The Great Oil Swindle – How Much Did the Fed Really Know? « Operation Awakening — Now that a lot of attention is being paid to this fiasco the swindlers will be heading to the exits, shortly.
Index Speculators have now stockpiled, via the futures market, the equivalent of 1.1 billion barrels of petroleum, effectively adding eight times as much oil to their own stockpile as the United States has added to the Strategic Petroleum Reserve over the last five years.
Today, in many commodities futures markets, they are the single largest force. The huge growth in their demand has gone virtually undetected by classically-trained economists who almost never analyze demand in futures markets.
As money pours into the markets, two things happen concurrently: the markets expand and prices rise. One particularly troubling aspect of Index Speculator demand is that it actually increases the more prices increase.
Found by Kerry Lutz.
Politicians and other conspiracy theorists love to blame generic groups like “speculators” (good luck finding one) because it means they don’t have to do anything. Companies (like airlines) buy oil futures because they don’t want to run the risk of large unexpected prices rises which could put them out of business. If you sell air tickets 6 months in advance you’d better buy futures on your fuel for the same period. The more volatility in a commodity the more normal companies need to buy futures. But all futures contracts get lumped together as “speculation” and blamed instead of high demand for price changes.
If the demand for computers is up companies build more computers. If more oil is needed you drill for more oil. By Congress not allowing oil companies to drill for our own oil and build more refineries explains at least in part why they have earned their 91% disapproval rating.
This is not “new ” news to anyone who has any measure of intelligence in their brain
In 1973 it became readily apparent that their were “issues” emerging
What was the response
“We don’t want to build econoboxes”
No money or status
Alternative fuels – reject them , any effort is pork barreling
Keep out Brazilian ethanol . pay off mid-west farmers – reward them by having their product made into ethanol ( with taxpayer corn subsidizes)
Build trucks loaded with options – charge tons of money by calling them “SUVs”
If you go to a store and they overcharge you , gouge you and make it very clear that they hate , even despise you and your family do you go back for more
For over 30 years
Obama went to a church for 20 years and the US goes to OPEC for over 30 years after they knew the score
This will all end with crying
It couldn’t be that the price of oil is rising because THE PRICE OF OIL IS RISING?
When someone buys oil in a futures contract, then that means that someone is also selling oil in the future at that price.
#5–Mike==both those someones are speculators with almost no actual consumers. That process ratchets up the price of oil in a market of relative inflexible demand ((meaning there is a lot of demand with no alterntive to go to)).
Is there a rising demand for oil that will tend to raise prices? ==Yes. Is that normally reflected in shortages as well?==Yes. Are there shortages?===No.
Why are you pimping for the oil speculators?
I find it interesting that futures trading in oil is essentially completely unregulated by the CFTC… so much so that they have absolutely no clue as to who is buying and who selling oil futures or derivative contracts. The door is wide open for abuse.
Hmmmm… conspiracy theories anyone? As mentioned in the article, Investment banks and hedge funds who are trying to dig their way out of the trillion dollar mortgage-backed securities? … and/or …. did you know that ICE Futures in London is owned and controlled by a USA company based in Atlanta Georgia? I wonder if there are any oil company connections in there anywhere. ICE’s BOD can be found here board of directors…. a lot to sift through. I’m not gonna do it 🙂
Bobbo, for everyone who is buying an oil contract future, then someone else is selling. Whoever is buying an oil contract future, will either collect some oil, or will have to sell some oil back onto the market.
MikeN, sorry but that is incorrect. An oil futures contract is only still a financial contract. Speculators don’t have to buy or sell the commodity after the contract expires. It is simply a money transaction. Paper.
#8–Mike, JimR at #9 evidently could teach us both a lot about the market, real or future, but my comment to you noted the few actual “consumers” that are in the market.
Still===you didn’t answer my question at all. I have a guess grounded in psychology, but its just a guess. That guess firms up as you give no explanation. So, Why are you pimping for the oil speculators?
#9–Jim R==can you explain what the chart beginning this thread means? It kinda looks like a constant dollar analysis using today’s dollar from a post a few weeks ago? The implication is that gas is as cheap today in “real dollars” as it was in 1919 as if dollar inflation was the only relevant factor?
I like charts with colors. Definitions are good too?
7 and 9 come closest. The answer is to raise the margin requirements on the investment accounts that deal with oil.
Refineries would face a relatively small holding cost to keep that money in place. Speculators would have decreased leverage, and therefore less ability to screw about with the market. They would make less so they would go after something else.
Speculative bubbles in other commodities have come and gone. This one is different because it is in the process of dragging down the world economy. Similar swings in the price of silver or cocoa just aren’t that important.
#3 is particularly wrong. There is plenty of oil; more being found all the time. Oil also accounts for a small fraction of CO^2 emissions. Coal is dirtier and much more widely used. SUVs are annoying and unnecessary, but this current problem has a much more direct cause.
#5 If you had an oil well wouldn’t you be willing to guarantee your income into the future by selling the future contract at a price double what you could get last year?
Every effort to suddenly crash the price of oil should be undertaken. I know that a lot of very smart people got burned by doing silly things with fractions of mortgages, but they shouldn’t be allowed to corner the oil market.
Isn’t this kind of like a chain letter? The first person to buy the future is like the first person on the list?
Of course the price could go down… but not likely right?
There seems to be no shortage of gold either. Did anyone notice how closely the price of gold is tied to the price of oil?
How about an option contract with a strike price of $650/oz. when spot gold is > $950/oz.? No one is griping about that.
And the U.S. can create large pure diamonds in plasma machines but you don’t see the price going down on diamonds. In fact we get companies like De Beers trying to convince morons diamonds made in plasma machines are not as good as the “real” thing, whatever the f&*k that is. Figures won’t lie, but liars can figure.
#15 Excellent point.
People worry about the price of gasoline, meanwhile waste thousands on diamond jewelry that has value not because diamonds are actually rare (they aren’t), but rather because they are marketed.
The same jackholes that celebrate fictious Hallmark-invented holidays like Sweetest day and possibly Mother’s Day and Father’s Day with a $5 piece of frakking paper from the Hallmark aisle.
The actual truth, for anyone who can stomach it:
No necessary spending has been hurt by higher gas prices. Discretionary spending by dumb people wasting $$$ @ McDonalds or delays in purchases of luxury items like HDTVs is what is suffering or some asshat wakes up and realizes he does not need to blow $200 per week on gas in his Hummer.
Big freaking deal.
Now tell me what the downside of higher gas prices is again? Phatties have to walk sometimes? Peeps realize they can waste gas like they used to?
Get real, mofos.
My car doesn’t run on gold, that’s why.
#16 Mason
“No necessary spending has been hurt by higher gas prices… Now tell me what the downside of higher gas prices is again?”
Too many people like you have a selfish or greenish view of higher gas prices. You fail to realize that higher gas prices make the price of everything else go up. This has a cumulative effect that takes a huge told on lower income families.
The thing about putting money in the futures market is that this is truly gambling. You are betting that prices will be higher or lower on the day you have to unload the product.
H. Clinton made a bundle doing this sort of thing back before her hubby was elected but the thing that saved her was she got scared and sold out before the bubble burst. Her friends that stayed in didn’t do as well.
The same would have been true with the .coms. If you got in and sold out at the right time you could easily have made enough to be rich for the rest of you life. If you stayed in then you were sucking goose eggs.
Since a huge chunk of the increased cost of oil in the US is nothing more than the dollar fell I’m not sure where to go with this.
#19–deowil, you say: “I’m not sure where to go with this” /// but you do. Much of the rise in oil is the falling value of the dollar.
Neither presidential candidate, neither of their parties, no one on the national stage is even talking about stopping the slide of the dollar.
McCain mentioned last week he was going to balance the budget by the end of his term by wishful thinking. That in itself won’t stop the dollars slide.
So, America is slowly swirling down the crapper, maybe a major flush over oil. No one suggesting to revitalize our manufacturing base by going green.
So==as you so astutely pointed out==buy low, sell high, avoid the crash.
#17, gquaglia, the fact your car doesn’t run on gold wasn’t the point. Market speculation, regardless of the commodity, has effects on other products. Computers and other electronics do ‘run’ on gold, and many items that use them are rising or will rise in cost.
Looks to me like you all agree that this isn’t a problem of supply and demand.
So then, is it correct to say that the current US administration is laying a big fat egg rather than taking tangible steps that would make a difference in the US economy?
While he’s fscking around with FISA and POTUS 08, Bush could ask that congress up the margins a bit, which would make a difference…but is there any downside to anyone outside of oil futures investors if that happens in reasonable steps?
Fiddling while Rome burns, is what I’m thinking.
#20 “Neither presidential candidate, neither of their parties, no one on the national stage is even talking about stopping the slide of the dollar.”
Of course not, it would cost more to service the S debt. Your fed prefers it lower.
“So==as you so astutely pointed out==buy low, sell high, avoid the crash.”
Or short the commodity, like BubbaRay’s example. Money is going to oil and energy because it’s volatile. True speculators don’t care which way it goes as long as the price is unstable.
#22 “Looks to me like you all agree that this isn’t a problem of supply and demand.”
Not me. Demand keeps rising worldwide and supply has leveled out. In the late 90’s the thinking was that the cost of oil extraction/processing had been driven down by technology so there would be a long period of overcapacity. Couple that with a previous decade of low prices – no one bothered to develop supply.
It takes years and years for supply to come online so they lack of development from 6-10 years ago is being felt now.
Also, the Saudis probably don’t have as much oil as they claim. Bush and Cheney figured all this out when they came to office and the rest is history.
Of course, they just made things worse, not better. Bad news when a bunch of morons have an army to play with and a compliant congress.
Drill here, drill there, start drilling everywhere. Solar where you can. Wind where you can. Hydro where you can. Clean coal. Coal liquification. Shale oil. Suspend all eco laws that prevent breaking ground on at least 250 new nuclear plants NEXT WEEK. Do all of it RIGHT NOW. If people link arms and protest, run them over and use them for fuel.
BTW the real reason gas prices are going up is because the price being charged is increasing.
Don’t listen to the right wing noise machine: this is not a drilling shortage.
It’s the foreseeable result of conservative anti-regulation philosophy which as dominated since Reagan.
#11, Bobbo, #9–Jim R==can you explain what the chart beginning this thread means? It kinda looks like a constant dollar analysis using today’s dollar from a post a few weeks ago? The implication is that gas is as cheap today in “real dollars” as it was in 1919 as if dollar inflation was the only relevant factor?
That’s what is means Bobbo. Fortunately inflation isn’t the only factor for what we pay for things, or a single story wooden house would cost 1.5 million today. 🙂 That chart actually shows that gas has recently been artificially inflated to essentially wipe out 90 years of industrial and economical progress.
#25, BigCarFt, Exactly. Too much is happening too fast. The IPCC ranting that we are all going to die if we don’t do something drastic now… rather like yelling “the building is unstable” in a very overcrowded earthly theater. And their cheerleading for high gas prices isn’t helping matters.
The lower class guy or gal driving a 4th hand gas guzzler to work 40km’s every day to his menial job to make brass couplings for someone’s $60000 Jacuzzi, is getting hit the hardest. Inflation caused by high gas prices makes it harder to feed and clothe his/her children, on top of gouging a crappy pay cheque by costing more to get to work.
The author of this article seems to be ignorant as to how the futures market works. The only way index speculators can stockpile oil is to rent out storage facilities to house that 1.1 billion barrels. Such facilities do not exist!!
#2 Oil companies have plenty of places they can drill but aren’t, this campaign of Newt Gingrich and the oil companies who are paying him is to monopolize the future of oil. Oil companies can also build all the refineries they want, but wont because the refineries that exist are running BELOW capacity due to declining imports THERE ARE NO SHORTAGE OF REFINERIES… ITS A LIE!!!
MikeN is right (there I said it) it aint the speculators. #9 JimR is wrong. If you are holding a contract to buy, you have to take posession or sell the contract. If you are holding a contract to sell you have to produce some oil or buy another contract. At the end of the contract period futures traders have to zero out their contracts.
#24 has it exactly right. Production has been at a standstill for at least 3 years now. Demand continues to increase and shortages are popping up around the globe. Oil exporting countries are exporting less so they can keep more for themselves.
You think things are bad now wait till 2012 when many experts are saying oil production will start entering terminal decline.
Regarding Oil==I think the future is bright as we transition to electricity as the carrier/fuel and renewable carbon neutral resources.
We will have a last chance, probably not to be taken, to regain world leadership in this green technology of the 21st Century. No Coal, No Oil, No Nukes.
Only thing that is going to hurt is the transition. Grab your socks.