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Congressional Hearing on the Effect of Speculation On the Price of Oil

  1. Jun 4, 2008 #1
    I caught this on C-Span last night. It is very interesting, also very long. Some big time players testify here. There is a lot of talk about the "Enron Loophole"

    If nothing else watch Dr. Mark Cooper at about the 50 trough 60 minute segment. Yea I know he is involved in consumer affairs, but I think he nailed a big problem concerning the speculative market. Most of the participants did. edit: Including george Soros who's segement begins at about the 20 minute point.

    Last edited: Jun 4, 2008
  2. jcsd
  3. Jun 5, 2008 #2
    It sounds interesting but apparently my computer can't play it.
  4. Jun 5, 2008 #3
    Most of the same information is in the link below. It can be viewed with Windows media Player. There is a place to click on the right. To get the main gist of the hearing you can start at about the 33 minute point and see Michael Greenberger.

    A lot of hedge fund involvement apparently is not accounted for due to the "Enron loophole"

    Last edited: Jun 5, 2008
  5. Jun 6, 2008 #4
  6. Jun 6, 2008 #5
    Speculators cannot defy the fundamental law of supply and demand for very long , unless they wish to loose all their assets.

    This is nothing but Democrats trying to blame a problem they partually created by restricting supply, on free enterprise system. Their solution of coarse was stated by Maxine Watters. Socialize the oil industry.

    If America lets them get away with creating a problem, and then proposing socialism as the solution, they are destined to rule the world, as our economic knowledge has ceased to exist.

    Domestic production of oil in the US has been almost cut in half since 1980. We have approx 120 billion barrels of natural oil in known reserves which is currently off limits to drilling.

    Adam Smith figured it out some 230 years ago. It's called supply verses demand.
    Last edited: Jun 6, 2008
  7. Jun 6, 2008 #6
    If I were allowed to post URL's I would direct you to a site which shows where every time OPEC did something to cut supply since 1970, the price increased accordingly.

    You can find it at the Energy Information Administration

    then add this on the end of it once your there. emeu/cabs/AOMC/Overview.html

    Of course it does not matter who cuts supply, the US or OPEC, the effect is the same on the world market.

    Both the US and OPEC have been pulling in the same direction. The problem with that is, it is making them rich, and it is going to make us poor.

    We are an industrial nation, they are not, and only 40% of each barrel of oil goes to make gas for transportation. The other 60% goes primarely to industrial production, which includes, food, heat, etc

    "Our goal is to socialize , ah nationalize, ah take over and run all your companies" Maxine Waters , speaking the truth.

    Why else would our government seek to create poverty in its own country if not for the accumulation of their own power?

    These dog and pony shows are for no other purpose than propaganda, to sell an idea. Socialism. They have little to do with reality.
    Last edited: Jun 6, 2008
  8. Jun 6, 2008 #7


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    Except that speculation takes place on the world commodities market. Whatever you think of domestic supply, worldwide, the supply of oil still exceeds present demand by at least 10% or so if I've been told correctly.

    Hedge funds are doing what they're named for - hedging. They're betting that future supply will be impacted by instability in major oil producing regions and that future demand will grow quickly as massive populations in developing Asian markets start to consume like westerners. Betting this will happen, they're getting rich right now in futures trading. In addition, commodities in general are becoming more valuable as the dollar, being the currency in which global commodities are traded, becomes less valuable.

    The price of a gallon of crude on the world market doubled between 2003 and 2007, which you can legitimately attribute to changes in supply and demand thanks to the invasion of Iraq, turmoil in Venezuela and oil-producing parts of Africa, and to rapid development in southeast Asia and China. Then, in the last year, it doubled again. We recently saw gasoline domestically hit a record median price for 27 out of 28 consecutive days. Crude futures saw the highest intraday surge in the history of the New York Mercantile Exchange last night, in a span of one hour before trading closed. This is a speculative bubble, plain and simple. If speculators are correct, and future supply and demand truly do surge, it may very well continue for some time. But when has that ever been the case? At this point, they're just betting that the bubble will continue, that crude will go to $200 a barrel by the end of the year, and they'll be able to get out before it collapses.
  9. Jun 6, 2008 #8
    $200 per barrel would not be bad. People's willingness to pay is much higher. If you consider that new demand comes from a country with large reserves of cash US dollar, they will be much willing to purchase oil. For other countries, willingness is not as high. And for those who pay for gasoline, their willingness may not be as high.

    If a large majority of crude buying nations have a high willingness to pay, then prices will increase as demand increases. Demand will decrease once the willingness threshhold has been crossed. Where is that at? I do not know, you may have to speculate on that.
  10. Jun 6, 2008 #9
    Thank you Edward. I watched the open and skimmed it at the 10min and 33min marks.
    I've always thought that futures trading was dangerous. Perhaps unreasonably since I don't really understand well how the stock market works and it's impact on the economy as a whole. So maybe I'm just afraid that this sort of thing is the norm or somehow inevitable since I don't really understand it.
  11. Jun 16, 2008 #10


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    Perhaps 60% of today’s oil price is pure speculation

    Last weekend the Saudis proposed increasing their output of oil to bring down prices.

    It seems that the price of oil is largely (if 60% of the price can be considered 'largely') based on speculation!

    Are we doing this to ourselves? Is our greed to make a buck on hedge funds or a better return in the market?

    The Senate investigated this back in 2006...

    Why would our candidates for president ignore this absolutely crucial issue? Is there anything more critical at hand?
  12. Jun 16, 2008 #11


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    I heard this morning a discussion about this very matter. The question was about what is driving the price of oil, and even with the Saudis ramping up production, and even when demand drops below supply, the price of oil keeps rising.

    From Marketplace Morning Report - June 16, 2008

    Analyzing the oil bubble
    Part of it is speculation on a number of things. The value of dollar has fallen against other currencies, so there is some speculation this will continue. There is speculation on the stability of supply - from places like Iraq, Iran, Venezuela. There is hold back by non-OPEC producers, and some concern that this will continue.

    The question becomes - "how much speculation is too much speculation". Speculation has been tolerated because is enhances the liquidity in the commodities markets, BUT it can also hurt the end-users and consumers when costs go much higher than peoples ability to pay.

    There is concern about speculation of all commodities, not just oil.
  13. Jun 16, 2008 #12


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    And what happens when the speculator's bubble bursts? A bailout? I think I'm gonna be sick...
  14. Jun 16, 2008 #13

    Ivan Seeking

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    The Saudis are worried that the high prices will drive a shift to alternative fuels, and they should be! Let the speculators rock and roll, it only helps to end the misery once and for all; and sooner rather than later. And the sooner we can quit the imported oil, the less painful the transition will be. What we see now is only a birth pang of what's to come if we don't get off the oil.

    And the best part is that we add a half-trillion to the US economy annually, instead of sending that money to foreign suppliers.
    Last edited: Jun 16, 2008
  15. Jun 16, 2008 #14


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    I don't think its gonna work like that. More likely we will continue to send them the same or more money but have to spend even more at home for a partial replacement of the energy what we already use.
  16. Jun 16, 2008 #15

    Ivan Seeking

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    With China and India coming online, it will have to change.

    Notable: In some areas it would now be cheaper if you could run your car on milk.
  17. Jun 16, 2008 #16


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    Well, I don't live in Wisconsin! How about cow patties?
  18. Jun 16, 2008 #17
    According to this site http://watthead.blogspot.com/2006/03/where-does-your-oil-come-from.html we only get 12% of our imported oil from Saudi Arabia. I don't know that their increase will make that much of an impact. (FYI, 33% total comes from the US.)

    But it doesn't matter where the oil comes from if I understand it correctly.

    All the oil produced in the world goes into the OPEC pool and that's where the price is determined. If all oil producers were able to increase production 10% then you would think that the price would drop accordingly unless there are other determining factors outside of "supply/demand".

    If I'm wrong, someone help me out. I'm trying to get my head around how this all works.
  19. Jun 16, 2008 #18


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    This might help to put things in perspective - somewhat -

    on that page - http://www.eia.doe.gov/emeu/international/images/int_oil2.gif

    Non-OPEC nations produce more crude oil than OPEC.

    Petroleum stats - http://tonto.eia.doe.gov/country/index.cfm


    Country Analysis Brief
    I think we need to become more energy independent. But why is it we have to wait for a crisis?
    Last edited: Jun 16, 2008
  20. Jun 16, 2008 #19
    Actually most of it is not off limits. Most of it is too expensive or beyond our present technology. There is still some cheap oil in ANWR (15 billion barrels) which is about enough for 5% of our oil consumption. And some off Florida (5 billion barrels) about enough for 2% of our consumption. The biggest potential (100 billion barrels) is in the deep shelf in the Gulf of Mexico. This is NOT closed to drilling. It is just VERY expensive. It will be long in coming even with the present high prices and will probably never amount to more than 20-25% of our present consumption. There is also other oil here and there (resulting in a total considerably more than 120 billion barrels) but it is all VERY deep and expensive.

    The idea that we can just free the oil companies to explore in the US and then everything will go back to normal is a wet dream (literally!). Sorry.

    (I think these figures are correct. Someone tell me if they are not)
    Last edited: Jun 16, 2008
  21. Jun 16, 2008 #20
    Oil is heavy and costs a lot to move. We get the oil that is closer to us (like South America). Europe takes the oil closer to them. It is all one big market.
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