Feds move to tamp down energy speculation
Yes, it means more government regulation of markets. But it’s regulation that businesses such as the airlines very much want.
Airlines and other heavy users of petroleum products depend heavily on the futures markets to control their fuel costs. They believe — and there’s some evidence to support their contention — that the volatility of fuel costs is exacerbated by speculators who buy and sell energy futures but have no intention of ever actually taking ownership of oil or gasoline or aviation fuel.
They’re players just in it for the game, and for the profits they can take by manipulating it. The fed effort is targeted at those folks in the hopes that the market will function better once it is left to people who actually buy and sell oil.
WASHINGTON — Reacting to the violent swings in oil prices in recent months, federal regulators announced on Tuesday that they were considering new restrictions on “speculative” traders in markets for oil, natural gas and other energy products….
The Commodity Futures Trading Commission said it would consider imposing volume limits on trading of energy futures by purely financial investors and that it already has adopted tougher information requirements aimed at identifying the role of hedge funds and traders who swap contracts outside of regulated exchanges like the New York Mercantile Exchange.
“My firm belief is that we must aggressively use all existing authorities to ensure market integrity,” said Gary Gensler, chairman of the commission, in a statement. He said regulators would also examine whether to impose federal “speculative limits” on futures contracts for energy products….
The government already imposes speculative limits on agricultural commodities like corn and wheat. But for energy products, the limits are left to exchanges like the New York Mercantile Exchange. Mr. Gensler said the limits that have been set in the past have never been aimed at reducing speculative excesses, and financial traders often receive exemptions.
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178 comments Add your comment
USinUK
July 8th, 2009
8:11 am
It’s a first – and much needed – step.
I Report :-) You Whine :-(
July 8th, 2009
8:13 am
tougher information requirements aimed at identifying the role of hedge funds and traders who swap contracts outside of regulated exchanges like the New York Mercantile Exchange.
I speculate that the United States has no future as an energy producer and thus will be paying exorbitant prices for gasoline no matter what our goofy government does to prevent it, and you are unable to regulate that plain simple fact.
So bwa
Conservatism Leads to Paranoia
July 8th, 2009
8:15 am
It is pretty clear that between OPEC and speculators we never really know the real market price of oil (supply/demand). The current price of oil is artifically high given where demand is and I think this is a good step by the Feds to get involved. I heard Donald Trump say the other day on squwak box that the oil producing countries laugh at how the U.S. overpays for oil. It costs Saudia Arabia $2.00 a barrel to get it out of the ground and we pay $70?
In my opinion energy independence should be the U.S.s #1 strategic priority.
FinnMcCool
July 8th, 2009
8:16 am
That’s a start. After 2 decades of increasing deregulation we should accept the fact that unchecked capitalism can devolve into pure greed that everyone ends up paying for in the end.
The greediest person will always win if left with any means necessary.
USinUK
July 8th, 2009
8:19 am
Finn –
re: your 8:16 — are you trying to make Whiner’s head e’splode???
Mrs. Godzilla
July 8th, 2009
8:20 am
Oh hell yes! About damn time!
Here’s some more reading on the subject:
http://www.mcclatchydc.com/227/story/71349.html
oh and Andy, it’s one of my greatest wishes that the USA does not
have a future as a FOSSIL FUEL enegy producer. We’s all beathe easier.
Double dog bwa.
TnGelding
July 8th, 2009
8:21 am
It’s about time! But the entire marketing process needs to be changed.
FinnMcCool
July 8th, 2009
8:21 am
Good explanation of what happened here. And this is exactly what caused the gas price spikes last summer.
Matt Taibbi’s article in the latest Rolling Stone explains it pretty well too.
Redneck Convert
July 8th, 2009
8:23 am
Well, this is just awful. There’s a big headline this a.m. that says the Atlanta area went down to third in the country in traffic mess, and here Bookman is wasting time on energy stuff. I hate being third in anything. It’s worse than loosing to GA Tech. At least I know we can’t finish worse than 2nd there. Maybe we can do something cheap to get our first place rating back. Maybe get a few gallons of paint and close half the innerstate lanes to repaint the stripes. Anyhow, I wouldn’t want money to be took from the I-75 widening down around Tifton. The sooner they finish that, the quicker we can get to Florida on vacation.
Anyhow, it’s just like Bookman to want the U.S. of A. to get in the way of Free Innerprize. The people that drove the price of gas up this time got their options fair and square. You can’t go welching on them and making it illegal for hedge funds and traders to make a quick buck. Anyhow, welching is for people like the Whiner. What do you want, cheap gas or Free Innerprize?
Have a good day everybody.
TnGelding
July 8th, 2009
8:23 am
I Report
You Whine 
July 8th, 2009
8:13 am
And I thought I was a mean, petty pessimist. Good grief!
FinnMcCool
July 8th, 2009
8:26 am
USinUK, you can’t break what’s already broken. Read his 8:13 post. Zero comprehension of the cut and paste that HE pasted into his own post. As to comprehending what Jay is talking about in his post, well. Enough said.
I guess we have to wait until Rush spins it before the wingnuts can have a clue as to what this is all about.
Brad Steel
July 8th, 2009
8:31 am
Doesn’t the CFCT and government need to get OK’s from Goldman Sachs management before they approve any policy initiatives?
RichClay
July 8th, 2009
8:33 am
What a great move!!! I bet that if the U.S. stops, this “energy trading” can not be done in London, Tokyo, Mexico City, Dubai, either…
oh wait… it could and would move overnight… Global Commodity and such…
Lets spend a lot of tax dollars regulating something else to other countries!!!
AmVet
July 8th, 2009
8:38 am
“…to ensure market integrity”
Market integrity?
After last September, isn’t that a bit of an oxymoron?
The “smaller government” dupes and non-regulation ostriches with their cries of “Socialism!” can go sit in the corner. The “free market” turned into a pack of hyenas…
Gale
July 8th, 2009
8:39 am
Say it again, RichClay. “Lets spend a lot of tax dollars regulating something else to other countries!!!”
We all need to learn what a global economy means.
DB, Gwinnettian
July 8th, 2009
8:41 am
Finn, to expand just a bit into what IR/YW inadvertantly stepped into, from the NYT article…
The commission also announced that it will pull back part of the veil on the oil and gas markets, publishing much more detailed information about the aggregate activity of hedge funds and tapping into new information about traders who swap energy contracts outside of traditional exchanges.
I really can’t see why anyone would oppose this in principle; I suppose their might be some regulatory burden in reporting that information in a timely fashion, but, well, if we’re expected to fight wars to defend energy resources, that seems a pretty piddling price to pay in comparison.
USinUK
July 8th, 2009
8:42 am
Finn –
“I guess we have to wait until Rush spins it before the wingnuts can have a clue as to what this is all about”
oh, that’s a softball … “blatherblatherblather SOCIALISM blatherblatherblather KARL MARX blatherblatherblather OBAMA IS A MUSLIM” (isn’t that pretty much EVERY show of his?)
FinnMcCool
July 8th, 2009
8:43 am
Do wingnuts not listen to Clark Howard? What this post is about is the same thing Clark tries to protect people from: The shady company set up to empty your grandmother’s bank account and then disappear in the night. Except that this is on a much larger scale.
The speculators caused the price spikes last summer. During the price climb airlines, package shippers, etc all tried to lock into the price because they could see no end to the price climb. So, what the buyers bought were futures contracts……contracts held by the speculators. They bough these contracts at hugely inflated prices.
Who made out like a bandit? The bankers/speculators! They held the contracts and so they had every reason to see the price of oil shoot up.
How did this trickle down to affect you and me?
Let’s see: Delta’s baggage fee for one! Airline fees out the wazoo.
High pump prices for two! (Tell me those high prices didn’t have an effect on your personal/family budgets.)
How did it affect GM? GM was geared heavily into trucks and SUV’s. Within a couple of months, most of their inventory was totally neglected by new car buyers. Oil prices didn’t kill GM but the situation last summer sure didn’t help them.
This isn’t about Republicans or Democrats, this is about keeping greed in check.
USinUK
July 8th, 2009
8:44 am
Gwinecian –
“I really can’t see why anyone would oppose this in principle”
Obama did it = it’s bad.
that’s all you need to know.
RB from Gwinnett
July 8th, 2009
8:44 am
“And this is exactly what caused the gas price spikes last summer. ” And all this time the libs have been telling us it was Bush’s fault….
USinUK
July 8th, 2009
8:45 am
Finn –
how’s Clark doing, anyway? wasn’t he diagnosed with cancer a couple of months ago??? I used to LOVE his show and his appearances on dinner-time news.
USinUK
July 8th, 2009
8:46 am
RB –
“And all this time the libs have been telling us it was Bush’s fault….”
only in your fevered imagination. most of us have been calling it for what it’s been – instability in the oil-producing African nations, OPEC cutting down production and speculation.
nice try at martyrdom, but … fail.
TnGelding
July 8th, 2009
8:48 am
RichClay
July 8th, 2009
8:33 am
What about changing the way oil is bought and sold?
FinnMcCool
July 8th, 2009
8:43 am
It’s about survival of life as we know it. That said, we do need to change, but under our own terms.
TnGelding
July 8th, 2009
8:49 am
RB from Gwinnett
July 8th, 2009
8:44 am
Bush and the other world leaders should have done something to stop it.
RB from Gwinnett
July 8th, 2009
8:51 am
US, you obviously haven’t been paying attention. The morons on this site were claiming the whole thing was Bush’s doing to make his big oil buddies rich. These comments were from the same cast of clowns you side with on here every day.
George American
July 8th, 2009
8:51 am
Right. More government regulation. That’s just what we need.
As soon as the government is in it, we’ll have $5/gal. gas (or higher) that will be rationed by the high school drop-out who get promotions from the DMV.
This fits right into the B. Hussane O. plan to turn America into a socialist society.
USinUK
July 8th, 2009
8:52 am
TnG – but … but … but … this didn’t help???
http://johnsoncity.blogspot.com/uploaded_images/050426_BUSH-ABDULLAH_ex-745907.jpg
Normal
July 8th, 2009
8:53 am
Now Brad, that was not nice…Whiner is just misunderstood is all. The doctors all say that he will recover in a couple of years. Whiner is really a friend to all the people of the world deep inside…
FinnMcCool
July 8th, 2009
8:54 am
RB, no one expected anyone in the Bush Administration to lift a finger to check greed by instituting new regulations. So, they are partly responsible by NOT doing anything to stop it.
The economy crashed shortly before last fall’s election because all the industries saw the Democrats moving back into the White House and Congressional majorities. They knew the high-rollin’ good times were up and the cat was about to come out of the bag. They let the mortgage house of cards fall. The price of a gallon of gas was $1.85(?) in 2001 shortly after Bush took office, climbed for 7 straight years, and went back to what it was when he entered office shortly before he left office.
So, now it’s back to responsibility and checked greed.
USinUK
July 8th, 2009
8:54 am
RB –
“The morons on this site were claiming the whole thing was Bush’s doing to make his big oil buddies rich”
the ENERGY BILL was to make his oil buddies rich
gas prices, however, were mostly out of his hands – the only thing he could have tackled was speculation
Brad Steel
July 8th, 2009
8:58 am
Certainly, with players like the Nigerian military and ex-KGB petro-billionaires the market integrity of oil derivatives is sufficient.
However, if needed, maybe the Nevada Boxing Commission has some spare integrity to insure that the saints in the oil futures market have their salad forks in the right place.
TnGelding
July 8th, 2009
8:59 am
RB from Gwinnett
July 8th, 2009
8:51 am
Some, but not all.
FinnMcCool
July 8th, 2009
9:00 am
USinUK, I don’t know what is up with Mr. Howard. I heard about the cancer but nothing lately. I can only listen to him occasionally as the subject matter is quite depressing.
But, if we can borrow the term from the wingnuts, he is a great American. Like Ralph Nader, always fighting for the average joe.
Speaking of cancer, if the cigarette comapnies were serious about staying in business, shouldn’t they be funding cancer and emphysema research to the tune of billions of dollars? It seems that if you took away the killer side effects, you’d be decreasing the objections to smoking. This is a huge oversimplification, I know.
TnGelding
July 8th, 2009
9:00 am
USinUK
July 8th, 2009
8:52 am
Ain’t she sweet!
Mrs. Godzilla
July 8th, 2009
9:01 am
Only a complete and utter moron or a evil greedy bastard would stand against regulating the financial markets.
USinUK
July 8th, 2009
9:03 am
TnG … was I the only person who looked at that picture and wondered if Bush was thinking “you got a mighty purty mouth, boy”
Mrs. Godzilla
July 8th, 2009
9:11 am
The picture….I always think….I can’t quit you
USinUK
July 8th, 2009
9:14 am
Finn –
if you’ve never read Thank You for Smoking, DO. Chris Buckley isn’t the writer his dad was, but he’s still really good.
as far as funding cancer research, I’m sure they make donations to keep the wolf from the door … but, frankly, why bother? they sell an addictive substance – whether they fund feel-good research or not, once they’ve hooked a new user, they’ve got him.
plus, you forget – the US isn’t the only place Marlboros are sold … they have HUGE overseas sales
(although, you should see the warnings they put on cigarettes here – it makes the warnings on the US look positively inviting!! http://news.bbc.co.uk/1/hi/health/6967160.stm)
USinUK
July 8th, 2009
9:15 am
Mrs G … hahahahaha … BrokeBack Bluebell …
Swami Dave
July 8th, 2009
9:15 am
Actually, as someone who grew up around the petroleum industry (aka – someone who knows and doesn’t have to depend on HuffNPuff or MotherJones for my “opinion”), the main reason for the cyclical gas price spikes over the past 3-4 years has been the blended fuels mandates by government.
By requiring specific blends for specific market areas (like a “Blend A” that is for Atlanta, but not the same blends as required by either Chattanoga or Birmingham or Columbia; blends that are not the same as might be required for more rural areas, the federal government mandates create requirements that refineries (which are already working at or beyond peak capacities) to produce smaller and smaller batches of product between formula changes.
By creating with these regulations “different” versions of what is supposed to be a commodity product that are (by mandate) unsaleable in another market, they create spot shortages and inventory problems that cause the wildly fluctuating price spikes that we have seen.
In cases like Katrina, where the hurricane (and its subsequent impact) just happened to occur with weeks of one of the mandatory switch-over dates, the outcome was even more localized supply problems where the consequences of a natural event were made worse by the regulated mandates.
Sorry, Jay, this is just another occasion where REMOVING meddlesome regulations put in place by wonkish bureaucrats beholden to failed philosophies having no real experience in the markets and industries that they deem themselves qualified to “manage” would be the right step for consumers. By creation of these blended fuels mandates, the government CREATED the very conditions (smaller, more-constricted, more tightly-held, and individualized markets which are, by definition, more susceptible to constraints of supply and inconsistencies of demand) that put these supposed “commodity” markets at risk!
-Swami Dave
Scooter
July 8th, 2009
9:24 am
Swami Dave,
What do you think they should do to improve things?
ByteMe
July 8th, 2009
9:27 am
Swami is correct this time. Having a highly fragmented market for a manufactured product increases its end-user costs. The cyclical price, though, is also due to increased demand in the summer as people travel more… which is the same time that the new blends are mandated.
On the other hand, that’s not what Jay — and the regulations are looking to address. It’s about speculation at the commodity level for the underlying raw material for the different blends. There’s no way with current global demand slack and high inventories that oil should be hovering near $70/barrel… more like $30/barrel. Only explanation is speculators tying up large quantities.
My complaint with the idea is that there’s always someone on the other side of the trade at all times. Eventually either the speculator has to sell (which should decrease the price) or they have to take delivery (which they don’t want to do). Unlike some of the naked shorts that never actually completed the transaction in the 5 day window that they were supposed to do, these speculators are not manipulating the market so much as gambling on the market. Some will get burned (and they were the last time oil dropped from $150), some will get rich. I’m not clear that adding controls will really change the dynamics of the markets on a global scale (since we’re not the only market where oil is traded).
I think normalizing the global markets might make more sense, so that traders can’t game the system, but just restricting the markets in NY will just force the game to be played elsewhere… if the traders are permitted to do that by the people whose money they are playing with (it’s rarely their own money).
Joey
July 8th, 2009
9:31 am
This new Federal Regulation will likely help stabilize oil and gas prices. However, removal of some regulation would lower oil and gas prices significantly. Remove all prohibitions of gas and oil exploration and drilling in the US and off of our shores, at places where oil and gas exist. Like the Florida coast and Alaska.
USinUK
July 8th, 2009
9:35 am
Joey – they’re not even drilling and exploring in the places where they HAVE permits and are allowed to drill
AmVet
July 8th, 2009
9:37 am
And this beaut:
http://i111.photobucket.com/albums/n158/codename_009/BushKissingSaudiPrince.jpg
RB, you just gotta LOVE this photo, yes?
By your own definition, the Hero of Texas ANG was on his own World Apology Tour!!!
The groveler…
Bosch
July 8th, 2009
9:38 am
Well, I think this is good. We need to pull in the speculators who are playing tiddlywinks with our money.
Our economy is pretty much based on fuel costs, and it needs to work for everyone.
Now, for something more serious.
USinUK,
I have a very, very, very serious question to ask you:
Is Robin Hood (the one where Jonas Armstrong is Hood) EVER coming back to BBC? I need a new show to watch, and I love that one. BBC America doesn’t have good shows to watch right now! It’s turned into the Top Gear/Gordon Ramsay network.
Bosch
July 8th, 2009
9:39 am
OH AMVET!!!!
I’M EATING BREAKFAST MAN!!!
UGGGGGHHHH!!!!
Conservatism Leads to Paranoia
July 8th, 2009
9:41 am
Swami Dave and ByteMe and got it right. You have to address both issues and while they are at it they should look at Joey’s recommendation.
AmVet
July 8th, 2009
9:42 am
Swami, my man, I am disappointed!
Don’t get me wrong, I long ago gave up trying to read/decipher your screeds. (perhaps like you have mine!) though I sense there may be some nugget(s) of truth buried in there.
But a quick scan and not ONE use of the word collectivist???!!!
This will not do. Tail gunner Joe would be very unhappy…
Normal
July 8th, 2009
9:44 am
GAWD AmVet…Were they actually staring into each others eyes?