Did Speculation Fuel Oil Price Swings?

Source: CBS News/60 Minutes

60 Minutes: Speculation Affected Oil Price Swings More Than Supply And Demand

(CBS) About the only economic break most Americans have gotten in the last six months has been the drastic drop in the price of oil, which has fallen even more precipitously than it rose. In a year's time, a commodity that was theoretically priced according to supply and demand doubled from $69 a barrel to nearly $150, and then, in a period of just three months, crashed along with the stock market.

So what happened? It's a complicated question, and there are lots of theories. But as correspondent Steve Kroft reports, many people believe it was a speculative bubble, not unlike the one that caused the housing crisis, and that it had more to do with traders and speculators on Wall Street than with oil company executives or sheiks in Saudi Arabia.

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"Approximately 60 to 70 percent of the oil contracts in the futures markets are now held by speculative entities. Not by companies that need oil, not by the airlines, not by the oil companies. But by investors that are looking to make money from their speculative positions," Gilligan explained.

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"Are you saying that companies like Goldman Sachs and Morgan Stanley and Barclays have as much to do with the price of oil going up as Exxon? Or…Shell?" Kroft asked.

"Yes," Gilligan said. "I tease people sometimes that, you know, people say, 'Well, who's the largest oil company in America?' And they'll always say, 'Well, Exxon Mobil or Chevron, or BP.' But I'll say, 'No. Morgan Stanley.'"

Read more: http://www.cbsnews.com/stories/2009/01/08/60minutes/main4707770.shtml?tag=topHome;topStories

:shrug:

nt

It's good to know that I'm not the only one who can call Capt. Obvious to help people get a clue.

I hope that this administration will investigate this and other matters..

If she proves my wrong, then great.

the final raping of the nation in the last days of the bush administration. Mr. Snappy told me this when it was happening and he thinks only fear of investigations stopped it. Supply was high and demand was low; there was no reason for fuel to be so high.

from us to the oil companies and those who own them . . . the profits they've been reporting for the past couple of years have been obscene -- and made up of our hard-earned bucks . . . when they had their fill, the price of gas magically returned to below $2 . . . disgusting, to say the least . . . and they got away with it . . .

It isn't that they 'had their fill'. They will never have their fill. It was only when it was no longer sustainable that they let the prices drop.

They had theoretical arguments for it, but no real explanation for why prices got as high as they did. Now we know it was speculation and suddenly many of the theoretical assumptions economists use for explaining price movements seem flawed. Economic models are only as good as their assumptions and the assumptions appear to have been poor.

I was 'sure' it was speculation, but Krugman's charts and graphs had me convinced I was wrong, and he and the other experts were right.

Bah.

were in a bubble. Part of the reason is that economists generally refuse to admit anything is a bubble because that really plays havoc with the models.

Well, at least it was not a bubble for the Wall Street insider elites. It was a bubble for the greedy side players, day traders and hangers-on, but not for the Masters of the Universe elite.

The fact is that Goldman-Sachs and the rest MANIPULATED the market to soak Americans out of billions in a stunningly short amount of time. It was almost as though these Wall Street insiders looked at the masses of Americans as their own private ATM machine. These folks used the very same opaque oil trading markets created by Enron in their heyday to get theirs. After Enron collapsed, the opaque markets were still there and like any good mobsters, the Wall Street crowd took over Enron's racket.

As for economists, analysts and the rest of the professional classes involved in these areas, most are offering opinions under the naive assumption that these markets are somehow transparent and being allowed to behave without interference or manipulation. They are, in short, clueless because the energy markets are for the most part opaque and unable to be scrutinized effectively.

of transparency and information in financial markets. I can't blame them. Their platitudes and assumptions fall apart if they don't make those utopian assumptions. That doesn't make them any less wrong.

For "No Shit, Sherlock". This belongs there.

....when people tried to blame them for the price of oil.

Strategic commodities need to be regulated closely.

Well worth reading all 4 pages of the article.

Bears like to shit in the road. Around here, it's in the middle.

at a chart of gasoline prices. There's generally a fairly steady rise from the time Bush took office until the drastic fall a few months ago. Seems that Bush, Cheney, etc. either encouraged this activity, or at least turned a blind eye (but I'd bet that they all profited handsomely from it).

:grr:

Let Morgan Stanley bailout the automakers!

They were indeed speculating. We called here on DU...

when the prices were climbing.

was it done to disrupt the economy, spread fear, and cause people to vote with their lizard brains?

imho, the precipitous drop following the election means the answer is yes.

Does the sun rise in the east?

I suspect the majority of Americans already believe this to be the case. Hopefully there will be some reforms of the commodity markets trading rules that make sense, not sure what the answer is though.

their scheme was outed....and the speculators ran for cover....

If the world economy starts to recover, you can bet your ass that those oil prices are going to quickly climb back to where they were, if not much further.

world demand was up about 5% when prices started rising 150%, & it declined during the rise.

Demand wasn't the key.

Likewise, world demand drop doesn't account for the decrease in price.

Unfortunately it is the parasites who now call the shots. The bailout was for the parasites not the real economy.

If you were around in the '70's, the last time the world "ran out" of oil, you recognized this for what it was. Different scam, same result.

I think it stands to reason that when the price of something starts to skyrocket in the absence of any fairly visible interruption of supply - it's a bubble.

Every corner of American life, from home loans to the price of gas, has been infested with this Wall Street vermin.

When will these gangsters be arrested?

:sarcasm:














Btw, Getting paid out insurance money for some extra tall buildings you no longer want is a nice scam too :shrug: