Letters to the Editor
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So then
It would seem oil lobbyists and the oil industry are ENEMIES OF THE UNITED STATES
As Savage said yesterday, if we had a WORKING U.S. GOVERNMENT, it would force the oil industry to put out sufficient oil output to not shutter the U.S., even if BY FORCE.
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The technical aspects of speculation (or is it manipulation?)
I read Greenberger's testimony and understand the nature of the current situation, where there is at least a quarter of the oil futures market outside of the purview of the CFTC.
My question though is what exactly are the methods by which speculation is driving oil prices up? I understand how the futures market works. I also understand the efficient market hypothesis that would seem to indicate that mere speculation, without some sort of affirmative manipulation, wouldn't be able to push the market away from where it should be for long. I.e., if speculation is adding a 1/3 to the true cost of oil, there would be an incentive for self-interested market participants to short futures, or bid them down to the market price.
SO, what exactly are "speculators" doing here that is sustaining oil prices well above theoretical prices (I think I read they should be around $80/barrel?) and sending them ever-higher? Or is this something we can't really know, since the markets are so opaque?
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Linguistic feats of agility
"Well, I don't think that there is any question that when pension funds and endowment funds that basically benefit a lot of people, took a really long look at the equity markets and look at the commodity markets and they made a shift in their allocation so that they devoted more of their assets to the commodity markets. Now this is what they're paid to do. So to the extent that they've reallocated their portfolio to commodities, they feel that they should be rewarded, now what does that do, that drives up the selling pressure, so yes, markets are going to move up, commodities are more expensive, and commodities are more expensive because more people are buying them."
Emphasis mine. He's more than saying just that they're speculation driving up the cost. He first says that the speculation is, essentially, funding your retirement. He's carefully framed the argument as either let speculators do what they want, or you're retirement is going to get flushed down the toilet because of the big, bad, regulating government.
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Well, he's right
Everything is worth what its purchaser will pay for it. It's really that simple. Until the price gets high enough that oil companies can't actually get rid of the oil to a real buyer, the price reflects market conditions.
To be honest, I'm sick and tired of people complaining about gas prices. Don't like them? Use less gas. If your lifestyle isn't conducive to that, change your lifestyle. The cost of home heating is the bigger issue, and is subject to the same forces. I'm not sure what the right approach to heating is...certainly an incentive program for efficiency upgrades would be best in the long term, but there needs to be a short term plan as well (one which then doesn't counteract efficiency incentives...it's a difficult balance).
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Snakes in suits
Sometimes I wish I didn't have a conscience so I could get a sweet gig like the esteemed Mr. Damgard's. Honesty is so unprofitable.
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Follow the money
It's not good when corporations feel confident that they can threaten the government with vague allegations of retribution if the government does it's job and regulates them. The oil companies job is to make money. Period. They are not international negotiators, except in the sense that they are legally obliged to their shareholders to ensure that any negotiations they make will maximize profit. The government is the only protection "we the people" have against this.
The money is going somewhere. How much are they paying in China for oil? For gasoline? Who is getting a cut, and when, and how much, when oil is imported into the U.S.? Why has oil suddenly gone up so high when demand is actually down? If the government won't look into these issues, then who will?
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Consumers can hedge also
I wonder if any of the eco-sensitive types who are your readers ever considered a futures contract? Futures contracts are for everybody. Lets say you have a small trucking firm and you want to hedge your fuel costs, you can buy a futures contract and lock in the price. Better yet if you have your own storage tank, you can accept delivery. What I wonder is would it be possible for a group of individuals to pool their energy needs, and buy a contract to hedge their needs. Simply subscribe a number of friends and relatives, and let them buy a share of the contract on something like natural gas, or gasoline. Many exchanges now have mini-contracts, which are smaller quantities. Once you over, or underinvest your projected needs, you are no longer hedging. There are also ETFs which are weighted at multiples of the market price, which mimic the moves in these natural resources. The only problem of course is that you might lock in a high price, and find the price at the close of the contract is lower. For people who are on the edge of their mortgage payments, preventing budgetary shock would outweigh the disadvantages probably.
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Briefly
Was it just me, or was there the sense that you were listening to threats from a petulant child heightened by the syntax, grammar, and verb tense changes of an angry twelve-year old who has been forced to write an essay?
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Speculation follows trends ...
After the tech bubble, and the real estate bubble, commodities are the next bubble. We live in an unplanned, basically chaotic economy after all. And commodities are based on limited natural resources, not unlimited ones.
That said, I think the speculators here are actually following the underlying supply and demand issues. Anyone who wants to take advantage of peak oil, and has no scruples, could certainly make money buying oil company stock at some point, and also bet on oil futures. Timing, of course, is everything.
However, the long range outlook in price is nothing but up, and they know it. Overall production is declining. The ostensible Saudi boost in production is not happening. Demand is growing.
The only thing that will halt this is a drop in price supports, as in India/China, less usage of oil by everyone in driving, industry and in agriculture, etc., and the arrival of sustainable technologies. And most of that is going to take years.