Oil speculators
August 6th 2009 07:12
Oil speculators are under fire again. There is talk that the government may put limits on them:
To me, this is a no-brainer. It infuriated me that curbs were never put in place while Bush was in office. It was under his watch that oil went to $150/barrel. That reflected a doubling of the price almost overnight. Anyone with any sense whatsoever knew that demand hadn't doubled in such a short time period -- nor had the supply of oil been cut in half. The price went up largely because fund managers lost confidence in the stock market and they moved huge sums of money into the oil market in an attempt to minimize financial losses. That may have helped them in the short term, but it brought the economy to its knees. Our economy needs oil and gas to function. When such a vital product goes up in price that dramatically, it forces drastic cutbacks in other areas. The recession was going to happen anyway, but the rapid increase in the price of oil really was a kick in the gut as we were headed into a down economy.
I understand that there is a necessary role for speculators to play. We need folks who can predict whether the price will go up or down in the future based on supply and demand. We need this because people have to buy oil contracts in advance. They need to know how much to pay for the oil that they will receive in upcoming months. However, we don't need money managers who normally have nothing to do with oil speculating on whether they can profit by dumping vast sums of money into the oil market. If fund managers don't intend to buy/sell oil for distribution to middlemen and end users, then they should be barred from the oil market entirely. If we can keep this type of money from moving into and out of the market, we should get more price stability. There are some easy ways to do this. You could require those buying oil futures to physically take control of (at least some of) the oil. This would drive off those who have no interest in the collection and distribution of oil because it would drive up the costs associated with trading in the oil market. Also, you could require a more substantial down payment when someone buys oil futures. My understanding is that buyers currently pay very little to obtain the right to buy oil. If you upped the amount that they have to put down for each barrel, it would drive out a lot of the casual buyers who are only concerned with turning a quick buck.
Personally, I hope action is taken to drive out the excessive speculation in the oil market. Our economy is fragile enough as it is. If we also have to cope with a highly volatile oil market, it could easily prolong this already lengthy and painful recession.
In Washington, the Commodity Futures Trading Commission, the main U.S. futures-market regulator, said it is considering tougher regulation of oil-futures markets. The proposed rules, which drew immediate criticism from traders, would seek to curb the influence of speculative investors such as hedge funds and investment banks by limiting how much money any single trader can bet on any one commodity at a time.
To me, this is a no-brainer. It infuriated me that curbs were never put in place while Bush was in office. It was under his watch that oil went to $150/barrel. That reflected a doubling of the price almost overnight. Anyone with any sense whatsoever knew that demand hadn't doubled in such a short time period -- nor had the supply of oil been cut in half. The price went up largely because fund managers lost confidence in the stock market and they moved huge sums of money into the oil market in an attempt to minimize financial losses. That may have helped them in the short term, but it brought the economy to its knees. Our economy needs oil and gas to function. When such a vital product goes up in price that dramatically, it forces drastic cutbacks in other areas. The recession was going to happen anyway, but the rapid increase in the price of oil really was a kick in the gut as we were headed into a down economy.
I understand that there is a necessary role for speculators to play. We need folks who can predict whether the price will go up or down in the future based on supply and demand. We need this because people have to buy oil contracts in advance. They need to know how much to pay for the oil that they will receive in upcoming months. However, we don't need money managers who normally have nothing to do with oil speculating on whether they can profit by dumping vast sums of money into the oil market. If fund managers don't intend to buy/sell oil for distribution to middlemen and end users, then they should be barred from the oil market entirely. If we can keep this type of money from moving into and out of the market, we should get more price stability. There are some easy ways to do this. You could require those buying oil futures to physically take control of (at least some of) the oil. This would drive off those who have no interest in the collection and distribution of oil because it would drive up the costs associated with trading in the oil market. Also, you could require a more substantial down payment when someone buys oil futures. My understanding is that buyers currently pay very little to obtain the right to buy oil. If you upped the amount that they have to put down for each barrel, it would drive out a lot of the casual buyers who are only concerned with turning a quick buck.
Personally, I hope action is taken to drive out the excessive speculation in the oil market. Our economy is fragile enough as it is. If we also have to cope with a highly volatile oil market, it could easily prolong this already lengthy and painful recession.
| 48 |
| Vote |
subscribe to this blog
Comment by S.L.
The Political Brief
I don't write for Orble anymore, except comments for my friends. Here's my new address. I hope you'll come visit!
Really Long Link
Comment by PopulistConservative
Angry Electorate
Or is this now your new blog?
Just confirm for me which blog you're now using and I'll subscribe to the RSS feed.
Comment by S.L.
The Political Brief
Comment by PopulistConservative
Angry Electorate
Comment by S.L.
The Political Brief
Comment by rickb_georgia
Really Long Link
Comment by PopulistConservative
Angry Electorate