flashlight's blog

oil speculation

 abuse

According to "stopoilspeculationnow.com":

 
What is causing the high price of fuel?

The oil price bubble is unfairly taxing American families and restricting our nation’s economic potential. While everyone is aware that supply and demand constraints contribute to price increases, there’s another force at work that, like gravity, is invisible yet powerful. This force is rampant speculation.

Every time you buy products such as food or gas, you are impacted by unregulated, secretive and often foreign commodities futures markets. Speculators in these markets are increasingly buying and selling commodities such as oil to sell again, rather than to use. As largely unregulated speculators pocket billions of dollars at your expense, the price of commodities has increased out of proportion to marketplace demands.

As speculators continue to dominate the market, the volume of oil traded “on paper” has been as high as 22 times greater than the volume of oil consumed. As prices rise, institutional investors have become active traders, turning commodities into just another asset class. This has caused severe market imbalance and upset the natural relationship between supply and demand. As a result, legitimate customers such as trucking companies, airlines, and consumers have been forced to purchase oil at unnecessarily higher prices. This has dramatically raised costs, resulting in needlessly high prices for American consumers and businesses.

How do they get away with that?

Over the last 20 years, commodities markets have become increasingly less regulated. Today, as many as 90 percent of all commodities trades occur outside of the traditional marketplace exchanges. In these so-called “Swaps trades”, parties secretly buy and sell commodities with absolutely no one watching. This means speculators can manipulate oil prices and corner the market without anyone knowing.

In addition, other loopholes exist allowing increasingly sophisticated speculators to take advantage of consumers. For example, in 2000 Enron lobbied policy makers to permit some U.S. commodities exchanges to operate without normal oversight. This has allowed speculators to dodge public disclosure rules that would normally limit the number of trades an investor can make.

What is the solution?

To lower oil prices for all Americans, we need to increase domestic supply, exploration, alternative energy sources and conservation. We also must protect bona fide speculation and hedging. To address excessive speculation, Congress should promptly:

1. Re-establish strict position limits on energy commodities – Position limits have existed since 1936 and work well at curtailing excessive speculation. Any trader not hedging with the intention of taking physical delivery of a related commodity must be subject to strict position limits.
2. Close the London Loophole – Foreign Boards of Trade with U.S. Terminals trading futures contracts that cash-settle against U.S. contracts should face the same regulations as U.S. exchanges. It is not fair for U.S. futures exchanges to face more regulation than their foreign counterparts trading in U.S. commodities.
3. Regulate “swaps trades” – All trades in the over-the-counter (OTC) swaps market must be subject to strict position limits. It is unfair to exempt swaps dealers from the same regulations that other market participants face. Experts have estimated the size of the OTC markets to be nine or ten times larger than the futures markets.
4. Fully close the “Enron loophole” – “Exempt Commercial Markets” that trade U.S. contracts nearly identical to fully regulated contracts should not be exempt from the same regulations that apply to Designated Commercial Markets such as the NYMEX.
5. Bring transparency to all energy trading – Positions of traders in all markets should be reported to the Commodity Futures Trading Commission (CFTC) and should be categorized based on where the trades occur and who is doing the trading. This will provide vital information to detect and prevent market manipulation.

Would these "solutions" have a noticable effect on oil prices?  Why or why not?