Bill to crack down on oil speculators moves forward

Bill to crack down on oil speculators moves forward


WASHINGTON (CNN) -- Legislation meant to crack down on oil speculators passed a key test vote Tuesday in the Senate.

The test vote on the legislation, which the Democratic leadership backed, was 94-0. The support of 60 senators was needed for debate on the bill to proceed. It was unclear when a final vote on the legislation would occur.

Reacting to the unanimous Senate vote, White House spokeswoman Dana Perino said the Bush administration agreed that speculation had contributed to volatility in the oil market but that "the root causes of high energy prices is supply and demand."

"So while they can have the vote on speculation, and they can move forward on that, we think that it is critical that we start focusing on the resources that we have in our own country and the ways that we can access those resources in environmentally friendly ways -- including oil shale, offshore oil drilling and opening up a small bit of the Alaska National Wildlife Refuge to drilling," Perino said.

With gas prices more than $4 a gallon, lawmakers are rushing to introduce legislation meant to lower prices at the pump. See how multiple factors are driving up the price of oil »

Sen. Byron Dorgan of North Dakota, one of the Democrats sponsoring the bill, said the quickest way to lower prices at the pump is to stop speculators from driving up the price of a barrel of oil.

"First things first. If you are running a race with hurdles, jump the first hurdle first," Dorgan told reporters Monday. "The reason we have oil at $130, $140, $145 a barrel -- like a roman candle going up, up, up -- is because we have excessive, relentless speculation in these markets.

"Nothing in supply and demand in the last year justifies the price of oil."

more...

http://www.cnn.com/2008/POLITICS/07/22/congress.oil.speculators/?iref=mpstoryview

That sums it up nicely.

weak dollar, china booming, india booming, opec stronger, topped off strategic reserve, president who likes high oil prices, consumers who until very recently loved their hummers and other gas guzzlers, military going through oil like crazy,....

and a steep supply curve that makes oil extremely price sensitive to even minor changes in demand.


yeah, real hard to figure out why oil prices are sky high. must be dem darn speck-you-laters.
i've always wondered, if oil prices were so obviously overpriced, why aren't all those pesky speculators betting on the price to FALL back to a price that IS in line with supply and demand? maybe those speculators are eevil AND stoopid!

You really think demand has risen that much???? In a recession????

Let me even help you:

http://www.eia.doe.gov/steo

Your reasons cannot justify a jump of that much in 1 year.

But I am sure people in California were blaming supply and demand when Enron was rigging the market. For some its hard to believe that not everything is a result of supply and demand. Take the blinders off please.

but our voices were drowned out by the msm who was blaming our wanton gas consumption

our national obsession with SUVs is at least a decade old, worldwide demand has grown only marginally in the last year. The only significant change we've had in the past few months is the extreme growth in commodities and energy speculation which accompanied the outflow of capital from the now risky stock, real estate and derivatives markets.

nearly a 15% drop in a year is rather on the huge side, and that's after coming back a bit from even worse numbers.

i agree that there has been money flowing out of worse investments into the commodities markets, but it's just as easy to bet on prices going down as going up. so why the insistence that it's all artificial, all speculation, all everyone betting in the same direction, all evil, etc.? if the market is so vastly wrong, just sell some futures youself and make a fortune when prices return to normal!

there are a lot of "speculators" out there who get rich on even minute deviations of prices from where they "ought" to be. those speculators are presumably SHORT oil, i.e., driving prices DOWN.

Short sellers buy contracts then resell them right away, believing they will be able to buy back at a lower price in the future. Shorting temporarily causes an increase in demand, then it's effect is neutral and later it can create another increase when the contracts have to be bought back (known as a "short squeeze" when a sudden rebound causes short sellers to panic buy en masse).


It is generally more difficult to short a commodity than to go long because there are margin requirements. When you sell short you are essentially taking out a loan from your broker. If the commodity (or stock, etc.) rises above your margin limit, your broker will require you to immediately repurchase the shares.

shorting stock is borrowing a share of stock and then immediately selling it, intending to repurchase it for less in the future. you may hold a short position indefinitely provided that you meet margin requirements. shorting stock is more difficult than going long because the risk is unlimited on the short side but on the long side it's limited to the cash you put it.

futures contracts, on the other hand, are completely symmetrical. whether you go long or short, you create a new contract and someone else takes the other side. one person bets on prices going up, the other bets on prices going down. at some point later you close out the position by making the opposite trade and you're done. the contract is closed out. technically, there's a clearinghouse so there's no way to really say who's on the other side of your contract, but logically it amounts to the same thing.

there are margin requirements for futures contracts, but they're the same whether you're long or short.

any sell (short or not) puts downward pressure on prices.
any buy puts upward pressure on prices.

it's true that a short stock position will eventually need to be closed out (barring a cancellation of a stock), but then, arguably, long stock positions will eventually be sold. in the case of futures, barring delivery of the commodity, the position needs to be closed out whether long or short. again, totally symmetric.

commodities these days.

The stock market is symmetrical in the same sense you described the commodities market. When I sell a stock, someone else buys it. I'm betting it won't go higher, they're betting it will. Shorting a commodity is a neutral act. It does not put downward pressure on the price.

long an etf and you risk only the money you put into it.
short an etf and your risk is unlimited and you have to post and maintain margin requirements.

selling pushes prices down, buying pushes prices up. this is basic to any market. it's practically the definition of how prices move. there's nothing about it that's neutral.

are you saying that i could short billions of barrels of oil without affecting the price? how exactly is that supposed to happen?

law outside the USA (or probably inside either since it's obviously unconstitutional.)

I am not defending it, but speculating on futures is a cornerstone of capitalism.

In my opinion. :D

I suggest you do.

So they're going to limit the speculation from US investors, and this will lower oil prices, and then WHAT magic force keeps China from buying it all up and reselling it to us at the prices the speculators were buying at???

Thank you!
:D

united states supreme court / supreme court of the united states

:shrug:

in fact it specifically provides for regulation.

'restraint of trade' basically means that you can't effectively PREVENT trade, but you sure as hell can put lots of conditions on trade, up to the point that the conditions and restrictions effectively prevent it.

i'm vastly oversimplifying here, but the point is that congress certainly can regulate futures activity.


as others have pointed out, though, u.s. law alone cannot control a vast world market....

I might not have agreed 100% but I'd have grasped the point. :D

Speculation is a global thing, and not an American thing. If Australian speculators want to price oil up to $150 a barrel, American consumers will have to pay $150 or deal with shortages. The only thing a bill like this ensures is that Americans aren't profiting in the process.

unconstitutional. Which is, after all, what matters. But I could be wrong! :D

Read the hard facts:

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x3606939

Germany in call for ban on oil speculation
By Ambrose Evans-Pritchard
27/05/2008

German leaders are to propose a worldwide ban on oil trading by speculators, blaming the latest spike in crude prices on manipulation by hedge funds.

It is the most drastic proposal to date amid escalating calls from Europe, the US and Asia for controls on market forces, underscoring the profound shift in the political climate since the credit crunch began. India has already suspended futures trading of five commodities.

Uwe Beckmeyer, transport chief for Germany's Social Democrats, said his party would call for joint measures by the G8 powers to prohibit leveraged trading on energy contracts. "It's an extreme step but it has to be done," he told the Berlin media.

Mr Beckmeyer said the last 25pc rise in the price of oil to $135 a barrel had nothing to do with underlying supply and demand. “It’s pure speculation,” he said.


http://www.telegraph.co.uk/money/main.jhtm...26/cnoil126.xml


Why Oil Prices Are So High

By Sam Pizzigati, Too Much: A Commentary on Excess and Inequality. Posted June 10, 2008.
Looking for villains around the gas pump? Look at the super-rich making bets with billions while regular people always lose. Tools In the late 1990s, we had the stock market bubble. That popped. Then we had the housing market bubble. And that popped. Last week the market for crude oil bubbled to an all-time high, nearly $140 per barrel. We seem today to be forever blowing bubbles. Maybe we should stop and ask why.

After all, back in the middle of the 20th century, our economy didn’t careen from one bubble to another. Why now all the bubbles — and busts? Here’s why. We’ve become too unequal. We have too much wealth concentrated in too few pockets.

Grand concentrations of private wealth, history tells us, have a nasty little habit of nurturing wasteful and witless speculation. Wasteful and witless speculation, news reports last week revealed, just happens to be the economic joker in the deck that's turbocharging our current surge in crude oil prices.

The speculation now doing so much damage at America’s gas pumps comes mostly out of hedge funds, those shadowy mutual funds on steroids open only to the deepest of deep-pocket investors. This special status largely frees hedge funds from any federal financial oversight and regulation.

http://www.alternet.org/workplace/87474

:eyes:

Casino capitalism sucks!

They are doing it with our money!

:evilgrin: