Energy Market Manipulation and Federal Enforcement Regimes

United States Senate Committee on Commerce, Science, and Transportation

The hearing will examine energy market manipulation and federal enforcement regimes. The hearing will also consider the current state of the oil and gas markets and their impact on consumers, as well as solicit testimony and discussion as to the key factors the Federal Trade Commission should incorporate into its upcoming rulemaking on its new responsibility to prevent manipulation in the wholesale oil and petroleum distillate markets.

hearing webcast link

This hearing is a must see for anyone interested in how we came to have these astronomically high gas and oil prices lately. Supply and demand issues are a small part, reportedly only a third, of the pressure on prices. Investment banks and hedge funds stockpiling oil to drive the futures market higher, and 30% of the domestic US market for oil regulated by London and Dubai FSA are at the core of the run up in prices. I watched the hearing on C-SPAN this evening, and it was a real eye opener.

An excellent related link on ATS can be found here thanks to resident conspiracy master Justin Oldham.

Personally, I think this whole mess is a direct result of Cheney's closed door energy policy meetings.

[edit on 3-6-2008 by Icarus Rising]

Originally posted by Icarus Rising
Personally, I think this whole mess is a direct result of Cheney's closed door energy policy meetings.

You will be happy to know that the Democrats want in also.

Even though Democrats are openly saying that they want to make oil speculation harder

money.cnn.com...

Democratic Senators are working to combat rising oil and fuel prices by attacking what many Americans see as the heart of the problem: speculative trading.

the article interestingly points an example of a speculative firm and how they contributed to the rise in prices.

Crude prices hit a record $123.90 a barrel Thursday, after a Goldman Sachs analyst predicted earlier this week that oil could rise as high as $200 over the next six months to two years.

But more interestingly, Barack Obama's leading contributor happen to be a Goldman Sachs PAC to the tune of $600k.

www.opensecrets.org... e=2008

So if the dems win the White House, it is easy to assume that Cheney will continue to make tons of money thanks to Obama.

[edit on 4-6-2008 by wutone]

I didn't mean the comment about Cheney's meetings to be partisan, and I know it will take a lot to change the culture in DC. Goldman Sachs came up in the hearings as one of the investment banks, along with Morgan Stanley, that is at the center of the speculative run up. Obama needs to be called to account on his support from GS, and he needs to explain clearly exactly what he plans to do about oil futures speculation and its impact on consumers at the pump.

What it boils down to is these investment banks and hedge funds are taking advantage of the same type of loophole that Enron used to run up energy prices on the West Coast in 2000. They are treated like energy providers under the current law when they are not. It enables them to stockpile oil and withhold it from the market to drive up futures prices. Meanwhile, there is no incentive for OPEC to pump and sell oil for dollars because the oil is worth more to them if left in the ground as the price rises and the dollar falls. It creates a speculative bubble in the market that has oil trading at two to three times its "real" (production and delivery cost) value.

Another little tidbit from the hearing: You know who holds the largest reserves of heating oil in New England? Morgan Stanley. That does not bode well for people in the North East trying to stay warm and solvent this winter.

Top notch post, Icarus !!

Its so clear speculators are obviously having a significant impact on oil prices....Currently, demand wise, OPEC is pumping enough and a bit over to cover current demand...

However demand does not determine the price of oil....The oil futures markets do...

And given the flat-low returns on equities markets in recent times, and historically low interest rates in the US, speculators need to get the most bang for their buck, so to speak...

And for many, oil futures are it...

Thanks for bringing this to everyone's attention

Peace

Thanks. I meant to comment on the Goldman Sachs announcement that oil could reach $200 a barrel, as well. What kind of position in the futures market does GS have and what would motivate that type of statement? They are, and I'm not sure I remember the right terminology here, taking a "long" position in the oil futures market, then issuing press releases to help their bet pay off. To me, that amounts to criminal market manipulation.

Is it a surprise to anyone that Treasury Secretary Henry Paulson was Goldman Sachs CEO prior to being nominated for his current position just over two years ago? And what has happened to the oil futures market and the price of gasoline since?

[edit on 4-6-2008 by Icarus Rising]

Originally posted by Icarus Rising
..Goldman Sachs came up in the hearings as one of the investment banks, along with Morgan Stanley, that is at the center of the speculative run up.

...What it boils down to is these investment banks and hedge funds are taking advantage of the same type of loophole that Enron used to run up energy prices on the West Coast in 2000.

And who is the US Treasury Secretary? former Goldman Sachs CEO Henry Paulson! Looking out for the nation's interest I'm sure
I don't think what's good for GS is good for the country, as it once was said of General Motors.

Re Calif in 2000. I remember seeing tv ads saying how good Enron was for CA. Boy, were they wrong, and, boy, were we being brainwashed, as we were being robbed.

Yes, citizens must be aware (an informed citizenry) to hold every elected leader's feet to the fire.

Originally posted by Rilence

However demand does not determine the price of oil....The oil futures markets do...

And given the flat-low returns on equities markets in recent times, and historically low interest rates in the US, speculators need to get the most bang for their buck, so to speak...

Do you understand how the futures markets work at all?

If speculators are buying the oil futures contracts, who is selling? Suppose a speculator buys $10 million worth of oil futures at $130 a barrel, that means there is somebody on the other side of the trade. Guess who? Another speculator!

The problem isn't speculators driving the price of oil up by buying, it's more due to the fact that speculators are no longer will to be on the sell side of the trades without asking a high price. In other words, the price of the futures contracts, just like the price of oil, is based on supply and demand. There is no supply of oil contracts at lower prices because speculators are not willing to SELL at the lower prices. What do you suggest, forcing speculators to sell contracts at lower prices?

Even George Soros testified that the underlying cause is supply and demand, and that speculators have only a marginal impact.

And even if speculators were causing a problem, what in the world would the solution be? Not have oil futures anymore?

Of course this is the latest progressive talking point blaming nebulous business interests for any problem that comes along. It's either "big business", "speculators," or some other unspecific, unnamed source that's causing the problems that have the "little guy" clamoring for the government to come in and save us all from the latest boogey-man..

desert, you and I are on the same wavelength here, and must have hit the "post reply" button within moments of eachother.

It is certainly true there is an incestuous relationship going on here between corporate interests and government function, and it needs to be reined in now.

Rightio....

So, in the US, apart from the dollar falling apart, what else would explain high oil and petroleum based products prices ? Especially given relatively high US reserves in most oil products....

I'm all ears....

Don't tell me worldwide demand, because that is B/S and everyone knows it...

Peace

reply to post by jamie83

Even George Soros testified that the underlying cause is supply and demand, and that speculators have only a marginal impact.

I think you have this backwards, maybe intentionally. Mr. Soros said the opposite. It is the unregulated, low margin speculation that has driven oil prices to two to three times the price of production and delivery. In this case, the boogeyman is real. Are you working for him?

reply to post by Icarus Rising


Exactly Icarus....

That is precisely what Soros said....I believe he said it equates to a roughly 30% "overpricing" of crude oil in USD terms ?

No I don't have a link to this info, If I recall correctly it was an interview on Blomberg I watched with Soros a couple weeks ago...

Peace

Originally posted by Icarus Rising


I think you have this backwards, maybe intentionally. Mr. Soros said the opposite. It is the unregulated, low margin speculation that has driven oil prices to two to three times the price of production and delivery. In this case, the boogeyman is real. Are you working for him?

Please cite your source. I just read an article this morning in which the reporter's take on Soros' statement was that the role of speculators was greatly overblown. Maybe the writer misinterpreted what Soros said. I don't know.

In any case, the rest of my analysis is accurate. For every speculator on the buy side, there needs to be an equal amount of speculation on the sell side.

And in the big picture, why is the U.S. government calling on Soros to give his opinion in the first place? How do we no he isn't giving self-serving testimony that will benefit the positions he currently holds? He could have billions invested through his hedge fund that are positioned to benefit from his own testimony.

I watched the hearings on C-SPAN, and I heard every word Soros spoke. I linked the webcast in my opening post, and I suggest you watch the hearing rather than read the spin.

Forgive me for saying so, but I think your perspective on the oil futures market is too narrow. The market is being manipulated to artificially inflate prices so these hedge funds and investment banks can reap huge profits. It is criminal activity, just as Dr. Cooper, Director of Research of the Consumer Federation of America, and another member of the panel, asserted.

Originally posted by jamie83
In any case, the rest of my analysis is accurate. For every speculator on the buy side, there needs to be an equal amount of speculation on the sell side.

Neither of which needs to have any basis in the actual value of the product. That would be the point of the article.

It's been clear for quite a while there's no supply issue, OPEC has stated they are producing in excess of demand and nobody's shown them to be liars. The real problems are speculation and the low dollar exchange. The Europeans are still paying about $60 a barrel for oil in pre-bush era rates.

reply to post by mythatsabigprobe


Exactly BigProbe !!!

OPEC have been producing demand plus a lil over for AGES now...Current price increases have been influenced by speculators trying to make a buck on futures...

This is not in doubt in any way shape or form...The extent of this is surely up for debate, but speculation on oil futures and the complete lack of transparency and under regulation in futures markets worldwide are a huge problem...

Peace

reply to post by Icarus Rising


Great thread Icarus!

I started a thread on this in the "Peak Oil" forum:

‘Perhaps 60% of Today’s Oil Price is Pure Speculation’

For anybody unsure of how all this came to be, this thread is pretty informative.

And Icarus, you know who lobbied Congress to allow that "loophole" that started all this speculation and higher gas prices. ENRON!

Congress could fix this pretty easily by re-regulating energy futures electronic exchanges, but then all their buddies won't be making a ton of money (and them from their lobbying buddies)

Germany is calling for a world wide ban on oil speculation, I hope it works!

Germany in call for ban on oil speculation

German leaders are to propose a worldwide ban on oil trading by speculators, blaming the latest spike in crude prices on manipulation by hedge funds.

It is the most drastic proposal to date amid escalating calls from Europe, the US and Asia for controls on market forces, underscoring the profound shift in the political climate since the credit crunch began. India has already suspended futures trading of five commodities.

Uwe Beckmeyer, transport chief for Germany's Social Democrats, said his party would call for joint measures by the G8 powers to prohibit leveraged trading on energy contracts. "It's an extreme step but it has to be done," he told the Berlin media.

Well, we'll see if greed or doing the right thing will prevail in Congress soon enough!

George Soros was asked at the hearing if he held any positions in
energy commodities futures trading and his answer was "No." Just
view the C-Span tape.