[Anyone] speculation

[totem at laplaza.org]

GAS PRICE GORGING
> by Mike Whitney
> 
> 
> 
> Blame the investment bankers for the current rise in oil prices. As
> commentator Mike Whitney points out, 'The whole scam is being executed
> by the same carpetbagging scoundrels who engineered the subprime
> fiasco. They are using the futures market to recapitalize their
> flagging balance sheets after sustaining huge losses in the
> mortgage-backed securities boondoggle.'
> 
> 'I've seen this bad movie before. It's the Enron movie, which hit the
> West Coast power-markets like a bomb because the federal government
> was asleep at the switch. Now it's happening again with oil prices.'
> - Rep. Jay Inslee, D-WA
> 
> There is no oil shortage, not yet at least. The reason oil has
> skyrocketed to nearly US$140 per barrel is because of rampant
> speculation. The peak oil doom-sayers are simply confusing the issue.
> This is not about shortages or scarcity; it's about gaming the system
> to fatten the bottom line. The whole scam is being executed by the
> same carpetbagging scoundrels who engineered the subprime fiasco; the
> investment bankers.
> 
> The Wall Street Goliaths are using the futures market to recapitalize
> their flagging balance sheets after sustaining huge losses in the
> mortgage-backed securities boondoggle. That's the whole thing in a
> nutshell. Now they're on to their next swindle; distorting the futures
> market with gargantuan leveraged bets on food and oil.
> 
> MarketWatch summed it up like this on Monday:
> 
> 'NEW YORK (MarketWatch) - Speculators now account for about 70 per
> cent of all benchmark crude-oil trading on the New York Mercantile
> Exchange, up from 37 per cent in 2000, according to congressional
> findings cited in a Wall Street Journal report Monday. The report
> comes ahead of a House oversight subcommittee hearing slated for later
> Monday on Capitol Hill to study the role of financial investors in the
> crude futures market. There has been much discussion recently about
> how big a role so-called speculators have been playing in the sharp
> rise in energy prices, though no consensus has emerged on this point.
> 
> 'Congress, however, has grown increasingly concerned over speculative
> investors' role in the energy market in comparison with those buying
> futures contracts to hedge against risk from price changes. Lawmakers
> are expected to consider legislation to set strict limits - or in some
> cases, an outright ban - on speculative trading in energy futures in
> some markets, the Journal reported.
> 
> 'In 1991, the Commodity Futures Trading Commission authorized the
> first exemption from position limits for swap dealers with no physical
> commodity exposure, the report said. This began what Dingell said was
> 'a process that has enabled investment banks to accumulate enormous
> positions in commodity markets,' according to the report.'
> (MarketWatch)
> 
> So it's not really Big Oil or 'greedy Arabs' after all? Nope, it's the
> cutthroat banksters again.
> 
> Over the weekend, Saudi Arabia's King Abdullah convened an emergency
> Oil Summit in Jeddah, Saudi Arabia to deal with the disastrous effects
> that oil prices were having on the global economy. Rising prices are
> responsible for everything from food riots in Haiti to truckers
> strikes in Spain, Portugal and France. US Energy Secretary Samuel
> Bodman delivered a prepared statement supporting the Bush
> administration's position on the issue:
> 
> 'Market fundamentals show us that production has not kept pace with
> growing demand for oil, resulting in increasing - and increasingly
> volatile - prices. Even despite higher global production for oil so
> far this year, inventories have been drawn down and current world
> production (spare) capacity is below historic levels - at fewer than
> two million barrels per day.'
> 
> Baloney.
> 
> Demand is not out-pacing supply. That's a myth started by the people
> who are profiting by betting up oil futures; investment bankers.
> They're led by their chief defender and former G-Sax scalawag, Henry
> Paulson.
> 
> Consider the remarks of Philip Davis in a recent post at Seeking Alpha:
> 
> 'Now we have the Saudi oil summit this weekend and Saudi Arabia took
> 1.5M barrels a day off-line since July of '05 in a series of cuts and
> is currently producing just over 8Mbd out of their estimated 10.5Mbd
> maximum capacity. It is forecast by the EIA that next year OPEC alone
> will have over 3Mbd of spare capacity so this would be a terrible time
> for global demand to take a nose dive or there are going to be a lot
> of idle wells� Should global demand drop another 5 per cent in the
> next 12 months, we could be looking at 8Mbd less demand than there was
> just a year ago.
> 
> 'As the London Telegraph points out, not only does OPEC have a current
> production surplus of 2M barrels a day but that surplus will rise to
> 3.5M barrels a day by next year. Also, non-OPEC production is rising
> fast with a 1.5Mb gain in non-OPEC production coming down the pike
> next year... Iraq, by the way, is no longer included as OPEC or
> non-OPEC production, a very clever way to hide 2.4 million barrels of
> production by the energy apologists.' (Philip Davis, 'The Oil
> Shortage, and Other fairy Tales' Seeking Alpha).
> 
> There's no shortage, no scarcity. In fact, oil is being deliberately
> kept off the market to keep prices high. Consider this: if supply
> isn't keeping up with demand then why aren't there any lines at the
> gas stations like there were during the '70s?
> 
> Because it's all a fabrication. Prices are up because of speculation;
> that's all.
> 
> Here's what Saudi Arabia's King Abdullah said on Sunday: 'Among other
> factors behind this unjust increase in oil prices is the abhorrent
> acts of speculators seeking to undermine the market.' That's why he
> called the meeting to begin with. The King insists that 'speculators'
> have played a key role.' (AFP)
> 
> 
> 
> Consider this: if supply isn't keeping up with demand then why aren't
> there any lines at the gas stations like there were during the '70s?
> 
> How about Kuwait?
> 
> The Kuwaiti Oil Minister Mohammed al-Olaim insisted that 'there is
> enough oil to supply the market... We believe that the market is in
> equilibrium. The price is disconnected from fundamentals. It is not a
> problem of supply. Why would you have a supply problem when demand is
> going down'. (AP)
> 
> Of course, demand goes down in a recession.
> 
> What about Libya?
> 
> 'We believe speculation has its impact,' the OPEC chief said. Libya
> may reduce its oil production because there is more than enough oil in
> the market, according to Oil Minister Shokri Ghanem. 'We may have to
> cut production... We don't see any need for more oil. There is plenty
> of oil in the market,'' Ghanem said, commenting on Saudi Arabia's
> decision. (Bloomberg News)
> 
> How about Iraq? Can we at least count on our brothers in Iraq to
> maintain the administration's falsehoods about supply problems?
> 
> According to Reuters: Iraq's Oil Minister Hussain al-Shahristani said,
> 'Any increase in world oil output would not have a significant impact
> on record-high crude prices that are being driven by speculation...
> Regulations needed to be introduced to stabilize oil markets. I do not
> think increasing any amount in the international market will have a
> significant impact on the prices. It is up to the stock exchange and
> the regulations in the industrialized nations. It is not something
> OPEC can contribute to. We did not see any impact on the prices from
> the Saudi's previous increase.' (Reuters)
> 
> Venezuela?
> 
> Venezuela Oil Minister Rafael Ramirez refused to join the weekend
> conference because 'We believe it is not necessary to increase
> output... Oil production levels aren't behind the increase in prices,'
> Ramirez said, adding that soaring oil prices were caused by
> 'speculative interest, a falling dollar and global inflation'.
> (Reuters)
> 
> So, are all the oil ministers lying or is the Bush administration
> intentionally misleading the public about supply problems?
> 
> It's always easy to point the finger at Big Oil or 'greedy' Arabs for
> price gouging, but that's not what's really going on. The Bush
> administration is colluding with their Wall Street buddies to fleece
> the public by inflating another bubble; this time in commodities.
> 
> Congress could end this charade in a minute by passing legislation
> that would close the Swaps Loophole and require steeper margin limits
> on oil futures. But don't hold your breath. Wall Street is the biggest
> contributor to political campaigns which explains how we got into this
> pickle to begin with. It also explains why Congress's public approval
> rating has shriveled to 12 per cent.
> 
> Do Bush and (Ben) Bernanke know what the banks are up to? Do they know
> that billions that are being loaned to the banks via the Fed's
> 'auction facilities' are probably being diverted into the commodities
> market and driving up the prices of raw materials and oil, while
> pushing the world towards global recession?
> 
> You bet they do and they're probably doing everything in their power
> to keep the banking system from buckling beneath the weight of its own
> massive debts.
> 
> Here's an excerpt from Spiegel Online's 'Are Pension Funds Fueling
> High Oil? which explains the whole scam:
> 
> 'Commodities exchanges limit the number of positions an investor can
> take in the market, but Michael Masters, of Masters Capital
> Management, says the Commodity Futures Trading Commission (CFTC) has
> allowed unlimited speculation in these markets through a loophole.
> This so-called swaps loophole exempts investment banks like Goldman
> Sachs and Merrill Lynch from reporting requirements and limits on
> trading positions that are required of other investors. The loophole
> allows pension funds to enter into a swap agreement with an investment
> bank which can then trade unlimited numbers of the contracts in
> futures markets.'
> 
> 'Some experts fault the CFTC, charged with regulating commodities
> markets, for allowing such loopholes. 'Congress has provided the CFTC
> the power to control this unlimited [speculation]; the law is very
> specific about establishing position limits,' says Steve Briese,
> author of The Commitments of Traders Bible and
> CommitmentsOfTraders.org, a site that focuses on US futures markets.
> 'The problem is they have abdicated this role.'
> 
> 'The dramatic surge in energy prices has helped to spark inflation
> across the economy and, as others at the hearing testified, has cut
> into profits of most in the supply chain. Briese points to Treasury
> reports that the the top five users of swap agreements are investment
> banks, four of which dominate swap dealing in commodities and
> commodities futures: Bank of America, Citigroup, JP Morgan Chase, HSBC
> North America Holdings, and Wachovia.' (Spiegel Online)
> 
> 
> 
> The Bush administration is colluding with their Wall Street buddies to
> fleece the public by inflating another bubble; this time in
> commodities.
> 
> Citing the harmful impacts record high crude oil prices are having on
> consumers, US Rep. Bart Stupak (D-Mich.) introduced a bill to close
> regulatory loopholes:
> 
> 'The numbers back this up: Between Sept 30, 2003, and May 6, 2008,
> contracts held by traders jumped from 714,000 to more than three
> million, a 425 per cent increase. Since 2003, commodity index
> speculation has increased 1,900 per cent from an estimated $13 billion
> to $260 billion invested. Stupak said CFTC data show that in 2000,
> physical hedges that airlines and other businesses use to ensure a
> stable price for fuel in coming months and actually imply delivery
> accounted for an estimated 63 per cent of the total futures market,
> while speculators represented about 37 per cent. 'By April 2008,
> physical hedgers only controlled 29 per cent and speculators had taken
> over a whopping 71 per cent of the oil futures market.'
> 
> He said 85 per cent of the futures purchases tied to commodity index
> speculation comes through swap dealers-investment banks that serve as
> intermediaries for their pension fund and sovereign wealth fund
> customers. One report found that $55 billion of total worldwide
> commodity trading over 55 days came in as swaps. 'The CFTC has allowed
> 117 exceptions to swaps. When that many exceptions are allowed, they
> are not really subject to oversight. We have a CFTC that's supposed to
> be doing its job. I'm not certain that it is,' he said.
> 
> Another Smoking Gun
> 
> On May 20, 2008 Michael Masters, testified before the Senate Committee
> on Homeland Security and Governmental Affairs, on the role that
> speculation has played in recent commodity price movements. He said:
> 
> 'In the popular press the explanation given most often for rising oil
> prices is the increased demand for oil from China. According to the
> Department Of Energy, annual Chinese demand for petroleum has
> increased over the last five years from 1.88 billion barrels to 2.8
> billion barrels, an increase of 920 million barrels. Over the same
> five-year period, index speculators demand for petroleum futures has
> increased by 848 million barrels. The increase in demand from Index
> Speculators is almost equal to the increase in demand from China!'
> 
> Masters is right; there is massive speculation which is distorting the
> market, but who is responsible? Clearly, the pension fund managers
> aren't to blame. After all, the largest US pension funds, which is the
> California Public Employees Retirement System (CalPERS), has only
> invested about $1.1 billion in commodities swaps contracts. That's a
> far-cry from $260 billion. The investment giants and hedge funds are
> probably leveraging the money they receive from the pension funds many
> times over to increase the size of their bets. Keep in mind, oil
> futures can be purchased for a mere $.06 on the dollar; that's a lot
> of potential leverage.
> 
> Masters again: 'Commodities prices have increased more in the
> aggregate over the last five years than at any other time in U.S.
> history. We have seen commodity price spikes occur in the past as a
> result of supply crises, such as during the 1973 Arab Oil Embargo. But
> today, unlike previous episodes, supply is ample: there are no lines
> at the gas pump and there is plenty of food on the shelves. Today,
> Index Speculators are pouring billions of dollars into the commodities
> futures markets, speculating that commodity prices will increase.'
> 
> Index Speculators have now stockpiled, via the futures market, the
> equivalent of 1.1 billion barrels of petroleum, effectively adding
> eight times as much oil to their own stockpile as the united states
> has added to the Strategic Petroleum Reserve over the last five years:
> 
> 'We calculate that Index Speculators flooded the markets with $55
> billion in just the first 52 trading days of this year. That's an
> increase in the dollar value of outstanding futures contracts of more
> than $1 billion per trading day.
> 
> Doesn't it seem likely that an increase in demand of this magnitude in
> the commodities futures markets could go a long way in explaining the
> extraordinary commodities price increases in the beginning of 2008?'
> 
> Yes, it does. And it also explains where billions of dollars from the
> Fed's 'auction facilities' are going. After all, they're certainly not
> going into mortgage-backed securities anymore, and MBS represented
> nearly 70 per cent of bank revenue. So, where would a desperate banker
> turn if his main revenue-stream had dried up and the corporate bond
> market was frozen solid?
> 
> How about oil futures and commodities; the only game in town? As the
> MarketWatch article suggests, oil prices are inflated by about 70 per
> cent.