Taking the Cop Off the Oil Speculation Beat

[BoomerJack]

http://thinkprogress.org/progress-report/


As an oil front group tours the country trying to convince Americans that oil companies aren’t responsible for high gas prices, House Republicans are celebrating the one-year anniversary of Rep. Joe Barton’s (R-TX) apology to BP (coming up this Friday!) by going to bat for the Wall Street speculators and oil traders that are artificially driving up the price of oil (and gas). Here’s a rundown of the action unfolding.

WHO: House Republicans

WHAT: A bill on the House floor that will slash next year’s funding for the Commodity Futures Trading Commission — the federal regulator that oversees speculators in oil and other commodities — by a whopping 44 percent below what the president requested. This is also 15 percent less than what the agency got this year, even as the CFTC is preparing to take on the enhanced powers and responsibilities granted to it in under the Dodd-Frank Wall Street reform bill.

WHEN: The House started considering the Agriculture Appropriations bill (which includes funding for the CFTC) this afternoon and is expected to finish voting on amendments and move to final passage sometime tomorrow. This will be the third time this year, following earlier votes in February and April, that House Republicans will vote to effectively cripple the CFTC by denying it the funds it needs to do its job.

WHY IT MATTERS: Instead of addressing the rampant oil speculation that everyone from oil companies (Exxon) to commodities traders (Goldman Sachs) to the head of the CFTC (Gary Gensler) agrees is driving up prices, Republicans are slashing the budget for the only agency that can crack down on excessive speculation. In essence, by voting to take the cop off the oil speculation beat, the GOP is guaranteeing that speculators will have free rein to keep driving up prices.
Republicans also continue to vote to maintain billions of dollars in wasteful and unnecessary taxpayer-funded subsidies for oil companies, even as the GOP refuses to drop its plan to end Medicare and its presidential contenders call for trillions of dollars more in tax cuts for the wealthy and corporations.

WHO BENEFITS: In addition to the speculators themselves, thanks to high oil and gasoline prices driven higher by speculators, the Big Five oil companies — BP, Chevron, ConocoPhilips, ExxonMobil, and Shell — made $32 billion in profits during the first quarter of 2011. Incidentally, the oil and gas industry gave over $16 million to Republicans during the last election cycle — more than three times what it gave to Democrats.

Fast Facts on How Oil Speculation is Pushing Up Gas Prices:
• In May 2011, the CFTC charged traders for artificially driving up the price of oil in 2008
• The world’s largest commodity trader, Goldman Sachs, recently admitted that speculation was to blame for high oil prices, telling its clients that it believed speculators like itself had artificially driven the price of oil as much as $27 higher than supply and demand dictate.
• 67.5 cents: The estimated increase in gasoline price per gallon due to speculation.
• ExxonMobil CEO Rex Tillerson admitted earlier this month that, according to traditional supply and demand, oil should cost about $60 or $70 per barrel.
• Oil speculators have doubled their share of oil futures markets since the 1990s, with a ratio of 68 percent speculators to 32 percent users of oil, according to a recent McClatchy report.
• Nearly 90 percent of oil traders betting on rising prices are speculators, while about 12 percent of these bets were “held by producers, merchants, processors and users of the commodity”
•

BONUS FACT: Modern oil derivatives were invented by none other than Koch Industries — the same oil conglomerate that is helping to bankroll Americans for Prosperity’s “Don’t blame the oil companies for high gas prices” tour and has relentlessly pushed for further market deregulation.
**********************

I believe that the CFTC should be fully funded. What do you guys think?? Anyone?? Bueller??

[BermudaSooner]

I'd like to understand what "excessive speculation" is. Simply taking speculators out of any market has other unintended consequences, and frankly is very un-American and anti-free market. Without oil derivatives, many companies wouldn't be able to manage their risk to future prices.

[tommieharris91]

BONUS FACT: Modern oil derivatives were invented by none other than Koch Industries — the same oil conglomerate that is helping to bankroll Americans for Prosperity’s “Don’t blame the oil companies for high gas prices” tour and has relentlessly pushed for further market deregulation.
**********************

in before mention of hitler/nazis

[Mongo]

in before mention of hitler/nazis

:D

[Chuck Bao]

I am not sure that I 100% agree with that article.

I don't think that it is the place for the Commodity Futures Trading Commission to crack down on excessive speculation.

I do agree that the big brokers, like Goldman Sachs, have a very large influence. The oil and energy analyst in my company is convinced that Goldman Sachs is pretty much "let it be written, let it be done" powerful. I don't know about that. I do know that all markets are much more volatile today and there are substantial negative consequences for economies around the world.

I blame lax supervision of hedge funds. Yeah, that is the same old song and dance from me. I think the SEC should be given more power to regulate them and make them define exactly what they are investing in and the risks involved. Herd instinct is creating a leader and followers and you can bet that the big clients are getting it and small investors and everyone else are not.

[Bourbon St Sooner]

BoomerJack NEEDS More CAPS if he's going to be the RLIMC of the left.

[Chuck Bao]

Heh, Mr. Bourbon St! I really hope anyone on the left won't forget the caps lock.

I do want to add to what I posted before. I am in maybe a pretty good location to see what is happening on world markets. This market herd thing is just insane and really anti-market. The whole rationale for buying quality and holding is being destroyed.

Yeah, I work in an obscure overseas market that almost never makes it on the radar of TV news channels. Still, there was a massive wave of foreign buying in March, April and the first half of May. Then, someone flipped a switch somewhere, either in London or NY, and there has been only massive selling since. This is not a market. This is bullying. They do it because they can.

I know that stock market analysts are repeatedly told to write reports in either black or white, sell or buy. Their salary is dependent on commissions of sales and if they aren't generating commissions then they are worthless. If they are wrong and go against the market then they are much worse than worthless. It is our brokerage culture to blame for part of it.

[REDREX]

Please show any proof that Koch invented derivatives ---That article is a joke

[Whet]

Another crap article from the convicted felon, George Soros funded group.

[REDREX]

Another crap article from the convicted felon, George Soros funded group.
---What is really funny is that George Soros made most of his money speculating on currency

[GKeeper316]

I'd like to understand what "excessive speculation" is.

betting against the oil indusry's ability to meet future demand.

[Chuck Bao]

betting against the oil indusry's ability to meet future demand.

Or, oil prices rising high enough that it kills off growth in future demand.

[Serenity Now]

So, the article is anti-republican so its crap?

[Tulsa_Fireman]

Did you guys see the huge article about the Koch brothers?

They're totally NAZIS!

I'm serious! FULL BLOODED nazis! Like, Kill Das Joos nazis!

[REDREX]

Did you guys see the huge article about the Koch brothers?

They're totally NAZIS!

I'm serious! FULL BLOODED nazis! Like, Kill Das Joos nazis!---Did you read the part that the Koch brothers are Dutch and came to this country in the 1880's. And other than the same last name the people had nothing in common

[tommieharris91]

---Did you read the part that the Koch brothers are Dutch and came to this country in the 1880's. And other than the same last name the people had nothing in common

http://t1.gstatic.com/images?q=tbn:ANd9GcQ7IBQrUtEn_NAgjK-ufH93L2KlewGQDweX8NSYzx06R3VhgbynZQ

[Whet]

So, the article is anti-republican so its crap?

It is crap because it is just another piece of disinformation from one of convicted felon, George Soros' propaganda groups, such as, Media Matters, MoveOn, Center for American Progress, America Coming Together, Campaign for America's Future, Independent Media Institute, and Campus Project, to name a few.

[TheHumanAlphabet]

Think Progress = Soros FAIL....


WHY IT MATTERS: Instead of addressing the rampant oil speculation that everyone from oil companies (Exxon) to commodities traders (Goldman Sachs) to the head of the CFTC (Gary Gensler) agrees is driving up prices, Republicans are slashing the budget for the only agency that can crack down on excessive speculation.

Pray tell, what Proof do you have that Big Oil and Exxon causes speculation bumps? Is throttling a well to adjust production speculation? Or is some guy on the trading floor jacking with futures and short sells the speculator? There may be some instances of churning to change the price (Enron) but outside of that nothing has ever been alleged or proven.

Your arguements FAIL big time...

[Tulsa_Fireman]

http://www.sports-memorabilia-museum.com/baseball-history/ted-williams-fishing-line.jpg

[TheHumanAlphabet]

---What is really funny is that George Soros made most of his money speculating on currency

I bet he was betting against the Drachma... ;)

[TheHumanAlphabet]

in before mention of hitler/nazis

BoomerJack has already done that with the stupid Soros led quote of some meaningless story...

[tommieharris91]

http://www.sports-memorabilia-museum.com/baseball-history/ted-williams-fishing-line.jpg

http://www.hiwtc.com/photo/products/33/00/84/8423.jpg

[Position Limit]

Heh, Mr. Bourbon St! I really hope anyone on the left won't forget the caps lock.

I do want to add to what I posted before. I am in maybe a pretty good location to see what is happening on world markets. This market herd thing is just insane and really anti-market. The whole rationale for buying quality and holding is being destroyed.

Yeah, I work in an obscure overseas market that almost never makes it on the radar of TV news channels. Still, there was a massive wave of foreign buying in March, April and the first half of May. Then, someone flipped a switch somewhere, either in London or NY, and there has been only massive selling since. This is not a market. This is bullying. They do it because they can.

I know that stock market analysts are repeatedly told to write reports in either black or white, sell or buy. Their salary is dependent on commissions of sales and if they aren't generating commissions then they are worthless. If they are wrong and go against the market then they are much worse than worthless. It is our brokerage culture to blame for part of it.

what market do you work in and in what capacity?

[TheHumanAlphabet]

Still, there was a massive wave of foreign buying in March, April and the first half of May. Then, someone flipped a switch somewhere, either in London or NY, and there has been only massive selling since. This is not a market. This is bullying. They do it because they can.


Chuck, some conspiracy theorists would say that the Bilderberg Group and the Bohemian Grove group are manipulating the world in order to make their ideas come to life... What do you think?

[SpankyNek]

WHY IT MATTERS: Instead of addressing the rampant oil speculation that everyone from oil companies (Exxon) to commodities traders (Goldman Sachs) to the head of the CFTC (Gary Gensler) agrees is driving up prices, Republicans are slashing the budget for the only agency that can crack down on excessive speculation.


Think Progress = Soros FAIL....



Pray tell, what Proof do you have that Big Oil and Exxon causes speculation bumps? Is throttling a well to adjust production speculation? Or is some guy on the trading floor jacking with futures and short sells the speculator? There may be some instances of churning to change the price (Enron) but outside of that nothing has ever been alleged or proven.

Your arguements FAIL big time...Your comment shows an utter failure at reading comprehension. If you re-read the first sentence slowly, you will find that it simply states that "Big Oil and Exxon" agree that speculation is driving up prices, not that Exxon is causing any change in the level of speculation.

[TheHumanAlphabet]

Thanks for your correction...

My doctor has been telling me I have reading dropsy syndrome where I fail to percieve words within a paragraph...

[Bourbon St Sooner]

Heh, Mr. Bourbon St! I really hope anyone on the left won't forget the caps lock.

I do want to add to what I posted before. I am in maybe a pretty good location to see what is happening on world markets. This market herd thing is just insane and really anti-market. The whole rationale for buying quality and holding is being destroyed.

Yeah, I work in an obscure overseas market that almost never makes it on the radar of TV news channels. Still, there was a massive wave of foreign buying in March, April and the first half of May. Then, someone flipped a switch somewhere, either in London or NY, and there has been only massive selling since. This is not a market. This is bullying. They do it because they can.

I know that stock market analysts are repeatedly told to write reports in either black or white, sell or buy. Their salary is dependent on commissions of sales and if they aren't generating commissions then they are worthless. If they are wrong and go against the market then they are much worse than worthless. It is our brokerage culture to blame for part of it.

So you're saying the hedge funds get together and decide which way the market is going to move?

[Serenity Now]

http://money.cnn.com/2011/04/28/news/companies/exxon_earnings/index.htm

I'd think that the fact that big oil benefits from speculation would see them quietly encourage speculation.

http://gasbuddy.com/gb_retail_price_chart.aspx

Gas prices in conjunction with the Presidential terms are actually pretty humorous. It was high during W.'s term but mysteriously dropped. The high was $4.12 in '08. It dropped SIGNIFICANTLY before the election and bottomed out right before BO took office at about $1.81. Now it will be similarly OUTRAGEOUSLY high until the '12 elections while the oil companies rake in record profits and funnel portions of those to the GOP. And, any media that reports this in such a manner is considered tainted by George Soros. Of course....

[BermudaSooner]

Or, oil prices rising high enough that it kills off growth in future demand.

So who gets to decide that? You haven't defined anything. Are you saying that one can't speculate that oil goes above, say, $100 a barrel? What if it does? Companies can't hedge their exposure? You are playing with fire--giving the power to some bureaucrat to regulate speculators so that "oil prices [wouldn't] rise high enough to kill off growth" would be insane.

Why don't we just get rid of all speculation? Nobody can do try to do anything that would constitute the evil of "trying to make a profit." It is those evil speculators in collusion with the evil banks that caused the mortgage crisis, right? Just get rid of all speculation.

[Chuck Bao]

what market do you work in and in what capacity?

I have been the head of research for various brokerage firms in Thailand for 20+ years. I retired last year and then started working again this year as a part-time editor for the local partner of Deutsche Bank Securities.

[okie52]

http://money.cnn.com/2011/04/28/news/companies/exxon_earnings/index.htm

I'd think that the fact that big oil benefits from speculation would see them quietly encourage speculation.

http://gasbuddy.com/gb_retail_price_chart.aspx

Gas prices in conjunction with the Presidential terms are actually pretty humorous. It was high during W.'s term but mysteriously dropped. The high was $4.12 in '08. It dropped SIGNIFICANTLY before the election and bottomed out right before BO took office at about $1.81. Now it will be similarly OUTRAGEOUSLY high until the '12 elections while the oil companies rake in record profits and funnel portions of those to the GOP. And, any media that reports this in such a manner is considered tainted by George Soros. Of course....

No reason to mention the fact the whole world's economy crashed in 9/2008.

[yermom]

coincidence? ;)

[Chuck Bao]

Chuck, some conspiracy theorists would say that the Bilderberg Group and the Bohemian Grove group are manipulating the world in order to make their ideas come to life... What do you think?


So you're saying the hedge funds get together and decide which way the market is going to move?

I don't believe either of these things are true. I think that the real reasons are 1) ability to transfer vast amounts of money cheaply around the world at the speed of light and 2) a change in the mentality of many fund managers and big investors towards momentum trading rather than value investment.

Yeah, many of these same fund managers and big investors talk big about value investment and they simply have to in order to protect themselves in case the investment goes wrong. They can never say that they bought because others were buying and they could make a short-term profit on the trade. Brokers love these clients and encourage this mentality and put pressure on the analysts to justify it with sometimes really sketchy reasoning.

I saw my role as head of research to protect the analysts from this pressure. All of the analysts working with me were instructed to not be influenced and to pass on any pressure to me and I would fight sales and the investment banking division. I could because I only answered to the chairman of the board of directors and he backed me every time. I think I earned quite a bit of respect for that.

For the last 10 years of being head of research, my company was the leading brokerage firm in Thailand with 8-13% market share. That may not sound like a lot but it actually is a lot of power and I think I played a large role in maintaining that market share. When I joined the company, the old management had this unique policy of immediately posting all research online and available to everyone in the world providing equal access to both big and small investors. Our brokers hated that policy. Our competitors hated that policy. Our analysts loved it. Everyone had to read what we were saying every day and our recommendations moved stocks. I just had to make sure that it was for the right reasons.

I am not going to say that there were not abuses because I imagine that some clients got tipped early, but I can guarantee you that the turnaround time in me approving a report to go out (and I would refuse a report if I didn't agree with the recommendation) and being posted on the internet was on average about 30 minutes and this 90% of the time was before the market opened.

In a very poorly written way, I am just saying that momentum trading has taken over global markets, markets are increasingly growing less efficient and more volatile and the impact on world-wide economies much more pronounced. And, I don't see that as a good thing.

[okie52]

coincidence? ;)

That and the Sonics moved to OKC.

[Chuck Bao]

So who gets to decide that? You haven't defined anything. Are you saying that one can't speculate that oil goes above, say, $100 a barrel? What if it does? Companies can't hedge their exposure? You are playing with fire--giving the power to some bureaucrat to regulate speculators so that "oil prices [wouldn't] rise high enough to kill off growth" would be insane.

Why don't we just get rid of all speculation? Nobody can do try to do anything that would constitute the evil of "trying to make a profit." It is those evil speculators in collusion with the evil banks that caused the mortgage crisis, right? Just get rid of all speculation.

Dude! I am not saying that at all. Hedge funds do play a very important role in the commodities market. They do offer protection for swings in prices and ability of producers to lock in profits. I am sure that Royalfan can give us a large number of reasons why they serve an important function.

My cousins were/are big wheat farmers in northern Oklahoma. I remember that the parents decided one year to divide the wheat harvest among the kids to pay for their university education. My favorite cousin who was a senior in high school at the time decided to pre-sell her wheat apportionment in the silo through a hedging contract to pay for her tuition. At that time, I thought that was pretty cool that she could lock in her profit and cash out.

But, some of the hedge funds have substantially changed from their original purpose of providing futures contracts and creating a market or taking advantage of short-term market inefficiencies. They have a killer instinct and power to back it up and they will attack, attack, attack until they fall their prey.

Okay, I am still very bitter about the attack on the Bank of Thailand and the baht in '97 that unnecessarily started the Asian economic crisis that year. By the way, the baht is gradually strengthening back to near the pre-97 level.

[Position Limit]

dont take this the wrong way, but for somebody in the business you seem to no little about trading and how it works. maybe it's because you're in research.

[yermom]

he nos more than i do

[Sooner5030]

5030's Econ Rule #127:

If overcharging customers was so f'ing easy.....we'd all be doing it...and then competition would bring the price back down.

Unless you accidentally made a protected group of firms which happen to be the only ones that have the fluff to pay for all of the regulatory compliance put in place to protect the consumer and environment.

[pphilfran]

http://money.cnn.com/2011/04/28/news/companies/exxon_earnings/index.htm

I'd think that the fact that big oil benefits from speculation would see them quietly encourage speculation.

http://gasbuddy.com/gb_retail_price_chart.aspx

Gas prices in conjunction with the Presidential terms are actually pretty humorous. It was high during W.'s term but mysteriously dropped. The high was $4.12 in '08. It dropped SIGNIFICANTLY before the election and bottomed out right before BO took office at about $1.81. Now it will be similarly OUTRAGEOUSLY high until the '12 elections while the oil companies rake in record profits and funnel portions of those to the GOP. And, any media that reports this in such a manner is considered tainted by George Soros. Of course....

Hmmmmmmm

[Chuck Bao]

dont take this the wrong way, but for somebody in the business you seem to no little about trading and how it works. maybe it's because you're in research.

Thanks for your comment and spek. No, I won't take it the wrong way and I would appreciate you telling me where I went wrong. My vantage point is just a teeny tiny market in the world, so it is probably very skewed.

[pphilfran]

Chuck, watch out for Position Limit....he is damn sharp on the subject...

[Chuck Bao]

Chuck, watch out for Position Limit....he is damn sharp on the subject...

Damn right, that is what we need around here. I don't think I showed him any disrespect, but it would be helpful if he explained what I got wrong. I used to hang out with a bunch of currency traders and those guys are just so nutso that their antics would make prostitutes on Patpong blush. So, maybe I just fell in with the wrong crowd.

[okie52]

Damn right, that is what we need around here. I don't think I showed him any disrespect, but it would be helpful if he explained what I got wrong. I used to hang out with a bunch of currency traders and those guys are just so nutso that their antics would make prostitutes on Patpong blush. So, maybe I just fell in with the wrong crowd.

Explain about the prostitutes on patPong.

[Mongo]

Explain about the prostitutes on patPong.

I dont think you are ready for such tales

[pphilfran]

Damn right, that is what we need around here. I don't think I showed him any disrespect, but it would be helpful if he explained what I got wrong. I used to hang out with a bunch of currency traders and those guys are just so nutso that their antics would make prostitutes on Patpong blush. So, maybe I just fell in with the wrong crowd.

You were fine...he will be back...he is fun to debate...

[Position Limit]

Damn right, that is what we need around here. I don't think I showed him any disrespect, but it would be helpful if he explained what I got wrong. I used to hang out with a bunch of currency traders and those guys are just so nutso that their antics would make prostitutes on Patpong blush. So, maybe I just fell in with the wrong crowd.

i dont feel disrespected at all. i went back at looked at your first post about goldman and the cftc. the cftc has basically been pissed on by big banks and bought politicans. i personally think they could be an effective regulator if given some proper funding and support. problem is, derivatives are still all the rage on wall street and they cant have them regulated. how is it even trading when there is no mark to market accounting? i wish i could play and get paid based on those rules. i dont know if you recall our last discussion about curbing speculation in the oil pit, but i feel all the exchange has to do is increase margins and lower position limits. as far as trading, im sure you have some knowledge based on your experience with investment banks. i come from the floor trading world so maybe it's me not really understanding you. at any rate it would take weeks to go through and discuss trading. but for now lets just stick with the cftc and the big banks refusal to allow regulation in otc derivatives. i'm a hedge fund and need to buy 1 billion in oil contract. cant do it on the exchange due to execution so i call my prime broker and they build me a nice complex derivative to suit my needs. my prime broker the gets busy in oil or whatever alchemy they come up with. cftc is nowhere around.

[pphilfran]

EIA just put this out about oil prices and what drives them...

http://www.eia.gov/finance/markets/