Show Trial Planned for Energy Markets
The US House of Representatives will hold hearings on energy markets trying to determine who is causing oil prices to rise. The anti-market investigation will blame hedge funds and investment banks for manipulating the markets to make oil go to record levels.
Oil is too global a commodity for speculators to determine its price. We know, for instance, that oil prices are high not only in spot markets but in futures markets, not only on the Nymex but in the UK (Brent), Dubai, Malaysia, and numerous smaller, less liquid markets not accessible to speculators. Are we to believe that the conspirators somehow entered all these markets at once?
The argument for speculation also ignores the fact that numerous other commodities are soaring in price, namely gold, silver, platinum, palladium, copper, iron ore, tin, corn, rice, etc, etc. Did the oil conspirators cause all that, too? The commodities that do not trade on futures exchanges (making them less susceptible to speculation) have risen slightly more than exchange traded commodities, indicating that fundamentals are driving prices higher.
The House show trial is surely designed to bamboozle the general public. The one entity that engages in activities directly linked to the scarcity of oil vis a vis dollars, the Federal Reserve, appears to be exempt from government scrutiny.
Comments (11)
That would be a bit too logical, to think that the prices of commodities are going up in dollars because there are too many dollars.
Instead, it's a conspiracy by speculators everywhere to drive up prices. Yeah, that makes more sense.
Published: May 12, 2008 9:51 PM
Easy way to see that these show trials are bogus
1. The current June 2008 open interest is 262 million barrels - or 3 days production.
2. No player can hold more than 20,000 contracts or 20 million barrels - 25% of a days production or 1 day US consumption.
3. Futures are a zero sum game - you can not make money trading against yourself. If I want to buy at a particular price, someone, satisfied to, or confident of being able to deliver 1000 barrels at the price has to take the short side.
4. The Congress has actively been involved in restricting supply, (by not allowing drilling on Federal Land).
4. According to the American Petroleum Institute latest statistics, US consumption of unleaded gasoline has actual gone down from 1 year ago.
Published: May 13, 2008 12:28 AM
Just another election year Congressional witch hunt, to cover their butts, after flooding the money markets with C-Note bathroom tissue.
Prepare for their usual scolding and blame games. They say, "The Greedy Oil Companies are crippling the consumers.... Axis of Evil out to hurt the U.S. of A."
And Congress' mother-knows-best answer to the help consumers:
1. $1 a gallon subsidies on bio-diesel.
2. A slap in the face of our neighbors and free markets-- for trying to flood our cars inexpensive fuel. The slap, in the form of 41% or 41 cent tariffs on Brazilian cane/tallow-based fuels.
3. Threaten and destroy nations that do not bow to our demands.
Replace the bottle of gin, with the gas can, and let the withdrawal symptoms-related bashing begin on Capital Hill.
Published: May 13, 2008 5:50 AM
This is simply a Congressional attempt to keep the lie of Central Banking and Energy Regulation going for another number of years. They do this by blaming those folks who take advantage of stupid policy instead of the policy makers themselves.
The important point to understand here is that this is a never ending game. There have been some victories for freedom: The stopping of the ICC and the De-Regulation of Air Lines are two examples. The bigger trend is for more regulation to save us from speculators.
The ultimate organization congress is protecting is of course the enabler of over-regulation, wealth re-distribution and the bellicose state: The Central Bank.
Published: May 13, 2008 8:34 AM
I'm no fan of the Fed, but the claim that it's the fundamental cause of the commodity rally ... just doesn't work. Let's not forget, they're rallying in *all* currencies, not just US dollars.
And while I agree that there's no *conspiracy* to bid up oil's price, there is *dis*organized speculation, just like in any bubble -- which I think this is. (Should be unneeded disclaimer for people like Curt_Howland: I'm not saying that that would just justify government intervention.)
What we need is for some really unlucky person to make a big chuck of his portfolio long on commodities. His bad luck will cause commodity prices to collapse just when it would hurt his portfolio. In fact, I am just such a person, so I'd bite the bullet, but I'd want someone to compensate me for my efforts.
Hey! That would make us "fate arbitrageurs"!
Published: May 13, 2008 9:36 AM
commodities, including many that are not traded by "speculators", are indeed going up in all/most currencies. and all those currencies are being produced faster than those commodities. while the US exports over $2b every business day for several years now, the balance sheets of the world's central banks (other than the Fed, which gets to rely on the export and its friends) are exploding:ECB 20% annualized;BoE 22.7% : PBoC 31% 2007; Russia 43%;Brazil 17%; India 38%.
Published: May 13, 2008 11:22 AM
"Instead, it's a conspiracy by speculators everywhere to drive up prices. Yeah, that makes more sense."
Is it just me or is blaming financial speculators just another way of blaming "international bankers" if you know what I mean?
Published: May 13, 2008 10:48 PM
I'm no fan of the Fed, but the claim that it's the fundamental cause of the commodity rally ... just doesn't work. Let's not forget, they're rallying in *all* currencies, not just US dollars.
Currencies are handled by central banks in the same manner as the dollar is handled by the Fed, which means they are inflated as well, just not always at the same rate as the "green back". We are looking at a worldwide inflation problem.
Published: May 14, 2008 2:24 PM
http://blog.mises.org/archives/008047.asp#comment-273909
Blaming speculators never goes out of fashion...
Published: May 14, 2008 2:33 PM
Person, in order to have the bubble you should have overabundant supply. Actually, the commercial reserves are on the average, the supply is actually declining - where do you have the overabundant supply? Peter Schiff correctly pointed out that the oil is not hoarded, it is being used. It doesn't look like a typical bubble.
Published: May 15, 2008 2:57 AM
person says:
"I'm no fan of the Fed, but the claim that it's the fundamental cause of the commodity rally ... just doesn't work. Let's not forget, they're rallying in *all* currencies, not just US dollars.
i think you're wrong about this. in the more immediate sense, if the fed weren't accomodating the banks to ease their sub-prime woes, it's probable we'd be in a classic depression. commodities, gold, oil, everything would collapse and the treasury market would be the best investment for the years ahead, a la great depression. can't see that happening.
second, bear in mind that the scramble for commodities today is exacerbated by the long wave of what happened in the seventies. the fed and many other (though not all) central banks goosed the money supply and caused a gigantic bubble in commodities. this oversupply gave us the commodities bear market of the eighties and nineties. many commodities hit 150 year real price lows. the extractive industries fired reams of professionals, and they weren't replaced. training personnel will take us years to make up for this skill deficit.
the china and indian industrialization is real, but hardly autonomous, given the extent on which their economies are dependent on the us.
Published: May 15, 2008 10:22 AM