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07-11-2008 07:10 PM  9 years agoPost 1
Rob_T

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I just came across this - it's a plan to reduce oil prices by regulating futures traders (no not the oil industry - just the commodities speculators). It seems an interesting idea if it can get enough backing.

I thought I'd bring it to your attention.

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07-11-2008 09:14 PM  9 years agoPost 2
1stPlace

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By adopting these common-sense solutions, Congress can dramatically reduce the price of oil and gas, providing immediate relief for businesses and hard working Americans.
It will never happen. We have no authority over international commodity trading.

The only part of the plan that makes any sense what so ever:
To lower oil prices for all Americans, we need to increase domestic supply, exploration, alternative energy sources and conservation.

Diejenigen, die nicht lernen aus den Fehlern der Vergangenheit bestimmt sind, zu wiederholen.

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07-11-2008 09:21 PM  9 years agoPost 3
frankg11

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I am just confused as to why people can't see this as a demand side problem. Domestically we have not built a new refinery in over 30 years. Have not allowed domestic development of our resources for longer than that, and the Far East, China, Korea, Thailand, etc are industrializing. As your quality of life increases so does your energy consumption.

It's not like we couldn't see it coming.

Ok my rant is over. Thank you for listening.

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07-11-2008 10:36 PM  9 years agoPost 4
whirlyspud

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See it comming yes.....300% in 3 years no.

Mike

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07-11-2008 10:54 PM  9 years agoPost 5
helibandit

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See it comming yes.....300% in 3 years no
exactly

The only time you can have too much fuel is when your on fire

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07-11-2008 11:13 PM  9 years agoPost 6
Rob_T

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If it were a demand side problem, gas prices should be lower now than they were this time last year, as the demand is down (due to the record prices).

The sheer volume of trade in the futures market should be enough to raise suspicion. The simple act of buying a future creates an artificial demand that raises the price of the underlying commodity, then the future can be sold at a profit, creating more money to buy more futures and an exponential growth in profits for the speculator.

This only stops when there is a downward pressure on price, and while demand is down, the drop is small so it's not enough to reverse the current inertia.

Although I agree 100% with the problem diagnosis on the website, I don't know that they have a solution. Legislation will only be effective if implemented in a global way (which I doubt being possible).

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07-11-2008 11:59 PM  9 years agoPost 7
Inspector Fuzz

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@Rob T.

How long have you been trading futures?

Oil is following the behavior of any other commodity that has been underpriced for so long that the infrastructure on the supply side to produce it has dwindled.

Most of the oil in the world that could be produced at a profit when the the price was $40-450 a barrel has been found and used.

Right now everyone in the oil business is scrambling to get as much oil out of the ground as possible while the price is high.

The "evil speculators" know that a REAL supply problem will exist in the near future if supply does not increase. This is why we are buying.

It will take care of itself. Within 2 years production will have increased (due to the available funding from the "evil speculators" and a glut will occur, driving the price back down to around $80-$90 a barrel.

Screwing with the market to create a low price will keep oil companies from investing in more drilling and that would cause a real catastrophe (like NO oil at ANY price) in short time.

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07-12-2008 12:10 AM  9 years agoPost 8
1stPlace

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Hmmm... I agree with Fuzz, This calls for a celebration!

Well, aside from the 2 years thing... it might take e few more than that.

Diejenigen, die nicht lernen aus den Fehlern der Vergangenheit bestimmt sind, zu wiederholen.

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07-12-2008 12:20 AM  9 years agoPost 9
tk62flying

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Can anyone name these speculators ?

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07-12-2008 12:34 AM  9 years agoPost 10
Rob_T

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Within 2 years production will have increased (due to the available funding from the "evil speculators"
When a financial company buys gasoline futures and sells them at a profit, just how does that put money into the oil business again? Because it's lowering demand, and as the oil company is at the bottom of the chain it's likely doing the opposite. Quite definitely every dollar a speculator takes out as profit is a dollar that came from an oil buyer that doesn't go into increasing the supply.
Can anyone name these speculators ?
No, the accountability that is needed to be able to answer that question is not present.

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07-12-2008 12:38 AM  9 years agoPost 11
1stPlace

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Can anyone name these speculators?
The speculators are the oil (refining) companies, which must purchase their crude supplies from oil producing nations and companies at any of the mercantile exchanges throughout the world.

Diejenigen, die nicht lernen aus den Fehlern der Vergangenheit bestimmt sind, zu wiederholen.

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07-12-2008 01:37 AM  9 years agoPost 12
RonHill

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Rob

If it were a demand side problem, gas prices should be lower now than they were this time last year, as the demand is down (due to the record prices).
Locally demand is down, not globally. Globally demand has gone up almost 2% per year. This is a global issue and supply and demand needs to be looked at in that frame of reference. The supply is pretty fixed right now, and demand is rising every day in places like Asia and Oceania (up 43% from 2003).

Plus even if you do put controls on US speculators...They will just head over to International Commodity Exchange in London or the Dubai Mercantile Exchange to place their trades.

Even if speculators are 'evil' is subject to debate. South West Airlines was profitable for so long only due to their fuel speculation. And if any of you have a 401k....You might be one of these evil speculators yourself.

So is speculation driving up prices? Sure, but the amount is either a bunch or next to nothing depending on who you read. One simple thing might be to require a margin of 50% just like stocks. But that would only hurt small investors and most of the speculation is coming from hedge funds anyway. You could try to prevent the hedge funds...But they would just skip out on the NYMEX and invest over seas.

In truth, global demand is rising and supply is not. In any commodity that means prices are going to go up.

To fix this we need to drill our oil. We need to look at alternative fuels. But being a capitalistic society we need to reach the "pain threshold" before a market based fix is put into place. Asking Congress to fix the problem is only going to push the politically popular solutions, not the best solutions.

Plus petrocurrency is based on the dollar and the dollars value has dropped.

So, there are plenty of reasons why oil is at an all time high....But speculation is just one part of it and that may not really be an evil thing.

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07-12-2008 07:03 AM  9 years agoPost 13
Rob_T

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I don't have the numbers at my fingertips, but I believe that world demand is down recently too - US usage is a high enough proportion of world consumption that when we cut back it masks the growth in India and China's consumption(who are also affected by high prices...).

I've acknowledged the issue about global markets in my previous post.

SWA never speculated in futures. What they did was hedge fuel they would take delivery of to maintain price stability, so they could deliver the flights they had sold at the price they had committed - good business practice. I am not opposed to that, and nor is "Stop Oil Speculation Now" - they only want to regulate futures sales where the buyer has no intention of taking delivery of the physical product.

There is a gradual increase in demand of about 3% per year on average (but I strongly doubt that number applies this year). That is what the futures traders rely on to reduce the risk in their behavior That plus media hype about the $6 gallon. But the result is that it has brought the eventual price increase to the present instead of being years out as it would be without speculators.

If the data that futures trades represent a trade volume of 10 times the actual volume of oil sold is correct, then we can make the simple assumption that each barrel of oil is sold (between traders) 10 times before being consumed. Suppose each trade only makes 5% profit, then the price of oil is inflated by 63%. So instead of paying 4.16 at the pump we might be paying 2.55. Maybe the math is simplistic - but it certainly makes the point that this needs to be looked into as the impact may not be trivial. All that is being asked is the visibility into trades so we can find out if this is the case.

It's not as if this type of speculation is new. Enron engaged in it and the California energy crisis was the result of it.

Drilling our own oil is going to help, but it wont be as fast as telling the speculators that their options contracts will be worthless tomorrow.

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07-12-2008 07:15 AM  9 years agoPost 14
AddCollective

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If we could use our own petro resources, we wouldn't have the problem that our congress has helped to create, because of special interest groups.

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07-12-2008 07:33 AM  9 years agoPost 15
Rob_T

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You know, if we could get rid of all the problems congress created to appease SIGs the world would be a much better place.

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07-12-2008 07:41 AM  9 years agoPost 16
AddCollective

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It would, Ron, but brovic666 would still complain.

He and his "nipple-sucking" breathren would have to get a job.

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07-12-2008 04:10 PM  9 years agoPost 17
RonHill

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Rob

I've acknowledged the issue about global markets in my previous post.
And that is why this will not work. All you can do is hamper the small investor. Big investors will go overseas, big investors will put up more for the margin.
There is a gradual increase in demand of about 3% per year on average (but I strongly doubt that number applies this year).
3% a year seems low compared to some numbers I have seen...But even if I just accept it, without a 3% increase in supply each year prices are going to rise.

And by now pretty much everyone agrees that oil is an expendable commodity. The only real fix is to get off the oil dependency. Even without reaching that peak this creates false demand.

I have agreed that speculators raise gas prices (how much no one is really sure)....But no one has proposed a fix to stop them that will work.

This is an example of populist economics. It provides a bad guy and an easy fix (that will not work) to a complex problem. It only makes people feel good.

The solution is like I said before:

New technologies that are market based, not politics based.

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07-12-2008 08:36 PM  9 years agoPost 18
Sealerman

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Long Island, New​York.

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Screwing with the market to create a low price will keep oil companies from investing in more drilling and that would cause a real catastrophe (like NO oil at ANY price) in short time.
Yea and letting them make record profits by doing nothing will save the day.
I have agreed that speculators raise gas prices (how much no one is really sure)....But no one has proposed a fix to stop them that will work.
This is an example of populist economics. It provides a bad guy and an easy fix (that will not work) to a complex problem. It only makes people feel good.
Make them take delivery, if you buy oil you have to take delivery, why else would you buy it?

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07-12-2008 10:55 PM  9 years agoPost 19
RonHill

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Sealerman
Make them take delivery
How?

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07-13-2008 03:19 AM  9 years agoPost 20
Inspector Fuzz

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@Sealerman

You said "Letting them make record profits will save the day."

YES, it will. Sometimes it takes weeks, months or years of planning to "save the day." In this case saving the day is making sure that there is enough oil in the future. High prices encourage exploration and conservation.

"Make them take delivery." This is ridiculous and akin to forcing someone who buys stock in a company to hold onto the stock in perpetuity, no matter how measily the annual returns are.

All of these "eveil speculators" add liquidity (that means there are people to buy and sell when YOU want to buy and sell) to the market. Driving up the price of oil makes looking searching for more difficult to get to oil, possible. The high prices also help reduce consumption and lead to the development of alternative fuel.

I can't figure out why folks are so upset about this. We had nearly FREE oil for 20 years. Time to pay the piper.

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