“Banning oil speculators from commodities exchanges could drive down the price of oil by 40 percent and gasoline down by $1 a gallon, says Joseph P. Kennedy II, a former U.S. representative from Massachusetts and founder of Citizens Energy Corporation.
Today, speculators, who buy and sell oil futures without ever taking physical delivery of the product, dominate the market in pursuit of financial gain, Kennedy writes in a New York Times OpEd.
Supporters of allowing speculators buy and sell oil futures say they keep the market liquid and dilute risk.
Maybe it’s gone too far, Kennedy says.
“It’s one thing to have a trading system in which oil industry players place strategic bets on where prices will be months into the future; it’s another thing to have a system in which hedge funds and bankers pump billions of purely speculative dollars into commodity exchanges, chasing a limited number of barrels and driving up the price,” Kennedy contends.
Consumers are more sensitive to swings in oil futures unlike other commodities that naturally compete with substitutes.
“There is a fundamental difference between oil futures and, say, orange juice futures. If orange juice gets too pricey (perhaps because of a speculative bubble), we can easily switch to apple juice. The same does not hold with oil,” Kennedy writes.
“Higher oil prices act like a choke-chain on the economy, dragging down profits for ordinary businesses and depressing investment.”
Senator Bill Nelson, a Florida Democrat, has called for Commodity Futures Trading Commission chief Gary Gensler’s ouster if he doesn’t apply regulations limiting speculation in commodities markets.
“Middlemen are bidding up the price of oil and flipping futures contracts for a quick profit, much like speculators who bought and resold condominiums during the real estate bubble,” Nelson writes in a letter to President Barack Obama, according to Reuters.
“Mr. President, if CFTC Chairman Gary Gensler doesn’t act soon to implement rules that will cut down on speculation in the oil futures markets, then you should consider not reappointing him.”
If you enjoy the content at iBankCoin, please follow us on Twitter
This has enought BS to fill a barn but if you have a need to find a scapegoat, guess it works.
Here’s the reality. A speculator bets the price of x (lets get away from oil) say a house is going to go up. If it does he makes money, if he doesn’t he loses money. The speculator has zero impact on the price of the house. I can buy a sell my “bet” all I want to, the market decides what the price of the house will be not my “bet”.
The key issue is that if there’s a shortage of houses and I have enough money to buy many or most of the houses, now I can impact price as I increase the competition for the limited number of houses.
So the oil thing is not as simple as simple minded people, or those with an agenda like getting votes, want to make it. It is a complex interactions of a variety of factors. Right now there are lots of folks with agendas like votes, getting people to watch my program, swaying votes to my party, etc.
This story highlights two universal truths that will never change:
1) Politicians will always take the easy way out.
2) Blame will always fall on evil speculators and short sellers.
Gotta love politicians stupidity banning short sellers. Short sellers eventually COVER meaning they will have to buy. They are often the first to create a bottom by taking profits. With no short sellers the decline is often worse, and when there is a panic there will be no bid for a stock
Also, speculating that gas prices will be higher and pumping up prices gives market time to adjust.
2 scenarios
1)the gasoline is $1 a gallon… what happens then? It’s used more liberally until there’s not enough somewhere in the world and too cheap of prices create shortages.
2)Gas is $10 per gallon… People start to car pool and such until it is no longer as profitable to sell gasoline at that price anyways. Well adjustments will be made. The profit margins will be greater initially and it will attract investment capital and that capital will be used to promote and encourage others to get into the business of more exploration and production of oil and refinement of gasoline as well as alternative usage, and alternative forms of energy such as natural gas as an alternative energy source….
The thing that really gets me is the Justice department suing appl because of ebook prices being “too expensive” and “costing users money”…
Hello! If they elect not to buy any ebooks, prices have to come down, If they buy it there is a market for the prices! The reasonable price are what a group of willing buyers are willing to pay for and sellers are willing to sell for.
Please pass a bill that congressmen and senators actually have to know something about the economy.
The thing that really gets me is the Justice department suing appl because of ebook prices being “too expensive” and “costing users money”…
This. Completely agree with you, if someone thinks $AAPL’s ebooks are too expensive, then don’t fucking buy them. It’s not like there is a lack of alternatives.