Supply, Demand, Speculation, & Gouging: Oil, Metals, Food

OIL

"http://www.niemanwatchdog.org/index.cfm?backgroundid=10... "

Speculators – not supply and demand – are to blame for skyrocketing gas prices: July 11, 2006

A bipartisan Senate report, largely ignored by the media, says that there's no oil shortage and none is expected. Rather, it's massive, unregulated speculation that is costing consumers billions of dollars – and vastly enriching people like T. Boone Pickens.

The conventional explanation for high gasoline prices doesn't work. The notion that energy demand, especially in places like China and India, created a world-wide oil supply shortage which drove up prices and caused Americans to pay more at the pump cannot be squared with the facts.

The report was barely touched on in the news media but its analysis of petroleum prices demands serious attention. This story is far too important to be left lingering on the back pages of the trade press. Petroleum prices deserve better than a mere repetition of the high-demand-low-supply theory, particularly when it is conspicuously inconsistent with the facts.


METALS

Presentation to World Bank: Metals

"In the first part of this paper on the “Commodity Bubble”, I make the case that, in real terms, we have had an unprecedented commodity bubble in this decade. This bubble has occurred because of unprecedented investment and speculation in commodities, largely by way of derivatives. The far more important engine of this bubble has been leveraged speculation by hedge funds....

If you take all the economies in the world, valuing GDP based on exchange rates, the overall global growth rate has not significantly changed since the mid 1970’s. So if it is not a new era of supercycle demand growth and supply restraint, what has led to such a high amplitude and long duration bull market in commodities in this cycle. My answer is speculation – nothing more. And speculation on an unimaginable scale."

"http://www.venerosoassociates.net/Reserve%20Management%... "


FOOD

http://www.flonnet.com/fl2316/stories/20060825001904300...

Speculation moves forward

C.P. CHANDRASEKHAR

The introduction of futures trading in essential commodities under the reform regime has paved the way for speculative price increases.

FORWARD trading has a long history in the country, but it has never been a matter of much public concern. Until recently, that is. While searching for explanations for the increase in the prices of food that began a few months back, some observers turned their attention to the massive increase in forward and futures trading in commodities. What emerged was revealing.

According to Bloomberg, quoting the Forward Markets Commission, volumes on the National Commodity Exchange, which trades futures contracts in 48 commodities, reached $226 billion in the year ended March 31, 2006. That was more than the $184 billion of shares traded on the Bombay Stock Exchange in the same period. Forward and futures trading had been promoted on the ground that it helped traders deal with market uncertainty by hedging their transactions, and stabilised prices for the final producers. However, the surge in futures trading could not be explained by pure hedging requirements, and obviously reflects an increase in speculative activity.

"According to reports private firms such as Cargill India, Adani Exports and ITC and the Australian Wheat Board have together purchased as much as 30 lakh tonnes of wheat this year. While some of this is for conversion into processed goods in their own facilities, a significant part is for resale at a profit. Private firms have also been involved in trading in other commodities. This indicates that large trading firms have cornered supplies of many commodities at prices higher than the minimum support price offered by the government.

One consequence of these trends has been a decline in government stocks from record levels and a rise in stockholding by the private trade for speculative purposes. Thus the government has managed to procure only 92 lakh tonnes of wheat this year as compared with 147 lakh tonnes last year. As a result, wheat stocks with the government stood at 93 lakh tonnes on June 1, having declined continuously when compared with the level on the same date of the last few years, starting at 413 lakh tonnes on June 1, 2002. Overall food stocks with the government stood at 223 lakh tonnes on June 1, 2006, close to a third of their peak level of 648 lakh tonnes on June 1, 2002. These declines are far more than warranted by trends in production, indicating that the private trade has managed to corner a significant volume of stocks."

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