Skip to comments.Yes, government policies could help bring down the price of gas -- today
Posted on 03/13/2012 3:16:55 PM PDT by tobyhill
With the price for a regular gallon of gas topping $3.80 on Monday, angry politicians are blaming the higher prices on speculators and greedy oil companies.
On Friday, President Obama announced that he was making sure that my Attorney General is paying attention to potential speculation in the oil markets. 23 Senators and 45 congressmen, all Democrats except for one independent, are calling for urgent action against the speculators they hold responsible.
These members of congress want the Commodity Futures Trading Commission to use its new regulatory powers under a law Obama signed two years ago to limit the amount of oil that speculators can buy.
This isnt a new concern.
During the 2008 presidential campaign, Obama campaigned against "the special interest politics that put the interests of Big Oil and speculators ahead of the interests of working people," and surely implied that an Obama administration would end these high prices by clamping down on speculation.
Possibly that is why a new Washington Post/ABC News survey released on Monday shows that soaring gas prices have taken a toll on Obama, with 50 percent of American's strongly disapproving of Obama's economic performance-- the highest in the poll's history.
Unfortunately, neither the Democrats in Congress nor Obama appear to have a clue how markets work.
(Excerpt) Read more at foxnews.com ...
Just an announcement that we are massively ramping up oil and gas exploration would cause prices to drop.
And Commie Energy Czar Stephen Chu.
We cannot afford the price of 4 more years of Obama.
At least that's what the media told us for years. Venal George Bush and his oil industry buddies spent teir time cooking up various ways to raise gas and oil prices to steal money from poor people.
Now that Obama is president the media has decided that a president really can do nothing to affect gasoline prices.
Poor Obama - he is is just a helpless sack of wimpy guts being blown this way and that by the winds of chance.
Sort of like a new millennium half-black Jimmy Carter.
They make 1-3¢/gal, while the criminal, corrupt, GREEDY FED/STATE GOVTs (combined) make well-over 50¢/gal, for doing absolutely NOTHING, except hampering exploration and burdening everyone with costly regulations and useless, costly blends. The "greedy oil companies" take all the risk.
Drop the taxes, and immediately LOWER PRICES.
Refute that, Obummer, in your 7-ton prez/3mpg limo.
Four more years of Obama will totally destroy this country.
The guys simply reads a teleprompter and runs up a charge cards for generations to come.
Only if he were believed. See the reaction to his statements "supporting" Israel.
Speculators buy in the hopes that prices will rise. Therefore, stick it to them by increasing the supply of oil; the price drops, the speculators lose money, the price of gasoline drops, everyone is happy (except for the "evil speculators", of course).
1. Greenlight Keystone XL
2. Re-open the Gulf to drilling
3. End "boutique" blending gasolines.
Just a few thoughts.
Step 1: Walk up to a microphone, and declare we will exploit all of our resources - drill in Utah and Colorado, Frack as much as possible, off the coast of Florida and Alabama, 30 day turnaround on deepwater permits in the gulf.
Step 2: Watch oil prices tumble.
People who say that speculation isn’t a problem are simply deluding themselves. As of today, speculators do not have to take delivery of oil. They can control oil with a token amount as the margin - a year ago, it was 6%. The margin on stocks is 50%.
The CFTC found that 70% of the demand for oil was actually speculators - people who have no intent to actually use or even possess the oil. This is why demand is low, inventory is high, and yet prices remain sky high. Speculators can gamble on the price with very little risk. Back in 2008 when the price spiked, speculators were controlling more than 80% of the market.
Speculators do not participate in a free market. It would be a lie to say that the market is free because a true free market is dictated by supply and demand. It would be one thing if they were simply statistically gambling on the price of oil. It’s another thing entirely when they actually affect the price of the real commodity.
But why is this a bad thing? The speculators use their brains and self-interest to keep the oil supply tight if they suspect that a shortage could happen in the future. If there was something stopping them from keeping the price high, such as an artificial government price cap, then everyone would simply start hoarding oil at the low price, and we might actually see gas pumps go empty. Because those hoarders would see the same conditions the speculators see...the Middle East on the brink, a U.S. not interested in producing its own supply and a possible economic recovery. Someone setting the price based on rational, free speculation helps keep the supply available in a time of crisis. A high price is better than a price cap and gas sold out everywhere.
...and his goal has been achieved with more pain at the pump on the way thanks to his anti-energy policies.
I recommend that a grassroots movement takes fire. Simply print copies of that graph, obtain some double-sided tape and stick it on the gas pumps you visit. If you see any in Tarrant County, Texas, it's part of my educational campaign to inform motorists about who to blame come November 2012.
We got 40 million people who drive to work, sit at a computer and use a telephone all day, and then drive home.
We have the technology which would allow them to do this at home...Saving billions of gallons of fuel, eliminating most traffic etc...
You’d think the government would give incentives to these employers to do this?
No way...It’s just too damn easy.
It’s a bad thing because a significant majority of the market is controlled by people who don’t want the oil and have little invested in it. If, for example, 81% of the demand for oil is actually speculation - which is what happened in 2008 - then speculation on rising prices becomes a self-fulfilling prophecy. If you want a real-world example of speculators controlling a commodity, look to silver. Last year, the price collapsed because the artificial demand was limited. Also, people cannot “hoard” oil without the physical wherewithal to do so. Right now, speculators can “hoard” because they don’t have to take delivery on the oil and they pay very little to control it. You’re confusing artificial demand with real demand.
I don’t really understand why you are trying to equate the regulation of speculation with price caps and gas shortages. There is nothing to indicate that speculators in any way “smooth out” changes in the price of oil. Recent history should be more than enough to make that clear. In 2008, Bush’s move to permit free exploration of oil drilling resulted in a massive crash of the oil prices with no actual change in supply or demand. That was a massive swing that had no real-world backing.
These markets are about informed people ANTICIPATING changes in supply and demand. That puts us ahead of the game and helps prevent REAL shortages. The “real” world is not limited to the present time, it also includes the future. There are entities like airlines that would hoard oil if there wasn’t an outside market controlling that price before it gets to the point where someone can hoard it and potentially cause a real shortage. If you’re talking about not allowing speculators to speculate, than that has the same effect as a price cap...it artificially lowers supply.
Isn't essentially all crude oil that is pulled out of the ground refined and consumed (other than what goes into the SPR)?
How does 6% compare to margins on other commodities?
Don’t oil ‘speculators’ have to close out their positions like other commodity ‘speculators’?
Commodity ‘speculators’ lose plenty often.
Are you saying the commodity trading rules are different for oil, and if so how?
The oil speculation market is about nothing of the sort. It’s about profit. I have no problem with that. I have a problem with the fact that their “paper oil” is confused with real oil. Oil demand, for example, is about as inelastic as any commodity. Saying that speculators are betting on large changes in demand is pure folly. Now, you might argue that they are betting on changes in supply. Well, check here:
Dating back to 1981, the biggest drop in year to year oil production was 5.92% (from 1980 to 1981) while the biggest jump was 4.88% (from 2003 to 2004). In other words, BOTH SUPPLY AND DEMAND ARE INELASTIC. No sane person can look at the actual numbers and find that the massive swings in prices are justified.
Are you honestly making the claim that speculation prevents airlines from hoarding oil? Speculation doesn’t prevent anyone from hoarding real oil nor does it in any way prevent shortages. It is simply a manipulation of the actual demand. Also, the entire elimination of speculation (which is not what I am arguing) would cause the price of oil to stabilize around what the market will bear. The producers are limited as to what they can charge by what the actual demand is (not artificial demand).
This is really not a hard concept.
6% was an example. The actual margin amounts are given in total dollars. It’s essentially a security deposit. The percentage varies based on the value of the contract and depends on the price of oil. In a basic sense, as the price of oil increases, the actual risk involved in speculation decreases.
The oil commodity trading rules are different in the sense that the margin requirements are different. This does not mean that oil is essentially a different commodity because it isn’t. Stocks, for example, require a 50% deposit. Stocks are not considered a commodity. The range is usually between 2% and 15% depending on the current contract value. Oil is not necessarily any different from hogs, corn, wheat, or any other instrument where people don’t actually want the product. Other commodities are subject to the same fluctuations (you may have noticed food prices increasing).
The problem with speculation - especially when speculation constitutes a majority of the demand - is that it becomes market manipulation rather than speculation.
Markets shouldn’t be that hard a concept for you either. Even Newt mentioned something like a 10% change in supply in natural gas cratered the price by over 50%. Small differences in supply can make a big difference in price in any direction. And, yes, they are watching the market to anticipate changes in supply (Middle East turmoil, accidents, government exploration) or demand (economic booms or busts). It’s not just airlines, you could have governments like China or India hoarding oil as well. The speculators keep the oil priced too high for hoarders to grab it, making sure the world will have the available supply it needs even when demand is high, thanks to them keeping the price at a reasonable market level. Because it’s better to fill your tank at a high price than not be able to fill it at all.
This is an economy. If a commodity gets scarce, we need to know about it as early as possible, or anticipate it so we can plan accordingly. It’s working well, as we already have our politicians pushing to drill for more oil in anticipation of likely shortages, which might give enough lead time to stave off a real crisis. And if you don’t think potential nuclear war in the Middle East is a crisis that will impact oil supply, you’re being irrational. The markets are working. The markets are telling us we’d be better off economically producing more oil domestically, and they’re right.
Middle East turmoil, accidents, government exploration...yes, that’s a marked departure from the reality of the history of the entire world. Wait, no it isn’t. It’s always been that way. Why are you acting like all of a sudden now the oil-producing countries are destabilized? They have always been that way and probably always will be. Unless you are going to argue with the facts that supply and demand are inelastic, I have no idea what the hell you’re talking about. If oil supplies have been consistent for 30 years despite all of the events that have occurred, I have no reason to suspect (nor should anybody else) that the future will be different.
I’m sorry if I don’t see the speculators as some sort of guardian angel making sure we all have oil, even at ridiculously inflated prices. I’m sure that’s exactly what they intend to do. We should thank them. Hell, we should go back and praise everybody who cratered Enron. After all, they were probably doing the same thing.
If a commodity gets scarce...yes, if a commodity gets scarce, it would be good to know about such an event. Of course, AS YOU CAN PLAINLY SEE, THE COMMODITY IS NOT SCARCE. The speculators have been wetting their pants with wild swings in expected supply and demand yet NONE OF IT HAS EVER MATERIALIZED.
It isn’t the markets, by the way, that tell us we should be producing more oil domestically. It’s common sense and it’s been telling us that for probably 50 years.
C’mon, now, you don’t remember the the oil embargo and gas lines of the 1970s?
It’s not about speculators intending to do anything. It’s about capitalism which allows people to act in their own self-interest for the benefit of everyone.
You’re referencing the present again when I’ve been emphasizing that the usefulness of these trading markets is to anticipate the future. The speculators think oil is going to even higher, so they buy it up. They’re doing that by analyzing the lay of the land and if they’re willing to put their own money on the line to back up their prediction, then we ought to take it seriously that a shortage in supply is likely to occur.
Without someone working to anticipate a shortage, it would happen suddenly, we wouldn’t be prepared for it, and we wouldn’t have nearly enough oil to live on. It would be truly scarce and far higher-priced than it is now in the futures market.
No question that this market can be wrong and it can develop into a bubble. But this type of market is the best we’ve got, far better than government central planners.
Then it’s very hard to believe the commodity trading rules are a major cause of ‘unfair pricing’.
Like with minerals it is the actions of the producers, which can’t be affected by trading rules, that determine the oil price. In the past the europeans, and then the US until Carter, dealt with avaricious oil and mineral producers effectively.
And now we’re an ‘avaricious oil and mineral producer’ ourselves. Sitting on our stocks despite the cost to our industry until the nether land freezes over.
No, I can’t see changes in the commodity trading rules doing much good. Too many ‘sovereign’ actors involved.
I don’t remember that because I wasn’t born. I can read, though. It has almost no bearing on the speculation issue, however.
Speculators do not act in their own self-interest for the benefit of everyone. They act in their own self-interest for the benefit of themselves. Also, I hate to break this to you, but YOU pay for it. When you spend $70 to fill your gas tank, perhaps you’re fine with $40 or so of that going to line the pockets of self-serving bankers. I am not, because they are not providing me with any sort of service. Some people, no doubt, receive some marginal benefit from that in the form of increased returns on stocks and mutual funds. This is hardly a consolation, though. It is a direct transfer of wealth.
Also, for the last time, a shortage in supply is not likely to occur. If you aren’t going to look at the stability of the world’s oil supply over the last 30 years, then I’m going to stop bringing it up because you won’t listen to reason. The massive fluctuations in the price of oil have no correlation to either oil supply or oil demand. Those are the true indicators of a market.
I have to admit I have never heard your argument - that speculators are benevolent and powerful factors that act to “anticipate shortages” and somehow prepare us and/or shield us from the effects of such a shortage. It’s wildly illogical and based on no real-world examples so I can’t really comment either way, but my gut tells me that it’s an incredibly bizarre position.