TIME Blames Speculators: "We Are Slaves To This Black Gold Standard"

Is it possible that oil prices are rigged? You bet. Here's how:

Just how would you raise prices if you were an oil supplier? Controlling the supply -- as in the 1973 OPEC embargo -- has become less effective with more sources of oil worldwide. And oil suppliers clearly cannot raise prices by controlling demand in the physical oil market; ultimately, they need to sell their oil, not buy it. However, with the market inefficiencies that we expose here, oil suppliers can regain the upper hand by artificially inflating demand using a different market. To understand this mechanism, we must take a glimpse into the future -- the futures market, that is.

The price of oil reported in the news is actually the price of oil in the futures market. In this market, traders do not exchange physical barrels of oil, but instead trade contracts which obligate them to exchange oil at a quoted price at a specific date in the future, usually months in advance. Such a contract allows companies to hedge positions by locking in prices early. Airlines might buy futures contracts to reduce their exposure to rising fuel prices. Conversely, oil companies might sell futures contracts to assure a profit against future price drops. It's all about reducing risk and uncertainty. But what if oil suppliers were instead buying oil futures, compounding their own risk and reaping enormous profits from the explosion in the price of physical oil?

Read the full story here

::Related: Raymond J. Learsy's blog on the Commodity Futures Trading Commission's sudden obvious realization

Comments

[geobushono]

anybody who reads, knows how Russia treats their oil manipulato­rs........­hence all the msm handwringing about the big bad Russians.

[dadw5boys]

IT'S THE HEDGE FUNDS RUN BY EX-ENRON EMPLOYEES OF THE ELECTRIC SCAM DAYS.

THEY ARE USING SAUDI MONEY TO CRIPPLE THE U.S. ECONOMY !!!!!!!!!!!!!

[KillTheMessenger]

Have a cookie. You are getting too excited.

[iambusto]

If someone blames the Oil companies for making too much profits i will smack their head one more time and direct them to any financial research site (yahoo, bloomberg, morningstar whatever).

Lets pick the top dog oil company: Exxon Mobil (xom)

Dont compare total profit by $. Look at the Margins (Gross Margin, Net margin whatever you wish).

compare them with the following industries: Healthcare & Software (I just picked these two, if you want further proof would be happy to provide other industries).

Pfizer
Merck
Bristol Myers Squibb

Microsoft
Oracle
IBM

All these companies have higher margins than XOM. so next time you want to nationalise oil, how about forcing those companies into goverment fold too cuz "they make too much profit too!!".

gee.

[KillTheMessenger]

Are you appealing at people's intelligence?

Well, keep up the good work!

:-)

[blueskybigstar]

The margin may be higher, but the oil companies have sheer quantity. They don't need as high a profit margin, because their fingers are in everything. None of those companies compare as well with the oil companies' sizes. It is probably easier to hide profit with oil companies as well. They were still making money when oil was a $1.50. What has happened since? There may be so much money that they record expenses of things which are unnecessary. Also, you have to look at the amount the top people of the company are getting paid.

[iambusto]

if you are worried about companies hiding expenses, look at Gross Margin then. Its much harder to manipulate than any other lines below in the income statement.

If you are going to compare between two companies, you HAVE to compare margins and not just gross/net sales, income etc. those numbers are ok to be taken in isolation but not for comparison.

I wasnt saying that oil companies are not making huge profits. why shouldnt they?

I was answering to people's complaints that they are making "too much" profits. hence the comparison based on margins.

if you want to nationalise industries, fine. start with healthcare, software and work down to oil. start with the industries that are gouging consumers more than "big oil".

[Rule Of Law]

Past the cycle here, but must respond.

Funny that the same people who have said all along that this has been the result of "peak oil," and the pressures of the "free market," can only answer this news--and it is just the beginning of an avalanche that will prove that speculation and investment banks have rigged the price of oil--by attacking other posters here or the sources they reference, not by refuting what has now finally become obvious even to the MSM.

Hurts, don't it, when the illusory houses you have built around this penultimate of price gouging come tumbling down?

[KillTheMessenger]

Remind me by how much oil production has increased since 2005? And please explain why it took a reduction of US consumption by 800,000 barrels per day over last year to bring oil prices into the $120/range.

:-)

[darthdarcy]

It's not inflation, go do some remedial arithmetic courses..

Just because so many can not understand how this swindle works doesn't mean you're not being ripped off..!

Try reading this...

http://www.star-telegram.com/ed_wallace/story/659081.html

I worked on the Commodities market selling futures in the late 70's at 99 Wall St...

I quit as they were all a bunch of crooks, and I walked away from almost $1,500.00 a week..!

[KillTheMessenger]

Aren't you the guy who also drove the CEO of Exxon around?

Or is that someone else... I can't keep you troll guys apart any more. You all sound like broken records, anyway.

:-)

[MetalCanuck]

The problem is INFLATION not speculators. This is just BULL.

[Swerinjer]

Um, HELLO.....­the store where you buy your goods sets the price. Shell, Exxon, and all these private interests are gouging us. They are making historic profits. They are crooks like Enron and Worldcom and Arthur Anderson and all those other big business scumbags.

The BLAME goes directly on Shell, Exxon and all the private gas companies and NOWHERE ELSE.

[darthdarcy]

You are sadly misinformed the big oil companies are a part of it but, maybe you should read the entire article and also try this one out...

http://www.star-telegram.com/ed_wallace/story/659081.html

[Robert59]

If Time and Learsy figured this out as did many of the Democrats in Congress, why didn't the Bush administration and why didn't Republicans in Congress?

Could it be they are in bed with the oil companies? Is it possible this is part of a long term strategy?

Has the president punked the citizens of the United States?

Did he purposely ignore the intelligence leading up to 9/11 because it fit in with a bigger plan, finding a reason to invade Iraq? From what we know about WMD I conclude the administration deceived us, not to make Iraq a shining light of liberty, but to fatten big oil's wallets.

Even now the administration drags its feet. They are lukewarm towards Maliki because he isn't keen on awarding all those fat no bid contracts to America's energy companies.

Why didn't the administration suspect speculation? Could it be because they wanted to enrich their sponsors (Bush's base)? Could it be because by driving up the price of oil they would hold the American citizen hostage? We would do whatever they wanted, drill wherever and at terms favoring the oil industry.

The reality is they don't want to drill here which is why they aren't investing their profits in drilling in all that land. They know most of it has no oil.

They want access to places in the world like Iraq where the chance of a dry hole is almost zero.

[darthdarcy]

It is no accident that the Futures Traders waited until the last year of the Bush Administration to double the price of a barrel of Oil....

That's how it's done, so that Bush did not have to deal with this long term...and then God forbid be forced to fix it...or politically damaged by this huge swindle which it is...!

[Robert59]

The administration was in this from the start. In 2002, oil sold for 22.51 per barrel.
In 2003 it climbed to 27.56, 2004 36.77, 2005 50.28, 2006 59.69, 2007 66.52.

In 5 years it tripled in price. During this time there was never a cessation in the flow. The price was driven up by speculators, not the war or the geopolitical situation. The administration colluded with the speculators who we now know were supplied with investment dollars from the energy suppliers (like Exxon).

In 2008, their greed became rapacious, hence the climb from 66.52 to a 129.44 peak in June. I think it went even higher in July.

This was done for a couple of reasons. To increase oil company profits, to imply our need to be in Iraq was for oil (the national security strategy), and to drive energy policy in this country (open up more areas for oil company drilling).

And it would have worked if the bubble hadn't burst and good reporters and analysts hadn't kept digging. Why did the Democrats get this right and the Republicans get it wrong?

I smell a rat, a dirty f-ing Republican rat.

[KillTheMessenger]

Sadly, neither Time nor Learsy have figured it out. You just happen to be unable to distinguish between reality and nice bedtime stories made up by people for your entertainment.

[Chubbster]

U.S. demand is not the story.

[KillTheMessenger]

Actually, it is the story. 800,000 barrels per day equals $100 million less in imports per day. That's three billion a month. If we manage to make it 2-3 million barrels per day less (i.e. 10-15% less oil consumption), we are beginning to talk real money, soon.

[mexicanamerican1948]

Outlaw Oil speculators, they move to London, Singapore, or Shanghai or set up a new exchange there. Most likely China as they want to be a new Wall Street of the world. " This anti capitalist road" will only support the "pro capitalist road", using Chinese terminology

The reason all markets change is speculation, its an expectation of profit of the future. People buy houses , stocks or sell them for profit. Change the rules, capital has feet and it goes somewhere else.

Journalists should read Adam Smith's Wealth of Nations, or get an an MBA, and realize capital and labor can move.

[dadw5boys]

TRY THE CAYMAN ISLANDS WITH COMPUTER PROGRAMS THAT KEEP THEM HIDDEN!

LOOK UP " DARK POOLS " .

[misterstudebaker]

Wrong Wrong Wrong.

Fact: Oil Production has been FLAT since May 2005.
Fact: Population has increased since 2005.
Fact: Demand has increased since 2005.

When you divide fixed production by higher demand, you get vastly higher prices.

The problem is exacerbated by gangsters who run the distribution systems (Oil Companies) and parasites who give the system shivering fevers (speculators), but the fundamentals are geological in nature. Get used to it. $120 a barrel will soon seem like "the good old days".

[darthdarcy]

There is no current Oil shortage..­.productio­n is not completely flat but it is OPEC that keeps it flat when a new discovery is made the reduce their output by that exact amount..th­at is a fact.....a­nd what they would do if we start producing from our new wells on the Continental Shelf or ANWAR 7-10 years from now, if there isn't a Thermo-Nuclear War before then, which it looks like there will be...

The Head of OPEC said the price increase is not due to supply and demand, same goes for the VP of Exxon, and many others...

Our refineries are only working at 84% and demand is being met, as for China they only use 7 million barrels per day while we use 26 million and Europe 21 and 3 1/2 million of China's 7 million comes right from within China so China has only increased demand by a meager 3 1/2 million barrels..

Hardly enough to cause the price to double in one year...!

It's criminal insider trading on the Futures market which is being manipulate­d..!

[KillTheMessenger]

Darth, you need your record fixed. It is broken and keeps repeating the same falsehoods time after time.

[samandally]

And people driving giant gas guzzling cars have nothing to do with, right?

[danoj]

Ya, let's just mandate how people need to live there lives. Let's have government make the choice for us when we buy a car or do anything else. That's the liberal way.

[darthdarcy]

When do I get my private jet...?

[KillTheMessenger]

Nobody says you can't drive your escorts around in six Hummer convoys and fly private jets all day long. If you are rich and you can afford it, be our guest. But if you are not and all you do is to whine all day long about the things you can't afford, well, maybe it would be better if you just shut up. What do you think?

[darthdarcy]

Practically nothing...

It's not about supply demand read the article...

Or this one...

http://www.star-telegram.com/ed_wallace/story/659081.html

It's just good old plain American swindling and thievery..­.!

Simple as that...

[MetalCanuck]

But it IS about supply and demand and inflation is the main culprit.

[Heyman]

Got to have a patsy. What TIME doesn't tell you? That the OIL COMPANIES are the ones who are putting up the money, to pump up the price of a barrel of oil futures. And, TIME's CEO is a member of the CFR. Which should tell anyone that knows the CFR? More lies from TIME.

[Chubbster]

"What TIME doesn't tell you? That the OIL COMPANIES are the ones who are putting up the money...",

There is a huge difference between fantasy masked as hysterical opinion and fact. Ritually attacking the oil companies for the price of oil is a 100% display of ignorance.

[chediego]

Heyman, you forgot to mention the Trilateral Commission, the Rosicrucians, and the Freemasons. They're part of the conspiracy too. And I think Al Gore, with his energy-hogging house in Tennessee and his jet-setting lifestyle, is also in on the nefarious plot.

[MuntabQuestion]

It used to be that Third World countries didn't use oil. They got everywhere by ricksha or bike or what have you.

For the last several years, these Third World countries are industrializing and they need oil to run their new machines. China's people are buying cars at record paces. I think China has....wha­t...a billion people? Never had cars before, now they have cars. Cars that need oil. Oil they buy from the Middle East.

Middle East has a new market, they don't need the US to buy their oil. What happens to us if they close us off? Will Iraq sell us oil? Not if Iran takes them over...Wha­t will we do? If we start drilling now, we'll have our own oil in ten years. If we dont' start drilling now, in ten years we'll be in the toilet...

Heck, even Obama praised China's booming economy and all the money they're spending. He conveniently ignored the fact that Beijing is the most polluted city in the world...

In any event, "oil speculators" have nothign to do with the rising cost of oil. It's supply and demand. The supply remains constant, and demand is escalating and will continue to escalate.

As for wind power...ho­w much farm land - to grow a little essential called food - is ruinded because its covered over with wind farms?

[RRK70]

The wind mills do not prevent agricultural use of the land.

So when oil prices dropped $40 in like a short span recently that's because all the countries of the world dropped their demand over 30%?

There is NO WAY the US has enough oil to be energy independent through domestic drilling. NO WAY, NO HOW.

All the money China is spending..­..you know a LOT of that is money China is loaning to US to bankroll the war in Iraq and Afghanistan?

There are MANY factors that influence oil prices. To point to a single one is probably simplistic. On the other hand, stating that speculation plays no role in oil prices is also ridiculous.

[atp2007]

Talking about energy independence is a total waste of time if all you are doing is trading dependency on world/foreign oil for the same dependency on oil from oof the American coasts. It's all the same market and the same centralized control. The only real independence is to move to alternate energy sources that allow decentralization of the energy sppliers, i.e. competing wind turbine owners, free market biodiesel and ethanol, numerous private owned solar sources, etc. The more we can supply our energy locally, the more we have true independence. Imagine if you could take your auto to a service station that could supply it with hydrogen that it gets from the lowest cost supplier of the many local independent producers of hydrogen (from excess ethanol, unused wind produced electricity, ...). Or do the same with ethanol or other locally generated fuel. We can't all have oil wells in our neighborhood, but can get local generation sources. It will be even better when plug-in electric cars hit the market and can be recharged from any electric source.
McCain's "Drill Here-Drill Now" jargon just perpetuates the same old system of servitude to the oil barons and traders. Like the Who said: "Here comes the new Boss, same as the old Boss!"