Here we go again. The same Financial Class that brought us to the edge of economic meltdown is now pressing its well connected pals and cronies on Wall Street, in Congress as well as its allies in the press and our OPEC cheering oil industry, to lay hands off the continued stripping America's wealth through the gamed racket and egregiously profitable world of oil futures trading.
This week the Commodity Futures Exchange Commission (CFTC), responding to a national and international outcry that enough is enough, and in keeping with the Obama administration's goal of tougher oversight, has finally decided to act. Reacting to Congressional pressures, a struggling industrial landscape and a beleaguered public, the CFTC announced that a series of restrictions on energy trading would be set forth. And here the CFTC and the American public's outrage is not alone. Earlier this week the Wall Street Journal printed an Op-ed Essay (July 8,2009) jointly written by Prime Minister Gordon Brown of Great Britain and President Nicolas Sarkozy of France calling for "transparency and supervision of the oil futures market in order to reduce damaging speculation" (The WSJ, signaling its take on the issue placed the piece at the bottom of its pg.15 Opinion column).
To arrest the clear evidence of speculation driven trading by financial/non-commercial interests (by "non-commercial" meaning neither oil producers nor oil users) speculating heavily and erratically, pushing markets usually higher, the CFTC has committed itself to take the issue in hand. A glaring example of runaway speculation was reported as recently as July 3rd by the Financial Times(FT) that a rogue trader in London moved the market by over $2. a barrel , and according to the FT,"without apparent justification" (which please read as having had no commercial interest other than rank speculation).
The CFTC has announced it was ready to place volume limits on energy futures by pure financial traders/investors, tougher information requirements to identify the role of hedge funds and traders who swap contracts on the barely regulated nor visible over the counter markets.
Thereupon, almost immediately, the New York Times ("U.S. Weighs Curbs..." 07.08.09) cautioned "...proposals could encounter fierce opposition from big banks and Wall Street firms, which each are big traders in the commodity markets"
Who are these "big traders in the commodity markets"? They include Morgan Stanley and Goldman Sachs, both colossi in the field. And both, once "Investment Banks" are now "Bank Holding Companies" having turned themselves into Bank Holding Companies with the Fed's blessing on September 22, 2008 in the wake of the chaos in the financial world following Lehman's demise.
As Bank Holding Companies they became eligible for Tarp funds and other emergency loan programs set up by the Fed and Treasury, an array of new Fed lending facilities including access to the Fed's discount window, as well as access to bank deposits that would be insured by the Federal Deposit Insurance Corporation (FDIC).
Both banks reported enormous gains from their trading activity over this second quarter, enough for Goldman, according to the WSJ ("Big Pay Packages Return to Wall Street" O7.02.09) to be on track to pay out $20 billion this year or $700,000 per employee nearly double the firm's $363,000 average last year! All this after it was reported that Goldman had received billions in counter party funds from AIG that the Fed had made available to AIG permitting AIG to bail out Goldman's speculative derivative positions of CDS' and similar toxic paper worth probably less than 30 cents on the dollar at the time, for 100 cents on the dollar. Thereby covering what otherwise would have been billions upon billions of dollars in Goldman losses (Talk about a "good ole boys" network. How many homeowners were as fortunate and escaped foreclosure, how many small business' could have made their payrolls had they had equally accommodative banking relationships?).
All this raises an even bigger question. What are these Bank Holding Companies doing using Fed monies and programs, with access to the Fed's discount window, and FDIC insured deposits, speculating in the commodity futures markets? The irony is that Fed monies, instead of going to business lending and real estate mortgage financing which is what the economy desperately needs, goes to provide exceedingly cheap and voluminous funding to play the commodities casino. Thereby the American public is hit twice.
-First, taking away funds that are desperately needed in the economy and making them available at practically no cost to the 'futures commodities market' gamblers who have virtually no commercial interest in the commodities being traded being neither consumers nor producers.
-Second, by enabling and fueling speculation by the likes of the Bank Holding Companies they are helping to drastically distort the market's pricing mechanism, driving the cost of commodities higher than they would be by large measure in many cases, placing enormous further strains on the general public and the economy through significantly higher commodity prices reflected in day to day cost of goods and gasoline.
Clearly given the prodigious profits they enjoy from the current construct the casino players will fight tooth and nail to turn back the CFTC initiatives. They will be allied with the oil industry espousing the need for a futures market as a tool to manage price risk, never whispering their delight in a market that assigns their product immeasurable more value than it should be. And our sad Congress, while giving lipservice to the best interests of the nation's citizens, will in too many cases abide by the influence and campaign largesse of K Street lobbyists.
But consider, at present Bank Holding Companies the likes of Citigroup, JPMorgan, Morgan Stanley as well as such as Barclays are exercising their "banking responsibilities" to assist this difficult economy by playing what is termed the "contango" game. Misusing their access to cheap money, acting as principals (i.e. for their own account and risk) they are chartering supertankers for months to a year at a time, loading them with hundreds of millions of barrels of crude oil and oil products, taking the oil and oil products off the market thus helping to sustain and propagate ever higher oil prices at vast additional cost and burden to the nation's consumers. The oil is held at sea for months, thereby tying up hundreds of millions of dollars, in anticipation of yet higher prices for the oil/oil products cargo at the end of the tanker charter period. What has this to do with banking as we had come to understand it, especially in this time of crisis?
There is too much at stake here, not least of which determining the role of banks, especially Bank Holding Companies, after the disasters of the past year. Are banks meant to help the economy or to go back to business as usual in helping to destroy it?!
On the other hand, speculation is the basis of participation in any commodities or equities market in our form of economic system, but taking the risks also means taking the losses. Tax payers do not reap the benefits and should not cover the losses either- ban the banks from this endeavor.
As i stated previously, P.O. only makes it worse.
It is disheartening to see the government i voted for putz around the edges and we suspect that very little will change.
Yes, lets return the banks to the service industry they were intended to be!
I believe where there is speculation there CAN be manipulation. This doesn't mean however, those two things are the same.
The fact that the big speculators have been dumping their long positions the last few weeks has pushed prices down a lot (and quickly) does prove market movements occur due to speculation, though i don't think that Leduck & Ktm are arguing that it doesn't. They dispute your's and Learsy's constant complaint of Man-ip-u-lation with no acknowledgment of the energy plateau we are riding on that makes this all the more possible and painful.
The speculators are currently bailing out and losing big bucks, so I wouldn't exactly call that manipulation!
(Remember Howard Hunt "cornering the silver market in the early 80's?- He lost his Azss!)
By your constantly poo-pooing Peak Oil, you negate one of the cornerstones that make speculation so intriguing and useful to gamblers and conservative hedgers alike- that scarcity= volatility= opportunity.
Mayhaps you should consider that the more scarce a resource becomes, the more volatile the market is AND the greater the speculations and hording such as the Chinese and US are doing with their SPRs.
Also consider that the gamblers and hedgers may be at counter purposes-
It is a tough pill to swallow but the times-they-are-a-changing and the recession is causing its own feed-back loop.
If you wanted a bill that does not have such a loophole, it would have had to be a serious energy tax bill, which we all know does not pass the muster of voters like you.
So in essence your own decade long denial of the necessity to do the right thing leads to the very loophole that enables others to create profits for themselves.
Please remember that I am the one who keeps saying we need to tax energy to begin with...
:-)
Not a big deal.
Still talking about manipulation....
And if oil is going to get cheaper (which, of course, it won't), would we be using more or less? Would that lower or increase our dependence on oil imports?
:-)
You keep your head looking down a hole in the ground and miss the big picture.
Every single time that his sort of manipulation is allowed, the effects are GLOBAL! Whether in oil, or food, or an industry like auto manufacturing, or orchids even. Allowing the precedent creates a ripple effect through human society and we all, ALL, pay.
You want to be right.
I want the truth.
In other words... at the current price of oil we are already paying for it for its convenience value, not for its energy value.
As EROEI of oil will further decrease and that of solar energy and other renewable forms of energy will increase, oil will become increasingly more expensive in comparison to renewable forms of energy. At what point does the convenience become a secondary issue and real economics takes over?
That's really for the customer to decide. If they don't mind paying five times as much for the energy contained in oil than for the energy from solar or wind power, that will be a deliberate decision that has to be respected.
:-)
it used to be about 100 to 1
now maybe 10 or 15 to 1
and going down
Not one independent, unaligned, academic or other expert that doesn't have a vested interest in the oil industry for a paycheck has been referenced here. You know why? Because they can't or won't find one. They are more interested in living in the fantasy world of the EIEIO and the other Three Pigs fairy tale of peak and convincing everyone within the sound of their shrill voices that they are the holders of the Truth!
Can't prove it. But what you all to believe it without question.
NOW, at the same time they ignore the effects of some very sophisticated financial giants on the price of oil, energy in general, and most other commodities.
Does that make sense???
You are probably not a physicist, either. Still, if you wrote that in classical mechanics the force is proportional to both the acceleration of an object and its mass, it would still be true. Obviously the truth value of something does not depend on the professional education of the truth speaker.
:-)
Having said that, professionally educated people, especially those in hard sciences, tend to take the truth and facts in general a bit more seriously than lay people. We are used to fact checking and feel no need to make a case for things that are purely emotional.
:-)
"Not one independent, unaligned, academic or other expert that doesn't have a vested interest in the oil industry for a paycheck has been referenced here."
In other words... you would like your local baker (oh, no, wait, he depends on butter, which is mostly oil!) to be the expert of choice? Everybody who ever had anything to do with geology, which happens to be a practically useful science, does not need to apply. Engineers who worked for the oil industry do not need to apply. Basically... nobody but Rule of Law needs to apply? Is that what you are saying?
:-)
i think you're hopeless
i want to reach others who are not hopeless
i want people to think about energy realistically
you may only get it when the world's oil supply is in terminal decline
It has been in terminal decline on the day someone drilled a twenty foot deep hole into the shallowest of oil reservoirs.
:-)
And I don't think Rule really cares about the ultimate reality of this. He just wants to dump some negative emotional energy on the world.
The following are examples of the state of Oil Producing regions:
NORTH SEA
Peak oil production: 1999
Decline rate in 2005: 12.8%
Peaked at about 6.4 million barrels of oil per day
MEXICO (CANTARELL)
Peak Oil Production: 2004
Decline Rate: 15%
Peaked at about 3.59 million barrels per day
U.S.
Peaked in oil production in: 1971
Decline Rate: about 4.2%
Peaked at: 11.6 million barrels per day
"Texas Tea"
Peaked in: early 1970s
Now producing about 1/3 as much oil as then
World Sweet Crude Production Peak: 2005
World Sour Crude Production Peak: hasn"t happened yet " that"s what"s keeping oil production on a plateau.
But world Peak Per Capita Oil Production occurred in the 1979
I love that fact... it shows how we can get (much) more out of less.
I am aware that Hayek and others have posed the question what is an economy for. Clearly, for these bankers the answer is to make as much money as you possibly can. Money, it appears, is for them the whole point of the economy. Naturally, I disagree. I think most people, if they were to think about it, would probably agree that what goes on in my backyard is really what an economy is about.
An economy is a means to get a more desirable result out of activity... one can spend ones days hunting and scavenging OR one can spend ones days producing MP3 players and reinvest some of the proceeds into bus sized space probes circling Saturn... humans happen to need the same size brain for both activities since we lack the physical features that make other species expert hunters (or grazers) which can spend most of their time resting because they excel at supporting themselves.
Your back yard, by the way, is only a philosophically enjoyable place because it has been tamed by your front yard. Take all front yards away and the back yard becomes a place of desperate survival, not one of playful contemplation.
Unbelievable...you know absolutely NOTHING about pollenation, do you?
Sorry, Rule. You keep saying it's all about humans... but then you need to depersonalize these people to be able to hate them. Bankers are people. And they are no different than most of us.
:-)
I'd like --JUST ONCE--see that, and less of this squealing from the peak oyle acolytes that prices are not affected by banks and other vested interests.
A real independent expert in the field with recognized vitae. And not just more of these loons screaming.....
In any case, your interpretation of peak oil is flawed. The point is not that we can not increase supply. Sure we can, but that would cost money AND (which is much worse) lead to even more rapid depletion of remaining reservoirs. One can trade the timing and the height of the peak for the shape of the curve post peak... at an enormous economic cost.
The world is not making a concerted effort to delay the peak. It's pretty much the market forces that are shaping the supply and demand situation. If, for instance, the US had taxed gasoline at the 100% level 30 years ago, we would be almost a decade away from peak oil. It would still come, but it would come later, it would be lower and, most importantly, we would have more of an arsenal to avoid the worst economic consequences (having based more of our transportation on means that will survive peak oil, e.g. electric freight rail).
Rule... if you are missing the information, it is because YOU failed to get it. Information is not something that can be (or should be) pounded into people. They have to want to get it for themselves.
:-)
The issue today is Manipulation. Pretend you're on a game show and that's the topic. Think you can stick with it....
So in answer to the question posed at the end of the article. They don't care if they destroy the economy or anyone one who suffers from that destruction. It's all about NOW, not the future. Investors expect results NOW, not 20-30-40 years down the road. And only they matter. You'll find very few that care about people. Just read some of the posts over at Politico.com. It's not about us, it's about them.
And why should they? The loyalty thing is something that is expected from government, which is why we give government, not businesses, the ultimate sovereignty.
:-)
YEAR DISCOVERIES CONSUMPTION
1930 10 billion barrels 1.5 billion barrels
1964 48 billion barrels 12 billion barrels*
1988 23 billion barrels 23 billion barrels
2005 ~6 billion barrels 30 billion barrels
World oil discoveries peaked in the 60's
Demand is currently growing by 2-3 million barrels a day per year
� World peaked in discoveries in 1960s
� The world now consumes four-six barrels of oil for every barrel we discover (the rate of discovery is in terminal decline)
Only if one thinks about it... which the crowd that keeps crying for cheap oil does not.
The markets have been manipulated. That's what this article is about.
Try dealing with reality, just once, friend.
Nuclear Energy, sorry about the volatility of the waste, but there is no way that green technology can compensate for the decline in production.
Electric propulsion, OTOH, gives you 50-60% system efficiency (starting with solar or wind). So you have a factor of 6-10 or more in efficiency gains. And that can be easily covered with true renewable energy sources.
Nuclear is not necessary, but it could play a rule, of course. Sadly, history has shown that the US does not know how to do nuclear right. It's way too expensive and does not have the necessary political backing on both local and federal level. Moreover, it will be killed by NIMBY.
� M. King Hubbert predicts in 1956 the U.S. oil production will peak in lower 48 states in around 1970 " it does.
� Most Energy (84%) is derived from burning Hydrocarbons (the rest is nuclear and renewable (mostly hydroelectric)
� Gas lines of 1973 and 1979 (Oil Embargo)
� We now produce 1/3 less oil in lower 48 United States then we did during "Peak."
� Oil discoveries in U.S. peaked in 1950s and have been in terminal decline for decades
� 80% of worlds oil supply comes from fields discovered before 1970
� finding another gharwar would extend peak by only ten years
� biofuels will only make a marginal difference
� major oil discoveries were zero in 2003
� Canadian govt. estimates tar sand production to be 3 million barrels of oil by 2025
� by 2015 exxon mobil will need to find develop and produce almost double todays production
� Regional bell curves can be observed in other locals besides the U.S.
� Iraq will be the last country in the world to Peak.
� 1/3 of Iraq has not been explored
� Iraq is one of the few locations left on Earth to search for oil (south china sea)
� Iraqi oil has a low sulfer content (high quality "sweet" crude)
� Campbell, Deffeyes say world will peak between 2004-2010
� U.S. Geological Survey (a govt. agency) says Peak will occurr by 2037
"Lalalalalalalalalala... I can't hear you! Lalalalalalal..."
Just what is it that makes people want to shut out the truth? Can you tell me leduck? I can't imagine...
ignorance is bliss
MEN are behind this manipulation. Try getting your fingers out of your own eyes and maybe you'll see that.
http://www-laog.obs.ujf-grenoble.fr/~henri/PEAKOIL/Mar07.gif
It's so ridiculously wrong, it's not even funny. Although... on some level it is.