In an eye-opening front page article the New York Times gives smoking gun evidence of the manipulation of oil and oil product prices through trading on the commodity exchanges. It places into focus the question: what benefit is derived from these exchanges as currently constituted, other than providing a speculation platform and con game for insiders and an instrument for oil producers to hype the price of their commodity? At the heart of the article and as shining example of miscreant trading behavior are our good friends at BP.
As the NYTimes informs us, "BP, whose reputation for taking risks in the oil fields is matched only by its daring in the energy markets," has remained committed to aggressive trading that has brought in as much as a fifth of the company's profits, or some $2 billion to $3 billion a year, which before the cost of the massive destruction in the Gulf, was big money.
Given its size, its ability to make enormous bets, its enormous financial resources permitting it to hold on to positions almost indefinitely, its vast infrastructure, its standing as one of the largest producers of oil in the world, it was able to take on, with little risk, huge positions, and hold on to them until they paid off.
Now this begs the question, using the commodity exchanges as a pricing tool, would BP or any other major producer (say the likes of Shell, or the national oil companies of the Organization of Petroleum Exporting Countries or their agents) trade the exchanges to pressure prices lower? And that is the crux of the issue. Permit me to quote once again the words of Leon Hess, founder of Hess Oil, that erstwhile sage, and eminently successful general of the oil wars, made before a Senate Committee on Government Affairs some 20 years back. They were as true then as they are now when incorporating all the trading exchanges that have blossomed around the world, "I'm an old man, but I'd bet my life that if the Merc (the Nymex) was not in operation there would be ample oil and reasonable prices all over the world without this volatility".
Which brings us back to BP. Would BP trade on the exchanges to bring down the price of the company's basic profit generating commodities? Given BP's huge interest and investment in production resources it would be highly unlikely. One can fairly assume that BP would trade in a manner that would be supportive of the overall objectives of BP, which is to sell its oil and downstream products including gasoline and propane, at the highest price level possible. And when it does, it occasionally gets caught for trying to manipulate the market.
In 2005 BP agreed with the New York Mercantile Exchange 'Nymex' to pay a substantial settlement to resolve allegations of improper oil trading activities and assurances to clean up its trading activities in the future. The settlement cited so-called wash trades -- the simultaneous swaps of the same amount of a commodity for the same price. The technique is used to improperly boost trading volumes or revenue and most significantly, to influence market pricing. Clearly, the constraints on BP's activities on the Nymex would have little or no impact on their ongoing trading on the London, Singapore, Hong Kong or other world exchanges.
Nor did it stop them from subsequently trying to corner the propane market, waking up our otherwise somnambulant Commodities Futures Trading Commission seeking indictments against BP resulting in a fine of $303 million to settle civil charges and thereby avoiding criminal prosecution for allegedly manipulating and cornering the U.S. propane market.
Ironically Tony Hayward, CEO of BP, given his recent appearance before a Senate Committee, showing himself to be a wanting expert on Gulf Oil Spills and much else, proclaimed earlier this year, with deep inside knowledge, that the "drop in the dollar is a major factor behind oil prices breaking through $75/bbl." There, now you have heard it from an 'expert' without an agenda and without any interest in putting forward self serving explanations for every jump in the price of oil (a tutorial on that here).
Clearly the commodity exchanges are subject to being manipulated and have and in likelihood are continuing to be manipulated. Consider that more than 137 billion barrels of oil were traded on the Nymex alone last year. That is not counting all the other exchanges throughout the world referred to above. And yet the world consumes barely 30 billion barrels of oil annually. And here we have BP clearly in the game to maximize profits, and the higher they can push prices through their trading on the exchanges, the better for BP's bottom line. How many other producers worldwide are playing the same game? How many Wall Street or London or Singapore bank oil trading desks with no interest in consuming or producing oil, but with wide access to banking resources and to oil company trading intelligence, are going along for the profitable ride
And who pays the bill? Yes, you guessed it, you do. Not only at vast economic cost, but at grave risk to our national security.
Thanks for the lesson BP!
Its time for two things to happen in this world. One, humanity must grow up and take responsibility for its actions, all of its actions. Two, humanity must get away from capitalism entirely. The use of money in general is and has and will continue to be the number one nemesis against the growth of humanity into a decent and responsible race of Beings.
This thing humans have about profits at any cost is killing the planet and everything on it. You cannot name something that does not have a price including human life, the environment, the animals and forests of the planets etc..
Without the motivation for money this world would be a very different place than it presently is.
But more to the point, of course BP manipulates markets. They are an oil company.
Not bloody likely. The younger generation of Iran may despise the likes of Ahmadinejad, but you can bet that if they feel any threat of invasion, they will do all they can to defend their country.....and rightfully so.
That would be the nail in the coffin for the United States to be seen as an invader and a dictatorship in order to attain the rights to other countries' mineral resources.
Blatantly illegal, but the politicians and policy makers are in the pockets of the industry, so nobody will investigate or indict.
Long past time for americans to stop waggling on the gas pump prices, and mandate that who-ever is in office, we need a mandate to make a difference: Flex-fuel for all cars sold or produced in the US, ASAP. Cut subsidies to oil companies and help farmers and alcohol/methanol producers.
Empower other nations that the Saudis, by encouraging fuel-producing industries worldwide.
OPEN FUEL STANDARD ACT recently introduced in both the House (HR1476) and the Senate (S.835)
Stop paying OPEC prices, break the islamic fundamental nuts in the Saudi royal family and their corrupting influence on both american political parties
http://setamericafree.org/
Why can't we put strict conservation measures in place? That would be the low cost, low tech, easy and quick solution to at least the immediate problem.
Is anyone claiming the spill was intentional? It sure looks planned if Hayward and GS ditched their stock just before the "accident".
Personally, I think the 21st century will be a really electrifying experience. I think we'll start seeing electricity used more and more and in wider applications, simply because there's not much you can't really do as long as you can apply electrical current to drive motors that you can do with a gasoline or diesel-powered automobile. Natural gas, hydrogen, and electric are three ways to skin the rat. Do we want to keep on doing what we've been doing, or is it time to change? People voted Obama because they wanted change, ok, so let's do something, here.