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Senator Obama announced a plan today to crack down on excessive energy speculation and fully close the “Enron Loophole” to ease the impact of skyrocketing gas prices. The Enron Loophole was created by McCain campaign co-chair Phil Gramm at the behest of Enron, and exempts most over-the-counter energy trades and trading on electronic energy commodity markets from regulation.
That same campaign blog post includes a number of links from experts on how much speculation is inflating oil prices beyond any reasonable reflection of actual market conditions. Read, read, read!
Meanwhile, the Energy Secretary Samuel W. Bodman III contends "There is no evidence that we can find that speculators are driving futures prices." This from the same Administration that hadn't heard anything about $4-per-gallon gasoline coming this spring.
Memo to the White House: You can't find evidence if you aren't looking for it....
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Update 09:11 CDT: McCain is saying plenty about energy also. Last week he proposed boosting nuclear and clean-coal. Now he says he can solve our energy problems with cash: $300 million in government prize money to the inventor who can come up with the best new battery to power electric cars. You know, there's nothing wrong with rewarding ingenuity. Engineers, fire up those slide rules!
Excessive rules and regulation...
ReplyDeleteCA, please reference HERBERT
You can't find evidence if you refuse to look for it.
ReplyDeleteI'm worried that Obama is jumping on the anti-speculator bandwagon on this one. We're all looking for someone to be mad at about super high oil, and speculators seem to be the most like candidates for those who are fueling our demise, but according to the Economist, its not that simple.
ReplyDelete"Stuck for answers, politicians have been looking for scapegoats. Top of the list are the speculators profiting from other people's hardship. Some $260 billion is invested in commodity funds, 20 times the level of 2003. Surely all that hot money has supercharged the demand for oil? But that is plain wrong. Such speculators do not own real oil. Every barrel they buy in the futures markets they sell back again before the contract ends. That may raise the price of “paper barrels”, but not of the black stuff refiners turn into petrol. It is true that high futures prices could lead someone to hoard oil today in the hope of a higher price tomorrow. But inventories are not especially full just now and there are few signs of hoarding."
Link to original story: http://www.economist.com/opinion/displaystory.cfm?story_id=11454989
There's no quick fix. The only solution is a paradigm shift for all Americans (and the entire world for that matter) on how we see energy.
I'll agree that reigning in speculators won't bring gas back to $2/gallon. Those days are gone. But there has to be something fishy about the impact of people buying paper, trading imaginary oil, and having some effect on the market. What about this KELO report where a Sioux Falls commodities trader explains how low margins allow more people to jump into the market and drive up the price? And what about the magic monkey business where a big trading firm issues a prediction that prices will go up, then proceeds to make trades and profit from what becomes a self-fulfilling prophecy? Even if Patrick and The Economist are right, there is something fishy going on among these specualtors who make money without producing any useful good or service.
ReplyDeleteI guess I just haven't spent enough time playing the futures market. Are you telling me, Patrick, that the price I pay for an actual barrel of oil is not connected to the futures price?
From what I'm getting out of The Economist article, those futures prices will only make a difference today if suppliers today are making decisions based upon them. Oil futures are high as a result of speculators, but this doesn't translate into a direct connection to today. We could blame speculators if current suppliers were sitting on oil in the hopes of selling it at a higher price, but that just isn't the case. Saudi Arabia just upped production by 200,000 b/d and the producers are giving as much oil as they're making. Rapidly growing stores would signify that speculators are at the root of the problem, but sans growing inventories, the problem is much more deeply rooted in our energy system.
ReplyDeleteWe're past the days of cheap oil because it is getting so hard to get out of the ground. Without debating how much oil is left in the ground; the simple fact is that what's left is really expensive to pull out and process. Whether it's oil shale in Canada or refineries in the deep ocean off the coast of Brazil, it costs a lot of money to turn what's left in the ground into the stuff we can put in our cars and homes. I'm not necessarily convinced that we're at peak oil, but we have, at the very least, hit quite a hump in the graph.
As for the merits of those who buy and trade paper to make money without offering any services to society; I don't really know enough about economics to say whether or not they're a necessary evil.
Interesting: This 2005 report from the IMF also suggests—cautiously, as scholars are wont to do—that "speculative activity follows rather than leads spot prices." But they do see "excessive" trading by newcomers and "herd behavior" as having distorting effects on the futures market. Whew—I think I'll stick with spending my money on actual goods and services rather than playing Vegas on the futures market!
ReplyDelete