Friday's Oil Spike

[chill_wind]

Oil Price Spike to $138 a Barrel Shows a Market Out of Control, Says Consumer Watchdog



Price Spike Follows Self-Serving Prediction of $150 a Barrel, Israeli Threat Against Iran; U.S. Government Must Speed Market Regulation
06-06-2008

by J. Dugan

Contact: Judy Dugan, 310 392-0522, ext. 305, or cell 213 280-0175



Santa Monica, CA—The price of crude oil jumped $11 a barrel on Friday to $138, mostly on the ginning up of news that has nothing to do with current supply and demand, said Consumer Watchdog. The spike followed a prediction by investment bank Morgan Stanley that oil would reach $150 a barrel by July 4, and an Israeli cabinet minister’s warning that Israel would attack Iran if Tehran did not stop developing nuclear weapons.

“In the actual physical market for oil, nothing changed between yesterday and today,” said Judy Dugan, research director of Consumer Watchdog. “Morgan Stanley knew full well that making the prediction would spike prices, especially by calling for $150 oil in less than a month. As for the Israeli statement, traders instantly grabbed it as a reason to spike prices, even though it appeared to be a calculated warning, not a signal that bombers are about to take off. Obviously, diplomatic nuance means nothing to speculators.”

Early in the day, a smaller price rise in crude oil was blamed on a weaker dollar and oil demand in Asia. But, said the nonprofit, nonpartisan Consumer Watchdog, ever-bleaker economic news in the U.S., including rising unemployment, should have pressed the price downward.
“The bottom line of this oil price feeding frenzy is that drivers in the U.S. are likely to suffer $4.50 gasoline, while in California and some other states may hit $5.00 a gallon for regular this summer,” said Dugan. “Inflation will keep spiking the price of groceries as well as gas. Congress and the White House have
to stop talking and put some emergency regulations on trading markets, including electronic markets that are completely unregulated.”

Consumer Watchdog’s recommendations include:


-- White House action to sell some of the Strategic Petroleum Reserve, which contains the highest-demand oil known as light, sweet crude.

--Closing the Enron Loophole in commodity trading regulation. A regulatory measure in the federal farm bill (S.2058 by Sens. Dianne Feinstein and Carl Levin) would help stop speculative oil pricing. The huge omnibus bill was returned to Congress to fix an error in the version that president Bush vetoed last month. Now the repaired bill has to be passed by the House and Senate again, Bush has vowed to veto it again, and then the House and Senate must override the veto, wasting yet more time. (See more on Enron Loophole and farm bill amendment at http://www.oilwatchdog.org/articles/?storyId=18735 )

--Increase in margin funds that traders must put up in energy markets to help suppress speculation. Currently, traders only have to put up 5% to 7% of the worth of the purchase, instead of the 50% required on stock trading. This makes it cheap to speculate.

-- Senate approval of an alternative fuels bill funded by withdrawing $1.8 billion a year in unjustified taxpayer subsidies to oil companies. This measure, passed by the House, was not taken up in the Senate, where opponents used a filibuster tactic to require 60 votes for passage. A similar House measure was removed from the federal energy bill by the Senate last year under pressure from the oil lobby. (Find text of HR 5351 at http://thomas.loc.gov/ )

-- Oversight of refinery operations, including regulation of national gasoline supplies. In the last decade, the average on-hand supply of gasoline has dropped from 30 days’ worth to about 22 days. This makes prices increasingly sensitive to any cuts in production. Only government regulation to control the supply of gasoline, nationally and regionally, will keep supplies adequate to control prices.

http://www.oilwatchdog.org/articles/?storyId=20620&topicId=8059

http://www.oilwatchdog.org/?topicId=8059&/The+Industry


(bold-face mine)

[Warpy]

1. Dumb. That price spike followed one of Olmert's deputies

promising Israel will bomb Iran if they don't suspend their uranium enrichment program.

However, the solutions are all common sense. The main solution, as always, is getting these GOP bandits out of our government.

[SergeyDovlatov]

6. What he said. End of thread n/t

[IADEMO2004]

2. Smells like the west coast energy scam in the summer of 2000

[AndyA]

3. I agree - it's Enron all over again.

Are we certain Ken Lay is dead? :shrug:

[spanone]

4. nope

[chill_wind]

5. Biggest Single-day Jump. In History.

(photo- Joshua Lott, Reuters)

Oil prices take biggest jump in history

By Jad Mouawad Published: June 6, 2008

http://www.iht.com/articles/2008/06/06/business/06oil.php



Crude Leaps Nearly $11,
In Fresh Hit to Economy
By NEIL KING JR.
WSJ June 7, 2008; Page A1

"(... ) Friday's jump -- which was equivalent to the entire price of a barrel of oil in late 1998 -- was fueled in large part by the dollar's sharp fall, with investors snapping up oil as a hedge against the currency's eroding value. Reflecting those inflation fears, other key commodities also resumed rising Friday. Gold, a classic inflation hedge, soared 2.7% to close at $895.40 an ounce, while other metals like copper, which had been slumping, shot up.

But crude's big jump was also driven by other irritants, including a sudden rise in political tempers in the oil-rich Middle East. A senior Israeli official told a prominent Israeli daily Friday that an Israeli attack against Iran was "unavoidable" if Tehran continued to push forward on its controversial nuclear program. Some observers said that single comment, from Transport Minister Shaul Mofaz, may have given oil prices a greater shot of adrenaline than anything else.

"It's one word that did this," said Guy Gleichmann, president of United Strategic Investors Group, a commodities brokerage in Hollywood, Fla. "'Unavoidable.' It's basically saying, 'We're going to attack.'"

Rumors of war with Iran, Mr. Gleichmann said, have often led to a spike of several dollars in the price of oil. The issue had died down for a while, he said, but "this is like Jason coming back from the dead."

(....)
The apparent irrationality of oil's recent leaps and falls is sure to add fuel to accusations that the price rise is largely the work of market speculators.

The U.S. Commodity Futures Trading Commission announced last week that it had launched an investigation into whether there was evidence of market manipulation in the wholesale trading of petroleum products. The CFTC said Thursday that it is hosting an international gathering of energy regulators in Washington next week to discuss ways "to detect and deter manipulation in the global energy markets."


Some analysts said that Friday's spike might have been driven in part as investors who had placed bets on a fall in prices rushed to buy back oil.

After hitting its previous peak of $133.17 a barrel last month, oil tumbled 8.2% in nine days -- emboldening investors who believed prices would keep falling. Then, on Thursday, the market abruptly lurched upward, wiping out gains investors might have made betting against oil. There was no definitive evidence that panicked so-called short sellers contributed to the rally, but volume in exchange-traded funds used to sell oil short did rise on Friday. Volume in the biggest oil-exchange traded fund, the Energy Select SPDR, hit nearly 47 million shares, almost double its typical pace. But while such trading may have contributed to a surge in activity, it didn't appear to be the main cause of the upward spike, traders said.

(...)"

More:

http://online.wsj.com/article/SB121279421263753561.html?mod=special_coverage

(bold-face mine)

[chill_wind]

7. Investigations and Proposals

CFTC investigating since December

see also links to some of the Senate Testimony

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x3366027

Oil Traders Face New Regulation

Senator Maria Cantwell (D-Wash.) talks about The "London-Dubai Loophole"
Senator Maria Cantwell (D-Wash.)

http://www.businessweek.com/bwdaily/dnflash/content/jun2008/db2008068_580706.htm

Other Proposals Circulating Washington

http://www.businessweek.com/bwdaily/dnflash/content/may2008/db20080513_272469.htm