"60% Of Oil Prices Due To Speculation" . . . . Or Then Again, Maybe Not

[hatrack]

EDIT

In my opinion, Engdahl's article is a tour de force of disingenuous disinformation. In the interest of time, I'll just pick out a few of the more egregious statements and apply the pooper-scooper. He refers to a Senate report that says energy trading was "heavily regulated" under the "extensive oversight of the CFTC." Pathetic. The CFTC never, ever finds manipulation in futures trading. The CFTC "enables detection of concentrated and coordinated positions that might be used by one or more traders to attempt manipulation." Somehow, the sensitive manipulation detectors at the CFTC haven't sniffed a hint of manipulation in the fact that a handful of silver traders have sold short the majority of world silver production.

He charges Nymex with conspiring with ICE to shift energy trading to unregulated London markets. But Nymex went to court two years ago to force ICE to report by Nymex standards and use Nymex mark to market. (See link:
http://www.ca2.uscourts.gov:8080/isysnative/RDpcT3BpbnNcT1BOXDA1LTU1OD
UtY3Zfb3BuLnBkZg==/05-5585-cv_opn.pdf) He claims that 60% of the current oil price is pure speculation, but he never mentions geopolitical risk or dollar inflation in the formula. The idea that ending futures speculation in oil would take WTI back to $50 would be funny if it weren't so sad.

After fingering fast-money speculators as the culprit, Engdahl stumbles blindly over a real cause, but dusts himself off and wanders away unenlightened. He says that financial speculators, including pension funds, have rammed big capital into markets designed for hedging, and driven prices skyward. Pension funds are guilty as charged, but they are not speculators, and they are not fast money. Huge pension funds like CalPERS have indeed sought better returns in commodities by buying commodity indexes. That's because their stock, bond and derivative positions are in the crapper and they have to do something to salvage the 8% annual return necessary to maintain actuarial viability. They're going to get burned in commodities, too.

Finally, Engdahl resorts to outright lying: "over the past two years crude oil inventories have been steadily growing, resulting in US crude oil inventories that are now higher than at any time in the previous eight years." Fact Check: As of January 2008, U.S. crude oil inventories stood at 282 million barrels, the lowest figure since October 2004. (See link: http://tonto.eia.doe.gov/dnav/pet/hist/wcestus1w.htm) How does Engdahl support his fraud? He includes paper oil contracts and the SPR (Strategic Petroleum Reserve). The SPR is not for everyday market supply; it's for the day when everyone realizes that Engdahl is a hack writer and a doofus. When foreign oil stops flowing, the SPR will last the U.S. about 30 days and everyone will be wishing that the idiot Bush had made it a heck of a lot bigger, like China is doing with theirs.

EDIT

http://www.stockhouse.com/Community-News/2008/June/19/Oil-speculation-theory-taken-to-the-woodshed

[tabatha]

1. Some of it is due to the declining value of the $.

Other countries are not having the same price increases.

[GliderGuider]

2. "the day when everyone realizes that Engdahl is a hack writer and a doofus"

:rofl:

[gasperc]

3. they've got us by the nads

I mean, what 98% of us drive a gas or diesel powered car, whether it gets 8mpg or 100mpg is almost irrelevant today. Little will change the fact that the US consumer burns about 117billion gallons of gas a year or 22million or so barrels of oil per day. They have us by the nads. Consumers don't have a practical choice to buy a fuel cell powered car, or gas car, or E-85, etc. Demand has exceeded supply, and the suppliers can tinker at the fringes all they want, ala Enron like tricks, because the market at the gas station clears. As individuals we can slow down, drive less, carpool to try and save money but in the end we will still be gas, until we have an alternative. Until gas can just sit at the gas station and the oil companies struggle to sell it at any price. Until the American people demand a comprehensive energy plan and don't get lulled when gas drops to $3/gallon the insanity will continue.

Now, today, we get ridiculous bills like Vitter's ENOUGH plan. If gas reaches $5/gallon then this 'triggers' the lifting of the offshore ban and states get to decide. Presumably if gas is only $4.96 9/10 that will prevent the oil companies from drilling the fuck out of the Gulf. I wonder what incentive they would need for that extra 3 cents? And if the drilling starts and gas prices plunge will the oil companies give the leases back and the profits from the record profits?

[Terry in Austin]

5. Demand -- it's the nads

Until gas can just sit at the gas station and the oil companies struggle to sell it at any price.

Spot on!

The sound bite: Don't like paying so much for gas? Don't need it.

Seriously, we're facing a permanent decline in oil supply worldwide. Post-oil life will be very different, and the sooner we adapt, the better off we'll all be. It begins with each of us.

[Schema Thing]

4. the author is lying:

when he says "As of January 2008, U.S. crude oil inventories stood at 282 million barrels,"



it's true, but it doesn't make the point he wants you to think. Looking at his own link, you can see that in June of 2007, inventories where higher (for June) than at any time since 1991, and for 2008, May is about where May was 8 years ago. The chart seems to fluctuate by 60,000 barrels, so it's hard to say without digging in deep if stocks are really higher or the same; but this writer is being dishonest.

Imagine that, a wallstreeter taking up for speculation. Whodathunk?