration's own experts in the Energy Information Administration have been saying as much, and the FTC which has been closely tracking gasoline prices and markets for more than a decade has said nothing to indicate fraud is a factor in today's higher prices."
"If the administration wants to help consumers, let it work to turn around the decline in U.S. oil production by eliminating the obstacles to increased development its own policies have created."
Now we will see plenty of Republican politicians jump on the anti-oil prodcution band wagon.
Wait for it . . . wait for it . . .
just the next phase in his War on Energy
BOR the TV idiot is with Obama on this.
This is a joke BECAUSE:
NOBODY IS CHECKING THE INSURANCE REGISTRY OF SHIPS.
Ships are being used as shadow storage. Unless they are looking into the shadow inventory then Obama is just as complicit.
Need the text and soundbite of Obama stating that the price of fuel MUST go up to make alternative energy more price competetive.
There was some guy on BOReilly last night that explained exactly what Obama could do.
Obama will send a turtle to install a unicorn and spend a zillion doing it.
Odds that there will be a skeptical geologist on this investigation team?
The two single biggest reasons the prices at the pump are rising: speculation and a weakening dollar. That's it.
"There have been 30 or more such investigations, including the one the Obama Injustice Dept launched last month, and none of them have ever turned up price manipulation.
That's just not true.
I am surprised Obama took so long to start this witchhunt. Speculators are a watchword of the left. It is impossible to have any reasonable interaction with the left on energy prices. They see conspiracy everywhere except of course where it actually occurs (labor cartels, Democrats, trial lawyers, Obama, environmental activists, ...). The left is positive that the increase in oil and gas prices is totally due to evil speculators along with Cheney and Bush.
Why not have a geologist skeptical of Saudi reserves / production claims on the team?
Why? Because he’ll say DRILL. DRILL DESPERATELY. There is no other hope.
Which is accompanied by a steady beat of “green economy” fraud. Will they be probing this manipulation of the market using fraud?
Wasn’t Obama caught stating they had to use price signals, i.e. artificially inflating prices?
Excuse me, but what about the drop in the value of the dollar. Since oil is priced in US Dollars and the dollar has lost value, the price of oil increases. So who is really responsible for the loss of the US Dollar’s value, could it be the One who increases our debt?????
So, when do the cuffs go on Ben Bernanke?
He need only look into the mirror to find the manipulator.
Yes, it is true. No Congressional investigation has ever turned out evidence of oil company price manipulation. Sorry. And yes, when you have demand going up but supply remaining stagnant, prices will go up. And demand has been rising with supply remaining stagnant. Speculators wouldn’t make a dime off oil if they couldn’t bet that demand would increase and supplies would tighten. By the way, the psychological impact of unrest in the Middle East also is enough to drive up the price of oil even if supply doesn’t change.
He fights against the evil capitalist oppressors and ushers in a socialist utopia --in his mind only and in the minds of the useful idiots that buy the lies he sells from his telepromptered leftist lemonade stand.
The marxist is an epic failure.
While that may be true, that doesn't necessarily mean the argument is wholly without merit.
In the summer of 2008, in the face of global shrinking economy and at a time of increased oil production, prices continued to rise. How is that possible absent some kind of market manipulation?
Now, maybe that manipulation is just the result of unusual, but honest, market pressures. Or, perhaps it's something else. Personally, in 2008, I thought it was "something else", and I think it's possible it's something else today, especially considering where supplies currently are.
Having said that, I think Obama would be much more likely to find a goblin if he looked at the main reason for price spikes - a falling dollar. Of course, the goblin he'd find in that mess looks him square in the face while shaving every morning.
There is manipulation of the market. It is the FED! They printed a bazillion pieces of paper backed by unicorn farts. And as we all know, unicorn farts don’t go as far as they used to.
I would also add, there is money to be made in many other commodities as well as in the equity markets. The incentive to speculate on oil isn’t as readily present as it was back in 2006-08. This is a small part of the current problem. The real cause is a recoverying world economy squeezing demand and unrest in the Middle East. If the US had more of its own supply, those factors wouldn’t be having such an impact here in the US.
Still waiting for someone to get on Bumma’s face, IN PUBLIC and call him what he is, A LYING SACK OF $H-T!
The trading tactics described in your linked article could only affect prices by a fairly small amount for a few days at most. Long term oil pries are determined by current supply and demand, trends in supply and demand growth expected for the next few years, and perceived geopolitical risks to oil supplies. Right now total excess oil production capacity is at most only about 6% of current consumption. In my view, that’s the tightest supply/demand balance of any major consumer product in the world.
The main reason for that tight balance is simply that it’s so technically challenging and costly to increase oil production in the large quantities that the world needs. In the long term, it’s probably going to be much easier to increase the fuel efficiency of motor vehicles and expand production of biofuels than to increase the production of crude oil.
He can solve it by getting the dollar back to health and stop the speculation. In fact take it off the commodities market altogethr.
They've got a whole bunch of oil and Obama promised we'd be their best customers, yet they're not selling us enough and as cheaply as we'd like. It's all their fault.
Maybe that Kennedy guy I saw on T.V. can reach out to Hugo Chavez and get us some crude on the cheap.
Congress should investigate him for how he manipulates the truth!
Who was it on BOR last night that said go to the commodity futures trading commission? I hate BOR’s show anymore but Obama’s clowns are not smart enough to get out of a paper bag so one of his flunkies stole the idea.
This investigation is so dumb. Speculators actually help to keep the price of oil down by buying it when prices are low (as in early 2009), storing it in oil tankers, and then selling it when prices are higher. That selling into strong oil prices contains the price of oil and prevents event sharper spikes upwards. See my post #24 for the real drivers of long-term oil prices (...which I’m sure you know.)
It's all that Free Fed Money looking for a job.
It can't earn anything sitting on the bank's balance sheet and no borrowers. PLUS the Fed bought every bad debt the Insurance companies and large brokerage houses were holding as well.
All of that money is at the "top" of the system and, due to the consumer being shut down and small business unwilling to invest...it's not gonna go anywhere besides the stock and futures markets.
You had me right until the last sentence. As I said, it's a global oil market. So, even if we obtained our oil only from our own natural reserves, the price of that oil would be entirely dependent on the global oil market.
There are some additional transportation/logistics costs associated with oil importation sure that would be largely eliminated if we only used US oil. But, remember that our two largest foreign suppliers of oil does not come from the middle east, but rather from our neighbors to our direct north & south.
Dunno. Can’t stand that show and do not watch it? The Rays won.
If Obama announced his resignation that would probably bring gas to $2.30 within an hour.
Oh, please Barry, do it for us!
But adding that US oil into the world supply mix, esp. being a stable source of production, would help bring down the world price of oil.
Shadow inventory is not the only problem. Nor is illegal activity in the market. Probably the biggest problem (elephant in the room) is the fact that non users like foundations, universities and unions among others can take huge commodity positions for food and fuel they never have any intention of using. This could be corrected by changing the rules on commodity purchases to restrict the size of commodity purchases by non users. Only end users like airlines (oil), cereal manufacturers (grains), etc. should be permitted to buy large dollar amount futures.
In addition, the president could threaten to pull oil out of the Stragetic Petroleum Reserve (and not even do it) to put a scare into the oil speculators.
There's plenty of oil kept off the market all around the world.
Every time crude goes through the roof and people feel it at the pumps, they sing this song.
You want to get to the bottom of the high gas prices? How about allowing off-shore drilling again, or at least announcing that at some point in the foreseeable future there will be off-shore drilling? Or how about ending that incoherent, sad charade in Libya, and letting the people and their government come to terms with each other, either by civil war, negotiations, or their own political processes.
It’s more than easy monetary policy. Right now total excess production capacity in the entire world is at most about 6%. Meanwhile consumption is growing at about 1.2% annually, assuming that higher prices have slowed demand growth from rates above 2% in the last two years. You don’t need to be a math wizard to figure out that without a substantial increase in production capacity happening very soon, the oil market is going to be super tight in just a few more years...down to perhaps only 2% excess capacity. Those trends in supply and demand, along with the falling dollar, are why prices have been rising and will probably continue to rise for a few more years.
That makes sense. What does not make sense is the quickness of the rise w/o a sudden increase in global market. What nobody sets out is - When gas was $3.00 per gal who was getting the $3 and when it's $4, who is getting the $4.
Isn’t it interesting that the off all the quotes in the article, it is the law professor that has the stupidest most unrealistic answer?
But who gets the increase in price, - the wellhead, the oil company or the speculator?
It’s been a while since I checked this out, so I wouldn’t mind if someone else researches and comments (I have to go to work in a few minutes or I would do it), but I seem to recall the following. In Jan. of 2007 a futures market mechanism was put in place that made it much easier to purchase large positions in oil futures (and perhaps others as well). I think the price was $4 million each. This made it a lot easier for foundations, universities, unions and other institutional investors to buy big and distort the markets. This has to be pared down again. I don’t know how it made purchases easier, perhaps someone here knows the answer.
The only probe he will get is maybe by a guy named Larry.
It’s my new tag line the other one was old.
When the futures contracts settle, only the end users and investors who actually store physical oil hold the contracts and take physical delivery of the oil. So ultimately it is the end users and investors who determine the actual cash price paid for oil. All those institutions who trade futures only affect the price of futures contracts and have a negligible effect on the cash prices paid for oil.
This investigation is so dumb. It’s just a political spectacle to take some heat off the administration and divert blame onto Wall St. and “oil speculators.”