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By Robert Rapier on Apr 16, 2012 with 70 responses

Cutting Through the Rhetoric on Speculators and Oil Prices

Let’s Play ‘Blame the Speculators’

Most people would probably agree that speculation in the oil and gas markets is hurting American consumers. Consider the case of Aubrey McClendon. Mr. McClendon is the CEO of Chesapeake Energy, where he sells natural gas for a living. Natural gas prices have now been pushed down — by speculators — to below $2 per million BTU. This is a drop of more than 80% from 2008 prices. With these depressed prices, Mr. McClendon will have a hard time ever matching his $112 million of earnings in 2008. Mr. McClendon’s livelihood has been hurt by speculators.

Of course Aubrey McClendon is not your average person, and he isn’t likely to garner much sympathy over the decline in natural gas prices — especially since it has benefited consumers. But I use that example to illustrate the point that speculation is not a one-way street where the average consumer always loses. One of the frequently cited causes of high oil prices is from speculation. In fact, I agree that speculation is helping drive up oil prices. However, there are underlying fundamentals at work as well; otherwise the same speculators who are helping drive up oil prices would be doing the same with natural gas prices. Yet those underlying fundamentals are often overlooked in the rush to blame the speculators for spiking oil prices.

Speculators Play the Game Both Ways

Speculation can drive prices in either direction. If there is a widely held belief that oil prices will be higher, the price of oil will be bid up. It’s the same reason that the share price of Apple rises: Investors speculate that the company will do well in the future and they drive up the price in anticipation of future value. In the case of oil, the most recent speculation is that trouble in Iran could remove a significant quantity of oil from the market, driving prices much higher.

But one has to look no further than natural gas pricing to see that this goes both ways. With natural gas below $2 per MMBTU, producers will struggle to make a profit. They are already cutting back on drilling. The sentiment is that there is a very big supply of natural gas, and so the speculators in that case have driven prices down very low — in this case saving consumers a lot of money. In the case of oil, the fear is that supplies won’t be sufficient to meet current demand.

Incidentally, politicians and consumers frequently ask “Why are oil companies ripping us off by selling oil for $100 a barrel?” But ExxonMobil also happens to be the largest natural gas producer in the U.S. Rephrase the question to ask “Why are oil companies giving us a break by selling natural gas at under $2 when they were selling it for over $10 five years ago?” — and you can start to see that they really don’t have much control over pricing. That is set by how much speculators and actual end users are willing to pay on exchanges like the New York Mercantile Exchange (NYMEX).

Conclusion: There Are Limits to How Much Speculation Can Affect Prices

I am not suggesting that we shouldn’t limit speculation. I really don’t know the answer to that one. If you banned investment banks from participating in the oil markets, my assumption would be that it would cause somewhat lower prices when prices are high and somewhat higher prices when prices are low. It would probably knock off the extreme swings on either end. But my main point here is that speculation by itself is not to blame for high oil prices, and eliminating speculation is not going to fix the problem of high oil prices.

This column was prompted by Eric Bolling’s assertions on Fox News that he has the answer to high gas prices. For weeks he has been hyping his “secret plan” which he “guarantees” will reduce gasoline prices by $1 a gallon. (Steven Colbert recently skewered Bolling’s antics over his secret plan). It turns out that “limit the speculation” was his answer for reducing gasoline prices by $1 a gallon.

That answer itself certainly isn’t new and novel; many people have been pushing this long before Bolling brought it up. But it ignores the two important facts I have highlighted here: Speculation drives prices higher AND lower, and there are often fundamental issues of supply and demand that drive that speculation. And if you want to know the single biggest driver of high gasoline prices today, just look at the consumption growth in developing countries. Eliminating speculation isn’t going to address that issue. Eliminate speculation and today’s gasoline prices would still be high, just perhaps not quite as high. And natural gas prices would perhaps not be as low.

Link to Original Article: Cutting Through the Rhetoric on Speculators and Oil Prices

By Robert Rapier

  1. By Earl Richards on April 16, 2012 at 7:52 am

    Chinese demand, seasonal weather reports, OPEC, Iran, the Euro Zone and so on, are not responsible for high oil and gasoline prices, which are causing the the recession and could lead to a depression. The oil price is dictated by the fraudulent “round-trip” trades of the “dark pool” trading in the IntercontinentalExchange (ICE) in Atlanta. The international Big Oil/big banking cabal, or an international gang of criminals, owns ICE. ExxonMobil is a “silent partner” in ICE. ICE operates outside of US law, considers itself to be above the law and can commit fraud and law enforcement cannot do anything. The Commodity Futures Trading Commission has no jurisdiction over ICE, influenced by Big Oil. ICE’s energy speculators and traders can ratchet-up the oil price anytime they feel like it, for their own profits and on the behalf of Big Oil, using “round-trip” trades. Google the “$2.5 Trillion Oil Scam – slideshare.” The NYMEX has the “Dubai Loophole” and the ICE has the “London Loophole.” “Paper oil” and the crude oil futures markets have to be done away with. Cash at the wellhead. Over 75% of crude oil futures trading takes place in the ICE. ICE Futures Europe is a subsidiary of ICE. The NYMEX is a decoy market. ICE is a super Enron. The “Enroning” of California was a test market for ICE. Oil is too critical a resource to be controlled and manipulated by greedy refiners, greedy speculators, greedy corporations and greedy traders. Cash on the barrelhead. To obtain a fair oil price, Senator Sanders and the Occupiers have to investigate ICE and seize immediately the trading records of ICE, before they are destroyed and end the specter of ICE and end this crime against humanity. The price of oil and gasoline is determined by those who control the crude oil futures markets and is not determined by Obama, OPEC and Saudi Aramco,Inc.

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    • By Karl on April 16, 2012 at 8:25 am

      Bull. It’s peak oil, plain and simple.

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    • By Dollar on April 16, 2012 at 8:42 am

      Do you really believe that Exxon wants to see their product priced out of the reach of consumers ?

      You are totally detached from reality.

      OPEC learned in 1980 that high prices and big profits are not good for their long term sustainability.    Exxon has known that for years.

      No business wants their product priced out of the market ………………   and I think you are prone to believe conspiracies.

       

       

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      • By Earl Richards on April 16, 2012 at 10:14 am

        The oil corporations have been pricing their products above market value for years. With any phony excuse that comes along,  the oil corporations will raise their prices.

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        • By Robert Rapier on April 16, 2012 at 1:10 pm

          Oil corporations don’t raise their prices – with the exception of cartels like OPEC of course. They watch prices like everyone else. I know, because I used to work in the economics group of a major oil company, and we spent a lot of time trying to figure out where oil prices were heading. Certainly would have been a lot easier if someone had just told us, which we would know if we were setting prices.

          RR

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          • By Earl Richards on April 16, 2012 at 1:25 pm

            Oil corporations raise their prices through the use of “round-trip” trades in the ICE. BP, Shell and Total are parters in ICE. What is good for these three corporations is all so good for ExxonMobil, Chevron, the Houston oil crowd and the rest of them.

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      • By Dollar on April 16, 2012 at 10:37 am

        Your nutz.

        What you are suggesting is a recipe for self destruction.

        And oil companies do not set prices.   OPEC sets prices.    They learned years ago that you do not raise prices to a level that inflicts economic harm upon your customer.

        That follows the same logic as accusing hedge funds of driving up the price through speculation,  and at the same time driving down the stock market where 90% of their investment is held.

        That is pure stupidity and hedge fund managers are not stupid.

        But hey, if you think you need to wear that tin foil hat, then by all means, wear that sucker.

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        • By Earl Richards on April 16, 2012 at 12:54 pm

          Google the “Global Oil Scam” by Phil Davis. Purchase electric cars and solar panels.

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          • By Addoeh on April 18, 2012 at 3:51 am

            You do realize the US gets oil from all over the world, right?  In addition to US, Canada, Mexico, and Venezuela, we also get oil from Nigeria, Angola, Saudi Arabia, Iraq, Algeria, etc.  Of the top ten countries we import oil from, five are from overseas.  So yes, the US is part of the global oil environment.  Consumption in other countries does impact the price US can import oil.   Why would, say, Saudi Arabia sell oil to the US at $80 pb when they could sell it someone else for $100?  Why would Canada, or anyone else, do the same thing?  It all goes to the highest bidder.

            I don’t know, nor care, who Phil Davis is.  Simply because he can string together a subject, verb, and predicate in an entertaining way does not mean he knows anything about the oil industry and how increased consumption in the BRIC countries factors into the price, even if consumption in the US and Western Europe is falling.

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    • By Dollar on April 16, 2012 at 11:14 am

      And here’s more logical thinking that destroys your paranoid conspiracy.

      If ” the fix ” is in ,   to drive up the price of oil through speculation ,  then who are the morons taking short positions ?

      You can not have an oil futures contract without a long on one side of the contract, and a short on the other.

      What drives the price higher, is when there are more longs than shorts.     When the price reaches a point, where very few think it actually will go higher, then shorts will begin to out number the longs.

      In the end , the physical market will rule over speculation.

      And speculators can not continually drive the price higher.

       

       

       

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      • By Earl Richards on April 16, 2012 at 1:37 pm

        The speculators have been driving-up the oil price ever since the year 2000, with passing into law of the Commodity Futures Modernization Act, by Senator Phil Gramm. This act is the “Enron Loophole.” Gramm of Texas received very generous political contributions from ExxonMobil of Texas to pass this Act.

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        • By Robert Rapier on April 16, 2012 at 2:56 pm

          Then why have they allowed natural gas prices to fall below the cost to produce it? Why did they allow oil prices to plummet in 2008?

          Have you ever looked at the rate of demand growth in China, for instance? I am pretty sure that kind of explosive demand growth will have an impact on prices.

          RR

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          • By Earl Richards on April 16, 2012 at 3:35 pm

            Oil transported from the Gulf of Mexico to Texas and Louisiana has nothing to do with the price of oil in China. The Brent price is different from the WTI price. There are variouus regional and local markets for oil. The global oil market and the global oil price are Big Oil myths.

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            • By Robert Rapier on April 16, 2012 at 3:51 pm

              The Brent price is different from the WTI price. 

              Of course, because there isn’t as much infrastructure to get some of our domestic crude out where it can command world market prices. But the price of WTI is certainly influenced by world prices; if world prices go up then we start building pipelines and putting oil in North Dakota in trucks and rail cars to get it to the highest bidder.

              The global oil market and the global oil price are Big Oil myths.

              You clearly believe those things, but they aren’t true. But by believing them, the oil markets will always be a mystery to you. What do you say when prices plummet? That the secret cabal is just trying to fool everyone into thinking they don’t control prices?

              RR

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            • By Earl Richards on April 16, 2012 at 7:19 pm

              The US/WTI price is determined in Cushing, OK and is separate from the world price. The oil price can be  determined in ICE Futures Europe, the Rotterdam spot market, the Dubai spot market, the Iran Oil Bourse and the Singapore spot market, so what market has the world price?

              Google  – “2008 oil price plunge – why?” If you want to believe Michael Wittner, the head of oil research at Societe Generale, he states that the drop was caused by lower economic growth and slower oil demand. Societe Generale is a founding member of ICE.

               

               

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            • By Robert Rapier on April 16, 2012 at 7:26 pm

              The US/WTI price is determined in Cushing, OK and is separate from the world price.

              No, the price is determined in New York. It is influenced by infrastructure around Cushing. It is not separate from the world price; plot various oil prices over the past 20 years and note how they rise and fall together. That should tell you something.

              he states that the drop was caused by lower economic growth and slower oil demand.

              That would directly contradict your contentions here, because that would suggest that it is a supply and demand issue.

              RR

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            • By Earl Richards on April 16, 2012 at 8:22 pm

              The New York price is derived from Cushing, with add-ons from the speculators and the traders. The WTI price is strictly for the US. The Brent price is for Russia, western Europe and Africa. Iran, Dubai and Singapore are for the Far East.

              I never stated any reason for the oil price to drop in 2008, but I stated a few reasons for the price to rise. Wittner is stating the reasons. In previous comments in a previous article, I stated my reason for the decline in oil prices in 2008 and anybody believed me.

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    • By John Greene on April 17, 2012 at 6:35 am

      It takes quite a bit of effort to be this awesomely ignorant. Bravo.

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      • By Optimist on April 17, 2012 at 2:03 pm

        Bingo!

        Gotta love this part: I never stated any reason for the oil price to drop in 2008, but I stated a few reasons for the price to rise.

        In other words, I have no explanation for why prices would go down, but boy, when they go up we KNOW it’s a conspiracy. Brilliant!

        Every time the price goes down, you switch to American Idol. Every time the price goes up, it PROVES the conspiracy. Easy!

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  2. By AlanRominger on April 16, 2012 at 10:43 am

    I want to argue a small challenge to your conclusion.  It is absolutely correct that speculation goes in both directions, but I would assert that there is no theoretical limit to how much speculation can push the price up.

    For the sake of economic argument, consider the case of an infinitely bullish position on the price of oil.  Such a position would always dictate that the present price is too low.  If this infinite-bull was in control of the production of an oil field, we know what action would rationally follow; they would put the field in a state of non-production.  Practically, there are a number of mechanisms through which this can play out in the market.  There is a limit to the upward flexibility in the short or long term production of oil, but there is not a limit to the downward flexibility.  We all identify the “infinite-bear” as a peak-oil doomist, but in reality it would be closer to cartel pricing like OPEC.  We know the problem with this, however, is that withholding your own production only benefits the bottom line of your competitors.  No matter how you slice it, such a position relies on the fact that oil remains a core necessity for our economy.  Then again, this could be said for a wide variety of commodities.

    One of the most surprising things to me is actually the mind-boggling inflexibility of oil production.  Look at early 2009 prices versus production, for instance.  At that specific moment in time there was a virtual market consensus that prices were too low, but production didn’t change by much.  This indicated to me a spectacular inability of speculators to influence the actions of producers.  At that time, as well as today, the price of oil seems to be a fairly mundane result of supply and demand, both of which behave particularly inelastically.  Even though one should reasonably expect them to have this ability, speculators can’t even manage to put a floor on the price of oil.

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    • By Earl Richards on April 16, 2012 at 1:02 pm

      To understand the arrogance and corruption of Wall Street and Big Oil, may suggest that you google and read under the following titles:

      1. Raymond G. Learsy – oil prices;

      2. F. William Engdahl – oil prices.

       

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      • By Robert Rapier on April 16, 2012 at 1:06 pm

        1. Raymond G. Learsy – oil prices;

        That explains so much about why you are so confused. For the record, I think Learsy is an idiot, and have written as much: 

        Dear Saudi: Stop Hogging Our Oil

        RR

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    • By Robert Rapier on April 16, 2012 at 1:27 pm

      I would assert that there is no theoretical limit to how much speculation can push the price up.

      That will also be dictated by the demand side. It is true that in the short term supply is fairly inflexible, but people can cut back on the demand side in a hurry. That’s why people who were predicting in 2008 that oil prices would run up to $300 got it so wrong.

      RR

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    • By Optimist on April 17, 2012 at 2:14 pm

      …but I would assert that there is no theoretical limit to how much speculation can push the price up.

      Let me guess: you have a degree in economics. It takes a major in economics to state something that nonsensical as if it was worth saying. Practise in front of the mirror much?

      There is a very simple theoretical limit to how much speculation can raise prices: ultimately every speculator needs to sell to a “real” buyer. If there are ten excited speculators for every “real” buyer, the buyer only needs to find the least excited of the ten to undercut the other nine.

      Contrary to popular belief, buyers aren’t braindead Joe Sixpacks who pay whatever the speculators demand. Buyers obviously shop around.

      Also: speculators don’t operate in a vacuum where they can create the perception that prices need to go up, because…eh… we said so. They operate in the real world. Sanctions on Iran, demand from China and India, OPEC targets and a multitude of other factors create a perception of shortage or oversupply. The speculators have no control over any of that. But they do respond to these events. And help us all by doing so.

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      • By AlanRominger on April 29, 2012 at 9:07 pm

        Your counter argument misses the entire argument.  Robert had it right, the only thing that prevents what I’ve proposed is demand destruction.

        If your a paper speculator it’s true that you are always forced to exit a long position, but if you have control of actual physical assets, there always exists the option to put a field into a state of non-production.  Even if you don’t own the physical assets, you can increase the difference between today’s prices and future prices that will lead actual field developers to withhold production from the market in lieu of higher future production.

        Maybe you’ll argue that putting production assets into non-production is insane.  Well, environmentalists (among other philosophies) may find it convenient for their world view, and even philanthropic as recently argued by Ars Technica.

        http://arstechnica.com/tech-policy/news/2012/04/hate-fossil-fuels-then-buy-up-the-reserves.ars

        So I consider this to be a very valid potential force on the prices of fossil fuels.  Ordinary humans have the ability to restrict production of oil through financial instruments, to argue otherwise would be ignorant.  This is a self-obvious fact and it results in no theoretical limit to the price of oil, short of the possibility of us outright replacing oil.

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  3. By Edward Kerr on April 16, 2012 at 10:46 am

    While “speculation” can exacerbate a price swing in either direction, in the final analysis, it remains “supply and demand ” that ultimately drive base prices. I respectfully disagree with Earl, Peak Oil is a fact. Whether we have reached that point yet is a subject of heated debate but the fundamental problem remains. Humans are relying (primarily) on a finite resource at the same time that the demand on that resource is increasing and that spells price increases into the foreseeable future. Ironically, it will be the large scale introduction of  “alternatives” to oil that will ultimately drive the price of oil down but by then no one will care what oil costs.

    Regards,

    Ed

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  4. By Tom G. on April 16, 2012 at 11:43 am

    Good posting about energy but this is how I feel about higher oil prices.   

    +  If you don’t like the high price of gasoline, buy a smaller vehicle.

    +  If you hate oil companies [or speculators], buy an electric vehicle

    +  If you can’t afford an electric vehicle, at least consider a hybrid

    +  If you can’t afford a hybrid, drive fewer miles by consolidating trips

    +  If your pickup truck carries you and your tools to work – good for you.

    +  If you truck just carries you to work – shame on you.

    +  If your car gets 20 mpg then buy one that gets 40 which is the same as $2.00 gas. 

    +  If your car gets 20 mpg and you can’t afford a new car, move closer to work if you can.

    +  If you carpool – read a book on energy efficiency instead of sleeping.

    +  And last – just stop bitching about gas prices and go do something about it.

    You can always find ways to save energy almost any place you look.  Your car, your home, your work, your vacations, how you travel, how much you travel and if you even have to travel.  Find ways to get stuff done using less gas, diesel, natural gas or electricity.  Here is a simple tip – stop changing your car or truck engine oil every 3,000 miles.  Don’t become one of those people – go read the darn owners manual – go do stuff you have control over.  

    Higher fuel prices should not be a surprise to anyone at this point.  I mean they have been steadily increasing for how many years now?  How many times have you read in the paper, heard on the news or read on the internet this was going to happen.  

    This is my story and I am sticking to it.

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    • By Tom G. on April 16, 2012 at 11:48 am

      Oh and I forgot to mention.  If you don’t care if gasoline cost $4.00 or $8.00/gallon you can ignore everyone’s comments on this site.  

       

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  5. By ben on April 16, 2012 at 5:05 pm

    I have finally heard something out of RR with which I can take genuine exception and hold him accused of nothing short of reckless negligence; it has taken him 4 1/2 years to (re)level the “idiot” label on Ray Learsy.   If that isn’t an impulse of genuine charity on his part, it is clearly a case of outright neglect!   Folks,  it’s jokers like Learsy who give freedom of speech such a lousy reputation in many places around the globe.   Makes one wonder if anyone at the Huff-N-Posture actually edits (let alone pays for) such rubbish.  Now that, too, requires a another leap of logic, eh.

    Ben

      

     

        

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  6. By Optimist on April 16, 2012 at 8:00 pm

    In fact, I agree that speculation is helping drive up oil prices.

    Based on what evidence?

    The rational speculator has to buy low (i.e. help prevent prices from falling too low) and sell high (i.e. prevent prices from going too high) to make money. From that simple explanation it follows that:

    1. Speculators help stabilize prices.

    2. Speculators take supplies off the market when the market is oversupplied.

    3. Speculators bring supplies to market when the market is undersupplied.

    In ALL cases speculators help consumers. OOPS! Don’t tell anybody, OK!

    It would probably knock off the extreme swings on either end.

    Uhm… That’s the opposite of what you said in the previous sentence…

    Come’n, Bob! Admit it! Speculators don’t hurt anybody. Just don’t tell the dumbass politicians that…

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    • By Robert Rapier on April 16, 2012 at 9:26 pm

      Based on what evidence?

      I think it is self-evident that if more people believe the price is going to rise — they drive the price up with their purchases (i.e., their speculation). As you add more people to the pool of those buying and selling, you are bound to get more outliers (i.e., more people willing to pay a little more) when the sentiment is bullish.

      Uhm… That’s the opposite of what you said in the previous sentence…

      The previous sentence that you quoted? I said that speculation is helping to drive up prices, and reducing it would knock off the extremes — which in this environment would mean lowering prices somewhat.

      RR

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      • By Optimist on April 17, 2012 at 1:43 pm

        I think it is self-evident that if more people believe the price is going to rise — they drive the price up with their purchases (i.e., their speculation). As you add more people to the pool of those buying and selling, you are bound to get more outliers (i.e., more people willing to pay a little more) when the sentiment is bullish.

        Affraid I have to disagree – it is NOT self evident at all: What you are describing is a pyramid scheme (aka Ponzi scheme). In such a system there is a small number of original investors that walk away with HUGE profits (assuming they don’t get caught) and a large number of late investors who lose their shirts. Inevitably, every pyramid scheme runs out of fools to sell to, and comes crushing down.

        Moreover, it would be fairly easy to spot a pyramid scheme in oil: it would require more speculators (or bigger purchases by existing speculators). This would need to go on for some time, before you will notice an impact on price.

        Don’t confuse what I descibe in the previous paragraph with normal (helpful to everybody) speculator behaviour: there are times when the speculators increase their holdings, such as when they anticipate higher future prices. If they are right, they make money by buying low and selling high. If they are wrong, they lose their shirts.

        It is worth noting that ALL benefit when the speculators make money: they buy low, bidding up low prices and when they sell high, they add to supply in a tight market. In this way speculators help keep volatility lower than what it would be without speculators activity.

        Now if only someone would explain that to the resident Dimwit in 1600 Pennsylvania Avenue…

        I said that speculation is helping to drive up prices, and reducing it would knock off the extremes — which in this environment would mean lowering prices somewhat.

        OK, I misunderstood…

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  7. By Benny BND Cole on April 16, 2012 at 8:19 pm

    The CFTC has brought actual cases against firms that have manipulated prices on the NYMEX. 

    Identities can easily be cloaked in commodities markets, and unlike natural gas, there are some very large suppliers who dominate the market, such as OPEC.   

    The bulk of trading on the NYMEX is now speculators, who outnumber “real” hedgers five to one. 

    In short, if a Putin can game the market, if it is in his interest to game the market, if it is his patriotic duty to game the market, why would he not game the market?

    We must assume Putin is pursuing his interests.  I assume Putin is trying to game the market, through cloaked funds, perhaps by buying and selling futures at higher and higher prices. 

     

    Can someone tell me why Putin is not trying to game the markets?

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    • By Optimist on April 17, 2012 at 1:55 pm

      The CFTC has brought actual cases against firms that have manipulated prices on the NYMEX.

      Yes – it happens. The oil market, though, is MUCH bigger than penny stocks, and MUCH harder to move this way or that…

      The bulk of trading on the NYMEX is now speculators, who outnumber “real” hedgers five to one.

      And what does that prove? In the end ALL the speculators have to sell to “real” buyers. If the speculators outnumber the real buyers, one would imagine that the real buyers would be able to negotiate a pretty sweet deal.

      Can someone tell me why Putin is not trying to game the markets?

      Sit down, Senator McCarthy, and pour yourself a stiff drink.

      Just because the Communists hope to rule the world, it does NOT logically follow that every bad event in America, is the result of their cunning masterplan. It may interest you to know that incompetence is a HUGE problem in communist societies. Why work hard to get it right, if you get no reward, or recognition?

      Please back up your elaborate conspiracy scheme with some supporting evidence. Surely a scheme that grand has to leave some evidence somewhere. Outside your convinced mind, I mean…

      You are sounding like the Bush administration, justifying the invasion of Irak. Here: he said: “…we have to hide it from them…” What more proof do we need?!?

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  8. By mac on April 16, 2012 at 11:25 pm

    Ben ?

    Doesn’t ‘t anybody get it ?  If you  flush the market with large purchases that drive up stock prices or commodities.  then suddenly sell on the demand up-tick,  you can make away a  big pile of money,  assuming a significant capital investment. (which most poor folks don’t have)

     

    Ben buys 100 shares of “Malaysian Palm Oil”  at ten bucks  a share and so does the   XYZ  Corporation.  Ben’s stock goes up 10%.  Ben sells his 100 shares for a nifty  “BIG PROFIT”  of 100 Bucks.

     

    In the meantime XYZ  Corporation (that engineered the Big One Million dollar Phoney Buy order in the first place) have successfully scooped for themselves a cool $ 100 Grand.

    Probably,  for just a few days  “WORK ?”

    If you can call  “work”  just hitting a nameless keystroke on a nameless computer somehow connected to  a nameless  Swiss bank  account  whose funds are regularly deposited from a nameless country somewhere  offshore……..

     

     

     

     

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    • By Jason Kobos on April 21, 2012 at 10:41 pm

      Mac, why can’t there be a big price fixing speculation ring and Peak Oil.  Why do they have to be mutually exclusive?

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  9. By mac on April 17, 2012 at 3:14 am

    Ben,

    Stocks are not just “representative shares of your supposed partial ownership of any given company ,  but are commodities within themselves,  traded on the NYSE, NasDaq, etc.

     

    Demand for well managed and profitable companies increases over time.

    As certain profitable companies advance,  so does your relative percentage of ownership in them.  (Barring endless dilution of your shares  with endless stock re-issues.) This makes your personnel stake worth more as time goes on.

     

     Stock ownership not only entitles you to claim voting benefits within the company itself, but places any liquid shares you own on The Stock Exchange,  where you can simply sell the appreciated shares or keep then for dividends ,  further stock appreciation, tax breaks.  etc,.

     

    The long tern effect of artificial,  massive, organized  Buy and  Sell campaigns from Brokerage Houses,  Hedge Funds or Uber:-rich individuals creates the volatility. 

     

    This manipulative, artificial infusion (or  sudden retraction of capital into the markets)  has nothing to to with the real, long tern worth of good companies over tine, but is a huge opportunity for groups, companies, and  individuals with significant capital to game the system, which is exactly what has been done.

    Obvious Reality ? Of Course…

    No need to resort to conspiracy theories……………..

    Just go back and read some of the real-time, recorded quotes from the Robber Barons of  19th Century America who were  absolutely delusional in their own thieving self-importance.

     

     

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  10. By mac on April 17, 2012 at 5:26 am

    Are “speculators” responsible for high oil prices ?

    Uhh,  Well, sort of……………., but not exactly.

     

    What speculators do is to add a surcharge to every gallon of gas we buy.  They have no way most of the time to take actual physical delivery, and thereby actually provide a real service.

    They remind me of the old time stock brokers who loved to ” churn” their clients accounts to make commissions just by moving the clients money  around uselessly.

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  11. By Jim Takchess on April 17, 2012 at 11:44 am

    I’d like to read a book on this topic by someone who has a deep understanding of the market. Any suggestions??

    And to Tom G. – Right on . 

     

     

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    • By Tom G. on April 17, 2012 at 12:29 pm

      From what I read on this site there seem to be several aspects of speculation but I am quite sure RR or one of the other posters could recommend a good read.  Are you most interested in trading futures or just a general overview of the various markets and exchanges?      

      Thank you for the complement. 

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    • By Robert Rapier on April 17, 2012 at 1:19 pm

      I’d like to read a book on this topic by someone who has a deep understanding of the market. Any suggestions??

      Oil 101 by Morgan Downey. Very good book, which I reviewed here. Downey is a commodities trader with a very good understanding of the markets.

      RR

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  12. By Jim Takchess on April 17, 2012 at 1:24 pm

    I’m not interested in a book to make trades personally. 

    I’m interested in hearing someone who knows what they are talking about discuss specifically about oil speculation and it’s impact on the cost at the pump. Someone who understands the Financial Market.

     

     

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    • By Robert Rapier on April 17, 2012 at 1:26 pm

      I think Oil 101 is what you are looking for. It isn’t a book on how to trade; it is a book covering all aspects of the oil business.

      RR

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    • By Jim Takchess on April 17, 2012 at 1:34 pm

      Thanks Robert I’ll check it out.

      Interested from an academic perspective someone discussing this. 

       

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  13. By Benny BND Cole on April 17, 2012 at 1:44 pm

    No doubt, polemics of both stripes will instantly bash or defend Obama’s move to tamp down speculation and manipulation in oil futures markets. 

    However, Obama, who has had a weak energy policy, does strike me as a reasonable fellow. 

    The fact that Obama thinks oil markets are being gamed says something. 

     

    Obama Seeks $52M, New Regs to Fight Oil Manipulation

     Email17Smaller FontTextLarger Text|Print

     

    ap barack obama energy wy 120417 wblog Obama Seeks $52M, New Regs to Fight Oil Manipulation

    (Image credit: Susan Walsh/AP Photo)

    President Obama is asking Congress for $52 million in new federal funding to boost oversight of oil markets, increase penalties for price manipulators, and raise margin requirements to reduce market volatility.

    The money would fund “more cops on the beat” at the Commodity Futures Trading Commission (CFTC), the agency tasked with regulating oil futures markets.  It would also provide “critical IT upgrades” to bring the agency up to speed with the latest technology traders use, officials say.

     

     

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    • By Samuel R. Avro on April 17, 2012 at 3:20 pm

      However, Obama, who has had a weak energy policy, does strike me as a reasonable fellow. 

      The fact that Obama thinks oil markets are being gamed says something.

      I can’t tell if this is serious or just Benny being tongue-in-cheek.

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  14. By Optimist on April 17, 2012 at 2:20 pm

    Obama is proving himself (again) to be nothing other than a cheap opportunist, who steers away from the tough decisions by playing to the fools in the crowd, and strikes out at those nasty boogeymen that keep honest citizens wetting their beds at night.

    Funny, he didn’t say anything about Putin manipulating the NYMEX, eh Benny? Maybe there is a limit for even the cheap shot opportunist…

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  15. By Tom G. on April 17, 2012 at 2:43 pm

    Come on boys lets play nice in the sand box.

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    • By Optimist on April 18, 2012 at 1:39 pm

      Sorry to offend you, Tom. There I thought I was being nice.

      The cheap opportunism is getting me down. The likelihood of facing four more years of it would getting me even more down, if the other party didn’t engage in such an entertaining traveling roadshow, complete with clowns who pretend to be running for president…

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  16. By Biocrude on April 17, 2012 at 2:54 pm

    Tom G, I second the compliment and even though I want to see Americans begging for $6 a gallon again (obviously down the road) I find most* of the comments on here informative.  
    We need to stop using so much oil, plain and simple.  Drill baby drill, and speculator excuses are doing a great disservice to our already educationally-lacking public.  
    If we could just enlist Kim Kardashian, Charlie Sheen and the media’s latest idiot of the week to become a spokesperson about oil, I think we could engage the general public and make some real progress…
    *Earl Richards, please turn more of what you are smoking into fuel.
     

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    • By Earl Richards on April 17, 2012 at 3:13 pm

      You are an authority on nothing.

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      • By Biocrude on April 18, 2012 at 12:59 am

        Earl,

        We are aligned on what needs to happen and where the country needs to go, which is away from oil.  The problem as I see it, is it is very dangerous to convince people that there is plenty of oil, and this is a big sham/conspiracy by powers greater than ourselves that is influencing the price. 

        Edward Kerr put it very well above :  Humans are relying (primarily) on a finite resource at the same time that the demand on that resource is increasing and that spells price increases into the foreseeable future.

        Trying to convince people there’s a global oil conspiracy does no one any good.  Convincing people to use less oil benefits us all…

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    • By Tom G. on April 17, 2012 at 3:31 pm

      If we could just enlist Kim Kardashian, Charlie Sheen and the media’s latest idiot of the week to become a spokesperson about oil…  

      Now that is some really good humor.  My best chuckle of the day.

      It is also a very true statement. 

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  17. By mac on April 17, 2012 at 7:58 pm

    Optimist.

    GREAT !!!!

    The E.U transportation system is 97 % oil reliant,  and in the U.S,  it’s just a meager 98 %.

    The idea that we should diversify our transportation system,  to include other options is,  of course,  “heresy” to the oil companies.

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    • By Optimist on April 18, 2012 at 1:36 pm

      Which of my multiple comments was deserving of that piece of wisdom, mac? Complete with %s…

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  18. By dubbleoj on April 17, 2012 at 10:21 pm

    RR, while I hate to give your troll more ammunition, what do you think about Chris Cooks accusations of “dark inventory” and other market collusion by big oil/big banks?  He himself was a director at the IPE (though in the compliance dept.). I agree that supply/demand sets the trend and speculation the extremes, but if this argument holds water, which I am inclined to believe, how much of an affect would it have on end prices? 

    http://www.theoildrum.com/node/8834

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    • By Robert Rapier on April 17, 2012 at 11:38 pm

      RR, while I hate to give your troll more ammunition, what do you think about Chris Cooks accusations of “dark inventory” and other market collusion by big oil/big banks?

      I don’t doubt that all of this inflow of new money helped drive oil prices up, but I am not much for conspiracy theories. Cook himself admits that he is speculating on what happened. There are isolated incidents of things like that happening, but in no way do I accept that the oil companies are behind this huge run-up in oil prices (except insofar as they haven’t produced enough oil to meet growing demand).

      RR

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  19. By dubbleoj on April 17, 2012 at 10:23 pm

    And why does no one address dollar debasement? 

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    • By Robert Rapier on April 17, 2012 at 11:51 pm

      That question commonly comes up. I don’t think a lot about it because even though that has had an impact in the U.S., oil prices have increased when priced in euros as well. I think you would be hard-pressed to find a currency in which oil prices haven’t shown a sharp increase in the past few  years.

      RR

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  20. By Optimist on April 18, 2012 at 1:46 pm

    Robert,

    Still waiting for a respoinse to this comment.

    In a market as big as oil, I find it hard to believe that speculators can more the needle by sheer excitement. And that includes Benny’s crazy, prove-me-wrong theory that Putin is using the Russian treasuary to play the NYMEX.

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    • By Robert Rapier on April 18, 2012 at 2:05 pm

      My previous reply is what I believe. Why did we have a tech stock bubble in 2000? Because a lot of money poured into that sector in the belief that the sector would do very well. Why did oil prices run up so sharply in 2008? Same reason. Why did they collapse so quickly? The herd changed its mind and got scared, overcorrecting in the other direction. 

      With fewer people in the market, I think you would be unlikely to see the extreme swings. When more people are all chasing an opportunity in the same direction, they will influence the price in that direction. As I said, I think it’s self-evident. And we have seen it happen before.

      But don’t get me wrong — I think that’s a symptom of underlying issues and not the cause of high oil prices.

      RR

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      • By Optimist on April 18, 2012 at 3:18 pm

        Why did we have a tech stock bubble in 2000? Because a lot of money poured into that sector in the belief that the sector would do very well.

        Would you blame speculators for the tech bubble? Would you call the housewives and gardeners who invested in tech speculators?

        I would NOT. I think you are confusing two issues: herd mentality and speculator activity.

        As the slick Wall Street types always say: greed and fear cause a lot of the trouble. What they fail to mention is that without greed that would be out of work. Without fear, we’d be irrational.

        You seem to be hinting at the “trust the professionals” approach, i.e. if only professionals are involved, there’d be no greed and fear, and markets would be much more stable. FWIW, I heartily disagree: if the housewives and gardeners worked though brokers, they’d lose even MORE money: piled on top of their market loses would be those hefty broker fees.

        Why did oil prices run up so sharply in 2008?

        We reviewed some data back then that showed the market had a delayed, but proper reaction to raising demand and stagnant production. Ideally, the market reaction would have been smooth, but in the real world, it can take a while for the message to get through.

        Was there an overreaction? Sure. How do prevent an overreaction? Not sure it can be done. You have a suggestion?

        Why did they collapse so quickly?

        Er… did you forget the meltdown that happened in late 2008? There was a LOT MORE going on than just herd mentality: there was a global financial meltdown. Oil prices were going to collopse, regardless of where they were at the start of the meltdown. It’s just coincidence that they started the meltdown at an all time high.

        With fewer people in the market, I think you would be unlikely to see the extreme swings. When more people are all chasing an opportunity in the same direction, they will influence the price in that direction. As I said, I think it’s self-evident. And we have seen it happen before.

        Again, I think you confusing two issues: it’s not the number of people in the market that creates volatility, it’s the number of new enties. More precisely the number of $$$ vs the number of new $$$. Ditto for the housing market a few years back when lenders suddenly had no lending standards, and then people were saying: get in now, or be locked out forever!

        To bid oil prices up, you need new $$$ flowing in and buying: that creates demand that cause prices to go up. Once that money is in, it does NOT matter how much is sloshing around, it does not affect the balance between supply and demand anymore.

        Of course, occasionally you have the case where money is flowing in over the course of several years, e.g. the housing market of pre-2007, the tech bubble. Once that influx stops, all that previous demand is gone, and prices nosedive.

        What happened to oil in 2008, was probably a lot of new $$$ early on. Then again: That would be a proper response to the data linked above. Next the herd mentality you mention added a few $$/bbl. Impossible to say how much. I would NOT say that herd mentality explains the drop that followed. I would blame our friendly bail-out recipients on Wall Street for that.

        Likewise, I doubt there is any herd mentality premium right now. The White House is embarking on a Wild Goose chase.

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        • By Robert Rapier on April 18, 2012 at 3:31 pm

          Would you blame speculators for the tech bubble? Would you call the housewives and gardeners who invested in tech speculators?

          Maybe the problem then is one of definitions. I would answer yes to both of those. Those housewives who put money into tech stocks were certainly speculating.


          Oil prices were going to collopse, regardless of where they were at the start of the meltdown.


          But again, that’s due to a lot of people selling at the same time, which pushed the price down to far below what was reasonable (which was obvious since it bounced back pretty quickly).

          To bid oil prices up, you need new $$$ flowing in and buying: that creates demand that cause prices to go up.

          And that has happened over the past few years. A lot of bullish money came in and started buying oil. That’s one of the big complaints; that the JP Morgans of the world have pushed prices up.

          The White House is embarking on a Wild Goose chase.

          On that we can agree.

          RR

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          • By Optimist on April 18, 2012 at 4:27 pm

            Those housewives who put money into tech stocks were certainly speculating.

            Let’s just say our dear president defines them differently: he wants to declare open season on speculators (of all kinds). He even called GM bondholders speculators, before he gave them the raw deal of the centuary. Oddly enough, many of those were middleclass retirees.

            But again, that’s due to a lot of people selling at the same time, which pushed the price down to far below what was reasonable (which was obvious since it bounced back pretty quickly).

            What? It took speculators months to unload? I don’t think so. The spectaculor drop would be herd mentality. I doubt much speculator activity was involved.

            And that has happened over the past few years. A lot of bullish money came in and started buying oil. That’s one of the big complaints; that the JP Morgans of the world have pushed prices up.

            But here’s my point: to keep prices rising, you need new $$$ all the time. I can see it happening for a while. But all through this slow steady rise?

            And agian: speculators make money by buying low and selling high: reducing volatility. If they’re still out there buying they are expecting prices to go up more. I would bet they are about to lose their shirts. But what do I know?

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  21. By Jim Takchess on April 18, 2012 at 5:32 pm

    maybe we should also take into account increased production costs of the unconventional oil. 

    http://www.smartplanet.com/blog/energy-futurist/the-cost-of-new-oil-supply/468?tag=mantle_skin;content

    No one is in this to lose money. 

     

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  22. By mac on April 18, 2012 at 9:49 pm

    Canada, O  Canada……….

    Please  allow us to buy your oil.

    So sorry we made fun of you……………..

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  23. By mac on April 18, 2012 at 10:54 pm

    And so  ????

    The enlightened peoples of Norway and Alaska actually give back a certain portion of their oil revenue (ROYALTIES)  to their common citizens.

    Mac

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  24. By john on April 19, 2012 at 5:52 pm

    The market as a whole, ie: buyers AND sellers SET the prices. The companies have little influense beyond the supply side of the equation.  This might be a somewhat simplied version of reality, but it is what commodity trading all boils down to.

    Speculators is a fancy term for “risk takers”. They are the ones that give all commodities liquidity. Without liquidity, there is no market. To suggest limiting speculation, therefore is to impose govt restrictions on the free market!

    Hmm, who says Obama isn’t a socialist!   

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