‘Perhaps 60% of Today’s Oil Price is Pure Speculation’

I think it is pretty common knowledge now that oil speculators are really what is driving the price of a barrel of oil up.

They are manipulating the price of oil!

The "speculators" use things like WAR to raise the price of crude oil, stating that due to the instability in the Middle East, blah blah blah, or any number of other reasons.

How did it happen? How are speculators NOW able to manipulate oil prices? Energy futures trading is suppose to be regulated by the government so that the price of oil can't be manipulated!

Found a pretty informative article about this, it also says that all the US Energy Futures used to be regulated by the government to prevent fraud and the manipulation of crude oil prices, but now trading can be done without being regulated, which is allowing the manipulation of the price of crude oil by "speculators".

‘Perhaps 60% of Today’s Oil Price is Pure Speculation’

The price of crude oil today is not made according to any traditional relation of supply to demand. It’s controlled by an elaborate financial market system as well as by the four major Anglo-American oil companies. As much as 60% of today’s crude oil price is pure speculation driven by large trader banks and hedge funds. It has nothing to do with the convenient myths of Peak Oil. It has to do with control of oil and its price. How?

****SKIP****

Until recently, US energy futures were traded exclusively on regulated exchanges within the United States, like the NYMEX, which are subject to extensive oversight by the CFTC, including ongoing monitoring to detect and prevent price manipulation or fraud. In recent years, however, there has been a tremendous growth in the trading of contracts that look and are structured just like futures contracts, but which are traded on unregulated OTC electronic markets. Because of their similarity to futures contracts they are often called “futures look-alikes.”

The only practical difference between futures look-alike contracts and futures contracts is that the look-alikes are traded in unregulated markets whereas futures are traded on regulated exchanges. The trading of energy commodities by large firms on OTC electronic exchanges was exempted from CFTC oversight by a provision inserted at the behest of Enron and other large energy traders into the Commodity Futures Modernization Act of 2000 in the waning hours of the 106th Congress.

The impact on market oversight has been substantial. NYMEX traders, for example, are required to keep records of all trades and report large trades to the CFTC. These Large Trader Reports, together with daily trading data providing price and volume information, are the CFTC’s primary tools to gauge the extent of speculation in the markets and to detect, prevent, and prosecute price manipulation. CFTC Chairman Reuben Jeffrey recently stated: “The Commission’s Large Trader information system is one of the cornerstones of our surveillance program and enables detection of concentrated and coordinated positions that might be used by one or more traders to attempt manipulation.”

"The trading of energy commodities by large firms on OTC electronic exchanges was exempted from CFTC oversight", now the government couldn't monitor the electronic exchanges (trades) to make sure speculators weren't manipulating the price of oil.

This "Loop Hole" is what is now allowing speculators to manipulate gas prices and drive them higher & higher!

And guess who is partly to blame for this getting so out of hand! YUP, you guessed it!

Then, apparently to make sure the way was opened really wide to potential market oil price manipulation, in January 2006, the Bush Administration’s CFTC permitted the Intercontinental Exchange (ICE), the leading operator of electronic energy exchanges, to use its trading terminals in the United States for the trading of US crude oil futures on the ICE futures exchange in London – called “ICE Futures.”

Previously, the ICE Futures exchange in London had traded only in European energy commodities – Brent crude oil and United Kingdom natural gas. As a United Kingdom futures market, the ICE Futures exchange is regulated solely by the UK Financial Services Authority. In 1999, the London exchange obtained the CFTC’s permission to install computer terminals in the United States to permit traders in New York and other US cities to trade European energy commodities through the ICE exchange.

So now speculators doors were wide open to speculate/manipulate oil prices and drive the price of oil up worldwide. You can thank the Bush Administration for that one!

A Senate report pointed all these problems out in 2006, but the report was ignored!

In June 2006, oil traded in futures markets at some $60 a barrel and the Senate investigation estimated that some $25 of that was due to pure financial speculation. One analyst estimated in August 2005 that US oil inventory levels suggested WTI crude prices should be around $25 a barrel, and not $60.

That would mean today that at least $50 to $60 or more of today’s $115 a barrel price is due to pure hedge fund and financial institution speculation. However, given the unchanged equilibrium in global oil supply and demand over recent months amid the explosive rise in oil futures prices traded on Nymex and ICE exchanges in New York and London it is more likely that as much as 60% of the today oil price is pure speculation. No one knows officially except the tiny handful of energy trading banks in New York and London and they certainly aren’t talking.

So, the war wasn't the only way that Bush & Co. have caused the price of oil to rise to ridiculously high prices, he also paved the way for the "Speculators!

Bush will surely be in the history books, but I don't think he'll like what they will write about him! Of course, Congress is also to blame for passing the "Commodity Futures Modernization Act of 2000!"

This could be fixed! Bush and Congress COULD fix this!

All they would have to do is to go back to the Commodity Futures Modernization Act of 2000 and remove/repeal the provision that started this whole fiasco, "trading of energy commodities by large firms on OTC electronic exchanges was exempted from CFTC oversight."

They talk about a "Gas Tax Holiday" and all these other ideas when all they have to do is "fix" this electronic exchange loophole that is allowing unregulated manipulation of oil prices!

BUT, there's ALWAYS the greed factor in Washington that will prevent this from happening.

So the rich will keep getting richer and the poor poorer!

[edit on 5/18/2008 by Keyhole]

I do not fully agree with the Bush connection and/or his personal or professional liability in this horrific problem. Also, Congress really doesn't have that kind of power.

However, I do agree with the rest of the statements made.

Isn't "oil speculator" a job title? There is no mystery to this. This is widely known and wholly dependent on the oil cartel and their whims. Just imagine if they want to use it as a weapon of persuasion.

reply to post by Isthistaken


Things can't, and don't work that way.
They dance on the knife edge of people's ignorance (idiocy?), government greed, and general apathy. Were "they" to attempt to largely use oil speculation (another whole can of worms) to cause drastic price change in short order, they'd slip and get 'cut', so to speak.

Originally posted by Isthistaken

Isn't "oil speculator" a job title?

They make it sound like a job title, but it's not.

Traders speculate which way prices will go, up or down, when trading in Commodity Futures.

Commodity Futures Trading for Beginners

The process of trading commodities is also known as futures trading. Unlike other kinds of investments, such as stocks and bonds, when you trade futures, you do not actually buy anything or own anything. You are speculating on the future direction of the price in the commodity you are trading. This is like a bet on future price direction. The terms "buy" and "sell" merely indicate the direction you expect future prices will take.

If, for instance, you were speculating in corn, you would buy a futures contract if you thought the price would be going up in the future. You would sell a futures contract if you thought the price would go down.

So the term speculators, from what I understand, is referring to traders in Commodity Futures markets.

Originally posted by Isthistaken

Isn't "oil speculator" a job title? There is no mystery to this. This is widely known and wholly dependent on the oil cartel and their whims. Just imagine if they want to use it as a weapon of persuasion.

You would think that OPEC would be the one who controls the price of oil, but they lost that power a long time ago. They can only manipulate the price of oil now by increasing or decreasing their oil output, oil refineries can also cause gas prices to fluctuate by increasing or decreasing the gas production at their refineries, and currently they are supplying plenty of oil and gas to meet the worlds demand, their is no oil or gas shortage now, everybody has the oil/gas they need, it's just the oil "speculators" that are driving the price of oil up.

It's all in the article that I started this thread on!

‘Perhaps 60% of today’s oil price is pure speculation’

The price of crude oil today is not made according to any traditional relation of supply to demand. It’s controlled by an elaborate financial market system as well as by the four major Anglo-American oil companies. As much as 60% of today’s crude oil price is pure speculation driven by large trader banks and hedge funds. It has nothing to do with the convenient myths of Peak Oil. It has to do with control of oil and its price. How?

First, the crucial role of the international oil exchanges in London and New York is crucial to the game. Nymex in New York and the ICE Futures in London today control global benchmark oil prices which in turn set most of the freely traded oil cargo. They do so via oil futures contracts on two grades of crude oil—West Texas Intermediate and North Sea Brent.

*****SKIP*****

Since the advent of oil futures trading and the two major London and New York oil futures contracts, control of oil prices has left OPEC and gone to Wall Street. It is a classic case of the “tail that wags the dog.”

[edit on 5/24/2008 by Keyhole]

F. William Engdahl, the author of the article in the OP has written a follow up to that piece titled "More on the real reason behind high oil prices
Part II". Very interesting.

More on the real reason behind high oil prices: Part II

I'll repost what I wrote in another thread.


A few things:




As you can see, the price of oil seems to follow the astronomical gains the NASDAQ experienced during the tech bubble. A new bubble?

The price climb in oil is probably due to a mix of speculative fervor and real supply and demand concerns. It surely can't be attributed to all speculation, as someone is taking physical delivery of oil at these prices.

On the other hand, that chart does show an interesting pattern that probably amounts to a bubble in prices. With Goldman Sachs and other investment banks coming out with predictions of $200/barrel prices almost daily, perhaps they are trying to find an exit for their long positions. Only now are we seeing pension funds, average investors, and others starting to pile into the oil trade.

The cheap money being lent to large banks by various FED concoctions such as the expanded TAF (which the FED takes crap credit and mortgage debt as collateral) is seeking returns and the greatest returns in the current market climate are in commodities, thus driving prices up as more and more cash is parked there. Traditional flights to quality (to equities, treasuries and commercial property) have all proven too risky for the large market players to invest heavily in, adding another reason to the appeal of commodities.




This is a reason for increasing demand. The chart shows how heavily gas and diesel prices are subsidized in China. I'm sure some have heard of the explosion of demand in foreign nations, this is part of the reason why. Low prices for them means artificially stimulating worldwide demand, once again driving prices higher. An argument for a pure supply/demand price increase might go like this:

Suppose you are a pig farmer on an island with 10 pigs. There are 10 families on the island, so assuming each family wants 1 pig, the price will remain stable at let's say, 10 dollars apiece. Another family moves onto the island, bringing the total to 11 families. Once again, assuming they want a pig as well, and there being only 10 pigs, they offer 12 dollars for a pig. The most probable outcome is the bidding for each pig will get successively higher until a family is priced out. Note that the increase in price is not 1:1 with the increase in demand. This explains why we have seen a huge increase in oil prices, but not an increase in demand that quite matches the price surge.

I've read numerous sources calling a top on oil, but that is left to be seen. One thing is for sure, demand destruction is sure to follow at least here in the United States in the wake of this credit crunch/housing crisis. Taiwan, Malaysia and Indonesia are all cutting their fuel subsidies down in the wake of rising prices, which should dampen demand a bit further (Source) . Rumors abound whether or not China will, with most thinking if it were to happen; it would be after the Olympics.



As far as making a difference in price right now, it's unlikely as investors are starting to look into future oil supplies (read: peak oil) and pricing both futures and spot prices higher.

Once again, if it is all speculation, why and who is taking physical delivery at these prices? Why don't the buyers simply short the hell out of the ES if its all speculation?

reply to post by SystemiK


Thanks for posting the link, I didn't know there was a "follow-up" article.

Was pretty interesting, i thought the last part was really interesting!

If you were following closely you'd remember in the second quote I made in the OP how the Bush administration "opened the doors" for the "speculators" to manipulate the price of oil globally.

Well this is the last couple of paragraphs in the "follow-up" article.

More on the real reason behind high oil prices

We are hit with an endless series of plausible arguments for the high price of oil: A "terrorism risk premium;" “blistering” rise in demand of China and India; unrest in the Nigerian oil region; oil pipelines' blown up in Iraq; possible war with Iran…And above all the hype about Peak Oil. Oil speculator T. Boone Pickens has reportedly raked in a huge profit on oil futures and argues, conveniently that the world is on the cusp of Peak Oil. So does the Houston investment banker and friend of Dick Cheney, Matt Simmons.

I guess they just might have "opened those doors" to help their "buddies" (and probably themselves also) manipulate the price of oil and make a ton of money at the worlds expense!

You think? They wouldn't do THAT, would they?

[edit on 5/24/2008 by Keyhole]

reply to post by Keyhole


Speaking of T. Boone Pickens, he recently announced a 2 billion dollar investment into wind power. Nice to see that he is putting some of our "contributions" back into alternative energy.

Link

(CNN) -- Billionaire oilman T. Boone Pickens is sinking billions of dollars into a new wind farm in Texas. It is likely to become the biggest in the world, producing enough power for the equivalent of 1.3 million homes. CNN's Ali Velshi asked the oil legend why he thinks wind could be the answer to this country's energy problems.

This is all BS. The Chiness are using oil as a weapon. They want our destruction and are directly linked to the "evil doers". Commpn sence will tell you economic warfare is more productive than physical.

reply to post by Anonymous ATS


And just HOW are the Chinese controlling the oil and manipulating the gas prices?

The prices are set in stock markets in New York, London, and to some extent Dubai (which is actually controlled by the NYSE I believe).

Some kind of theory how they are doing this would make your statement a little more interesting. Also, some credible sources to reinforce your statement will always help.

[edit on 5/25/2008 by Keyhole]

reply to post by Keyhole


Take a look at my above post and you can see that the Chinese are affecting the price of crude because of their heavy subsidies.

reply to post by aava


I don't understand how, due to China's inreasing demand for oil (due to them giving subsidies to it's poor people) would cause the price of oil to rise. There's plenty of oil to go around, just because they have increased their demand for oil (and the demand is being met), why should this increase the price of oil p/b.

Usually when you buy something in larger quantities, the price goes down.

Shell CEO Says Record Oil Not Due to Shortage

Oil prices at a record high above $135 a barrel are rising due to market sentiment rather than a shortage of supply, Royal Dutch Shell's chief executive said on Thursday.

U.S. crude oil hit an all-time peak on Thursday, climbing to $135.09, lifted by concern about long-term supply and a host of predictions of further rises from influential investment banks and investors.

"What we say and what we see is there are no physical shortages," Shell's Jeroen van der Veer told Reuters television. He runs the world's second-largest fully publicly traded oil firm by market value.

"There are no tankers waiting in the Middle East, there are no cars waiting at gasoline stations because they are out of stock. This has to do with psychology in the markets and you cannot forecast psychology".

His view that there are no shortages chimes with that of other oil producers, such as members of the Organization of the Petroleum Exporting Countries. Others, such as the U.S. government, say supply is tight.

So there IS no shortage of oil due to China's increasing demand, only "speculators" worried about China's increasing demand for more oil.

It is merely speculators fearmongering about China's increasing demand for oil MIGHT cause a FUTURE shortage of oil. That's all I can see.

Maybe I'm still not understanding you correctly?

[edit on 5/30/2008 by Keyhole]

Found another interesting bit of news!

Germany In Call for Ban on Oil Speculation

German leaders are to propose a worldwide ban on oil trading by speculators, blaming the latest spike in crude prices on manipulation by hedge funds.

It is the most drastic proposal to date amid escalating calls from Europe, the US and Asia for controls on market forces, underscoring the profound shift in the political climate since the credit crunch began. India has already suspended futures trading of five commodities.

*****SKIP*****

Mr Beckmeyer said the last 25pc rise in the price of oil to $135 a barrel had nothing to do with underlying supply and demand. “It’s pure speculation,” he said.

At least there's one government in this world that can see the problem and and isn't afraid to piss some people off (speculators) and tell the rest of the world what needs to be done to fix the rising fuel costs!

Don't worry, Keyhole, Treasury Secretary Henry Paulson (formerly from Goldman Sachs, who do a little trading in oil) will certainly help us out He wouldn't be anti-American, unpatriotic to watch his nation go down the tubes! With this man in charge, I trust him to do the right thing

Say, here's what Goldman had to say in 2005 Predictions
I like this part

``Perhaps the ultimate answer to high how oil prices need to go before demand destruction occurs is derived from knowing when American consumers will stop buying gas guzzling sport utility vehicles and instead seek fuel efficient alternatives.

``Based on our analysis of gasoline spending and the economy noted above, we estimate that U.S. gasoline prices may need to exceed $4 per gallon.''

Well, now, Americans just aren't paying enough % of their income for fuel!

The bank also said its super-spike forecast range was conservative, noting declining U.S. gasoline spending as a proportion of GDP and consumer spending.

So, whether it is a tax on fuel, or, as now, a price based on the barrel of oil, a "demand destruction" is good. The only problem is, the tax would benefit the general citizenry, while a price increase benefits investors.

God help us. Get us off of our escalating oil addiction before it kills us. Let us not be at the whims of those that make money off of oil. Our energy policy should be a thrust at stopping the rise in oil usage.
Well, maybe it is, with Paulson in charge and Goldman encouraging us to be more fuel efficient (raking in $ by encouraging hi prices). If this is what it took for Americans to become more energy efficient, maybe we got what we deserved.
Too bad Paulson didn't tell the US auto industry the plan, as they continued to sell gas guzzlers. Oh, well, the auto industry made $ off of us consumers. The auto bubble, too, has burst.

Oh, one more thing. Most readers here probably don't remember when the Hunt brothers (gotta luv those Texan millionairs) cornered the market on silver (late 1970's ?) Markets can be manipulated.

Keyhole, here's what I wrote to my congresspeople
"Dear Representative/Senator

Please remove/repeal the provision of the Commodity Futures Modernization Act of 2000 re the exemption from CFTC oversight of trading of energy commodities by large firms on OTC electronic exchanges.

Thank you."

reply to post by desert


Kudos to you!

I haven't even done that yet, but now I will!

Wish everybody who reads this would, we're not a huge group here on ATS, but it sure couldn't hurt!

Feel free to copy and paste
There should be a website for prepared statements to send, whether directly or just to copy/paste, such as there are regular mail campaigns.

reply to post by desert


Well, I already have done a little cut & pasting of your post.

There's another thread on ATS similiar to this one that I quoted your post on!

Here's the link:

My quote of your post on another thread!

I probably will use your letter to send to my Rep., still haven't done that YET!!! But I will!

Thanks!

There is ONE singular reason oil prices have gone through the roof. I will summarize with four facts:

FACT: Severe ecomomic recession in the US during the last months of a president's term is worth 10 to 15 points to any candidate of the opposing political party.

FACT: There is one factor that can tank the US economy. The steady, stratospheric rise in the price of oil.

FACT: A finite number of entities with the ability/power to cause oil prices to rise to these levels.

FACT: A significant number of these entities are fully vested in the push to elect Obama as the next US president.

For 10 years I worked with the OHA/DOE (Office of Hearings and Appeals / Department of Energy) and became acutely of the inner workings of the oil industry.