there is no one answer. the way i see it, we have to attack the oil crisis this way:

1. drill our own resources
2. distribute incentives to automakers to produce flex fuel vehicles and to consumers to buy them
3. the individual must do everything in his/her power to reduce consumption (already happening)
4. tax the shit out of windfall profits (this goes against a lot of what I believe in and sets a dangerious precedent, but enough already)

6/10/2008 8:27:47 AM

June 2006 US Senate Permanent Subcommittee on Investigations on the Role of Market Speculation on influencing the price of oil: "there is substantial evidence supporting the conclusion that the large amount of speculation in the current market has significantly increased prices."

More:

Quote :

"“Until recently, US energy futures were traded exclusively on regulated exchanges within the United States, like the NYMEX, which are subject to extensive oversight by the CFTC, including ongoing monitoring to detect and prevent price manipulation or fraud. In recent years, however, there has been a tremendous growth in the trading of contracts that look and are structured just like futures contracts, but which are traded on unregulated OTC electronic markets. Because of their similarity to futures contracts they are often called “futures look-alikes.” The only practical difference between futures look-alike contracts and futures contracts is that the look-alikes are traded in unregulated markets whereas futures are traded on regulated exchanges. The trading of energy commodities by large firms on OTC electronic exchanges was exempted from CFTC oversight by a provision inserted at the behest of Enron and other large energy traders into the Commodity Futures Modernization Act of 2000 in the waning hours of the 106th Congress. The impact on market oversight has been substantial. NYMEX traders, for example, are required to keep records of all trades and report large trades to the CFTC. These Large Trader Reports, together with daily trading data providing price and volume information, are the CFTC’s primary tools to gauge the extent of speculation in the markets and to detect, prevent, and prosecute price manipulation. CFTC Chairman Reuben Jeffrey recently stated: “The Commission’s Large Trader information system is one of the cornerstones of our surveillance program and enables detection of concentrated and coordinated positions that might be used by one or more traders to attempt manipulation.” In contrast to trades conducted on the NYMEX, traders on unregulated OTC electronic exchanges are not required to keep records or file Large Trader Reports with the CFTC, and these trades are exempt from routine CFTC oversight. In contrast to trades conducted on regulated futures exchanges, there is no limit on the number of contracts a speculator may hold on an unregulated OTC electronic exchange, no monitoring of trading by the exchange itself, and no reporting of the amount of outstanding contracts (“open interest”) at the end of each day.” "

Argue all you want. An unregulated market can be just as dangerous as price ceilings, and investors got us into this crisis.

[Edited on June 11, 2008 at 5:04 AM. Reason : ...]

6/11/2008 5:02:15 AM

The price of futures contracts converge to the price determined by the spot market, not the other way around. If spot prices, which are determined by the fundamentals of supply and demand, were affected by futures prices, spot prices would be above the equilibrium price, creating excess supply. Given there is no evidence of excess supply, I hesitate to assume futures contracts are affecting spot prices all that much.

http://dss.ucsd.edu/~jhamilto/understand_oil.pdf

6/11/2008 7:39:02 AM

Let me get this straight, Gamecat. A Government organization is proclaiming that itself should be granted more power and resources? Amazing!

But the fact remains, there is no evidence that speculation in any markets, regulated or unregulated, is driving up the price of physical oil. This is especially true of an electronic exchange because the only way to drive up spot prices is to build an oil storage facility in the basement. As anyone hoarding oil must report it as inventory, and current intentories are actually lower than normal for this time of year, then we can say emphatically that the current price is the correct price for current U.S. market conditions.

Now, it should go without saying that foreigners are hoarding oil. Venezuela, Mexico, Malassia, and many others are exporting less and less oil every year due to incompetent management of their oil fields. Similarly, China is currently trying to fill a massive Strategic Petroleum Reserve and stockpile distillates in preparation for the Olympics.

6/11/2008 8:53:03 AM

Quote :

"June 2006 US Senate Permanent Subcommittee on Investigations on the Role of Market Speculation on influencing the price of oil: "there is substantial evidence supporting the conclusion that the large amount of speculation in the current market has significantly increased prices.""

http://www.reuters.com/article/GlobalEnergy08/idUSWLA462520080610

The head of OPEC said something similar today in Reuters. Mind you, he's motivated in part by the increasing heat they're getting for not upping production. I wonder if OPEC ever starts to squirm about high oil prices. For example, if oil prices get TOO high, then it kills the economies that demand oil and thus break demand. That, or perhaps if prices pass a certain threshold, the market incentives take root to seriously find alternatives to oil as BEU suggests.

I'm a little nervous as to how you would handle the oil speculation. Because its been so profitable to traders, a lot of pensions and retirement funds are buying into oil especially with the collapse of the real estate market. If they don't handle the speculators correctly, you could accidentally wipe out the fortunes of a lot of retirees or near-retirees.

6/11/2008 9:51:31 AM

For a overly simple answer.

Take a new nuclear reactor. Plop it next to several hydrogen fuel producing plants.

Win?

6/11/2008 10:04:23 AM

LoneSnark -

Quote :

"Let me get this straight, Gamecat. A Government organization is proclaiming that itself should be granted more power and resources? Amazing!"

You can't possibly be claiming that these contracts don't affect interstate commerce and thus fall under the purview of the Federal government...are you?

Quote :

"But the fact remains, there is no evidence that speculation in any markets, regulated or unregulated, is driving up the price of physical oil."

Not only does OPEC (supply) and our Federal Government (regulators) get it wrong, they get it completely wrong?!

Quote :

"2006 Congressional Investigation Conclusions: "There is substantial evidence supporting the conclusion that the large amount of speculation in the current market has significantly increased prices.""

Please explain the disconnect or their misrepresentation of the data. You're certainly qualified to.

Quote :

"we can say emphatically that the current price is the correct price for current U.S. market conditions. [emphasis mine]"

Those wouldn't be the same market conditions that permit the virtually unchecked trade of look-alikes contracts and other derivatives to which the Congressional Subcommittee is ascribing culpability, would it?

The current US market conditions are a part--a large part, even--of the problem we're having.

RedGuard -

Quote :

"I wonder if OPEC ever starts to squirm about high oil prices."

Sure they do. They squirm with glee, all the way to the bank.

Quote :

"Because its been so profitable to traders, a lot of pensions and retirement funds are buying into oil especially with the collapse of the real estate market."

And traders who take unsuitable risks with pensioners and mutual fund money ought be held accountable as well. I don't see the problem here.

Quote :

"If they don't handle the speculators correctly, you could accidentally wipe out the fortunes of a lot of retirees or near-retirees."

And a lot of poor defenseless billionaires with them. :sniff: :sniff:

But to be serious, these people can move their money around. Especially at the institutional levels you describe. Regulation can be downright spooky in its ability to smooth over catastophic, sudden "wipe out" scenarios.

Further, the inflated prices of oil and gasoline may already wipe out the fortunes of a lot of retirees and near-retirees. Only fair to consider this hypothetical, too.

BEU -

Quote :

"Win?"

I'm a bigger fan of nuclear reactors than you might expect. I'm sure a few more of those would help our situation.

6/11/2008 11:36:09 AM

Quote :

"Sure they do. They squirm with glee, all the way to the bank."

I'm sure they're quite happy for now, but OPEC doesn't hit me as being so short sighted that they don't think about the long term, ie., keep prices high enough to make a killing but not so high as to actually drive a critical mass toward alternate energy or real fuel conservation.

Quote :

"And traders who take unsuitable risks with pensioners and mutual fund money ought be held accountable as well. I don't see the problem here."

No disagreement that reckless investors should be held to account, and I'm all in favor of better regulations. I also realize that most people are being hit hard by oil and gas prices. I'm just saying any attempts to curb oil prices or bring them into account should be careful, especially since a lot of these bigger players are probably mixed in this mess especially after the real estate collapse. The last think I want to see is my parents' pensions and 401k, or millions of other middle class baby boomers on the edge of retirement for that matter, suddenly disappear because well meaning but poorly crafted legislation took too broad a swipe at oil speculators. No reason to double punish the small folks, both immediately with gas prices and in the future with their savings.

Just urging caution.

6/11/2008 12:18:37 PM

Quote :

"I'm sure they're quite happy for now, but OPEC doesn't hit me as being so short sighted that they don't think about the long term, ie., keep prices high enough to make a killing but not so high as to actually drive a critical mass toward alternate energy or real fuel conservation."

No, I'd never accuse them of being short-sighted. But their indifference to us may represent a long view on their part. Perhaps they make up the losses in the American energy market with hand-over-fist gains in the Chinese and Indian markets.

Quote :

"No reason to double punish the small folks, both immediately with gas prices and in the future with their savings."

Agreed. But I agree with Warren Buffett on the derivatives market. It's been unregulated long enough...

Dumb headline, but good article about this:

http://www.salon.com/tech/htww/2008/06/10/the_price_of_oil/index.html


[Edited on June 11, 2008 at 12:40 PM. Reason : ...]

6/11/2008 12:24:46 PM

I am also in favor of the free-market dealing with the problem. As price goes up, demand we'll eventually drop... It'll be painful and slow, but it'll be worth it in the long run.

As for the short run... We'll see where it goes.

6/11/2008 12:56:52 PM

I hate george bush.

seriously, fuck him with his "4 dollars by the summer... where did you get that?" bullshit

6/11/2008 1:01:31 PM

Quote :

"The bottom line is this: Although demand for oil is declining in the U.S. and Europe, overall global demand is still rising, fueled primarily by China and India."

DAMN ALL YOU HARRY INDIANS

6/11/2008 2:38:46 PM

Quote :

"You can't possibly be claiming that these contracts don't affect interstate commerce and thus fall under the purview of the Federal government...are you?"

You can't possibly be claiming that that would have anything to do with what I said... are you?

Quote :

"Please explain the disconnect or their misrepresentation of the data. You're certainly qualified to."

They, being a political institution, are desperately seeking a scapegoat to blame for the current predicament which is not themselves.

As me and Hunt pointed out, if prices were unjustifiably high then production would be exceeding supply, as consumers cut back. All that excess production would either need to be stored in inventories or hoarded away by hoarders. But, as the government data shows, inventories are not high; in fact, they are still abnormally low. As such, if anything prices have been too low for current market conditions.

I don't know what to tell you; this is what politicians do when things go poorly, they blame corporations, they blame speculators, they blame who and whatever voters will take seriously.



[Edited on June 11, 2008 at 3:05 PM. Reason : lsl]

6/11/2008 3:05:10 PM