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WASHINGTON — Reacting to the violent swings in oil prices in recent months, federal regulators announced on Tuesday that they were considering new restrictions on “speculative” traders in markets for oil, natural gas and other energy products.
The move is a big departure from the hands-off approach to market regulation of the last two decades. It also highlights a broader shift toward tougher government oversight under President Obama.
In 1999, Bill Clinton Signed into law the Gramm-Leach-Bliley Act, allowing mega corporations, wielding ungodly sums of money, to merge together and begin speculating in the derivatives and OTC market. It also made the now famous credit default swaps legally impossible to regulate.
Adding to the volatility of the market, oil prices were soaring to never before imagined heights, due mostly to the speculative activities of institutions fomenting higher prices with their 10s of billions of capital and low margin requirements:
world consumption of oil at 87 million bpd was far exceeded by the "paper market" for oil, which equals about 1.36 billion bpd, or more than 15 times the actual market demand.
A study of the oil market by Masters Capital Management was released which claimed that speculation did significantly impact the market. The study stated that over $60 billion was invested in oil during the first 6 months of 2008, helping drive the price per barrel from $95 to $147 per barrel, and that by the beginning of September, $39 billion had been withdrawn by speculators, causing prices to fall.
On Tuesday morning, the price of Brent crude rose about $2 a barrel in the space of an hour, hitting $73.50 a barrel before reversing sharply in volatile trade.
In that time, contracts for 16 million barrels of oil changed hands - 32 times the normal level - equivalent to double the daily production of Saudi Arabia.
Originally posted by Maxmars
reply to post by franspeakfree
True, but I think there are many ways to conceal market manipulation now, especially since mega-firms like Goldman Sachs are no longer required to report their 'programmatic' trading....
Originally posted by Dermo
reply to post by Maxmars
Everybody wants this and it really makes sense BUT this is not capitalism..
Are Americans actually going to support market regulation
A June 2006 US Senate Permanent Subcommittee on Investigations report on “The Role of Market Speculation in rising oil and gas prices,” noted, “…there is substantial evidence supporting the conclusion that the large amount of speculation in the current market has significantly increased prices.”
What the Senate committee staff documented in the report was a gaping loophole in US Government regulation of oil derivatives trading so huge a herd of elephants could walk through it. That seems precisely what they have been doing in ramping oil prices through the roof in recent months.
The Senate report was ignored in the media and in the Congress.
The report pointed out that the Commodity Futures Trading Trading Commission, a financial futures regulator, had been mandated by Congress to ensure that prices on the futures market reflect the laws of supply and demand rather than manipulative practices or excessive speculation. The US Commodity Exchange Act (CEA) states, “Excessive speculation in any commodity under contracts of sale of such commodity for future delivery . . . causing sudden or unreasonable fluctuations or unwarranted changes in the price of such commodity, is an undue and unnecessary burden on interstate commerce in such commodity.”
Further, the CEA directs the CFTC to establish such trading limits “as the Commission finds are necessary to diminish, eliminate, or prevent such burden.” Where is the CFTC now that we need such limits?
they seem to have deliberately walked away from their mandated oversight responsibilities in the world’s most important traded commodity, oil.