6
Senate considers oil speculation bill
Gas prices over $4 per gallon are displayed at a Shell station in San Mateo, Calif., on March 13, 2008.
To view this content, Javascript must be enabled and Adobe Flash Player must be installed.
TEXT OF STORY
Stacey Vanek-Smith: Last week, the price of crude saw its biggest one-week slide on record. Of course, today the price of oil's back up more than $1.70 a barrel.
There's been a lot of talk about why oil prices have risen so much lately and one popular culprit is speculation. The Senate's expected to vote on a bill to limit that speculation this week.
From the Marketplace Sustainability Desk, Sam Eaton reports.
Sam Eaton: Supporters of the bill blame energy market speculators for as much as 30 percent of the recent run-up in oil prices.
They hope to bring those prices down by broadening federal authority over futures markets and providing much needed funds to regulators, but Wall Street lobbyists say the bill's blanket approach to curbing speculation would unfairly punish those who don't abuse the system.
Greg Zerzan is with the International Swaps and Derivatives Association.
Greg Zerzan: Investors like retirees would be prevented from getting access to the one asset class -- commodities -- that's been holding up relatively well in the recent market.
Zerzan says even a farmer trying to hedge the cost of fertilizer through natural gas futures would be considered a speculator under the deal. Consumers could also feel the pinch. Zerzan says just about every industry, from airlines to manufacturing, use futures contracts to hedge their energy costs as a form of insurance. Take that away, he says, and the price of that cross-country plane ticket could go even higher.
I'm Sam Eaton for Marketplace.
Perhaps a quote from George Soros would help disabuse the "free market" bigots out there of their Panglossian ideology (from a talk at LSE in May 2008): "And fourthly there is a trend following speculation and it is now having a major effect on the price of oil and you see that in the rise of far out delivery ... the real big move has not been in the cash price of oil but in the futures price several years out. And that does affect the cash price as well ... so there is now a bubble aspect also."
Mr Zerzan's comments are at best disingenuous. "Investors like retirees" will not be prohibited from participating in the markets, nor would any farmer that I know of be prohibited from hedging fertilizer costs. Existing spec position-size limits are more than sufficient to allow these types of participants to use the markets.
The people who will be hurt by the proposed changes are swaps dealers (not surprisingly, members of Mr Zerzan's organization, ISDA) and Wall Street firms who operate in the markets in very large size. Currently these traders operate outside the purview of US and overseas regulators, and do not want the increased scrutiny and intrusion into their business that such regulation would impose.
Speculators are essential to an orderly market; large institutional investors are contrary to it.
Is it just a coincidence that commodity prices (not just oil) went through the roof just around the time that mortgage-backed securities came unhinged and the dollar went into a funk? As those markets self-destructed, all their ill-gotten gains had to go somewhere fast, and commodities was a natural refuge for many savvy investors. As there was a lot more capital floating around than commodities to buy with it, why should the intense pressure on prices this generated be any surprise? Do the speculators care? Only if buying a loaf of bread or a jug of milk for $4.00 causes them pain, which I doubt.
THERE IS NO DOUBT IN MY MIND THAT LARGE INSTITUTIONAL INVESTERS ARE INTENTIONALLY PAYING MORE IN AN EFFORT TO RAISE THE PRICE OF CERTAIN COMMODITIES. THESE INVESTERS HAVE NO INTENTION OF EVER TAKING DELIVERY OF THE COMMODITIY THEY ARE TRYING TO RAISE.THEIR SOLE GOAL IS TO BUY AS MANY FUTURE CONTRACTS AT WHATTEVER THE PRICE, CREATING A SUPPLY PROBLEM ON PAPER, ENSURING THE SAID COMMODITY TO GO HIGHER IN THE HEAT OF THE RALLY THEN THEY IMMEDIATLY BUY UP THE COMMODITY AT THE NEW HIGHER PRICE ENSURING THE CYCLE CONTINUES. THE ONLY PROBLEM I HAVE WITH THIS IS THIS. COMMODITY MARKETS WERE SET UP FOR BUYERS AND SELLERS. THE ONLY SPECULATION THERE WAS HAD TO DO WITH SIZE OF THE CROP, AND SOME HONEST HEADGING TO ENSURE A STABLE MARKET. LARGE FINACIAL INSTRUMENTS PUMPING IN BILLIONS OF DOLLARS HAS REALLY DISTORED THIS MARKET, AND THERE IRRESPONIBLE GREED HAS HURT THIS ENTIRE ECONOMY BOTH HERE IN THE U.S. AND ARROUND THE GLOBE.
Thank goodness someone in an official position has finally decided to curb the greedy speculators pushing up the price of oil. I hope no one in the Senate will reject the bill simply because it might keep retirees from investing in commodities. What a sly argument against the bill that is!!!
