Randi Rhodes Message Board > What is Congress doing about Oil Bubble

PaineInMyHead

Jun 22 2008, 08:03 PM

QUOTE (Oracle @ Jun 20 2008, 07:02 PM)

Anyone who wants a good overview of the real issues at play here from an insider should read ... Michael W Masters, CEO of Masters Capital Management, LLC.

Economist Paul Krugman's take:
http://krugman.blogs.nytimes.com/2008/06/2...on-commodities/

QUOTE

Some correspondents have asked me what I think about the Congressional testimony of Michael Masters, who told a Senate subcommittee that "index speculators" -- institutions that buy commodity futures as an investment -- are responsible for the price surge.
The short answer is that I think his testimony is just stupid. Here’s what he says:
Index Speculators’ trading strategies amount to virtual hoarding via the commodities futures markets. Institutional Investors are buying up essential items that exist in limited quantities for the sole purpose of reaping speculative profits.
That quote pretty much epitomizes what’s wrong with a lot of what people say about speculation. Buying a futures contract for oil does not reduce the quantity of oil available for consumption; there’s no such thing as "virtual hoarding".
And Masters really is confused about the difference between paper contracts and physical stuff. He compares the growth in the futures market with increased consumption from China, and says
The increase in demand from Index Speculators is almost equal to the increase in demand from China!
Again, the fact that someone bought a futures contract (which means that someone else sold one) doesn’t reduce the amount of oil available to consume.
I’m willing to listen to serious arguments about how speculation might be affecting the price, but you do see a lot of dumb stuff. And this is really, really dumb.

Maybe we all should go back to econo 101 class?

PaineInMyHead

Jun 23 2008, 10:20 PM

I was going to suggest that Randi have Paul Krugman on the show to give his opinion of the oil crisis and the role of speculation, but I'm not so sure now. Well, maybe if they did the interview by phone rather than in-studio it would be ok.

Krugman tries again:
http://krugman.blogs.nytimes.com/2008/06/2...nse-once-again/

georgia

Jun 23 2008, 11:51 PM

QUOTE (PaineInMyHead @ Jun 23 2008, 10:45 PM)

I was going to suggest that Randi have Paul Krugman on the show to give his opinion of the oil crisis and the role of speculation, but I'm not so sure now. Well, maybe if they did the interview by phone rather than in-studio it would be ok.

Krugman tries again:
http://krugman.blogs.nytimes.com/2008/06/2...nse-once-again/

Hilarious. Krugman argues that the futures market doesn't affect the spot market but goes on to present a graphic that shows a direct relationship between the futures and spot markets.

hansolo01

Jun 24 2008, 08:34 PM

QUOTE (egghead @ Jun 14 2008, 12:30 PM)

Just a snip from a very long speech which offers solutions/bills to this wholesale robbery:

A GLOBAL GAMBLING HALL? Someone is due an intervention.

It's always about the bubble. Bubble trouble is Bush/Cheney's pre-meditated middle name.

I have a plan to stop big oil in its tracks. All the airlines have to shut down at the same time , just like the truckers do to protest the price of diesel fuel only on a larger billion dollar scale. If they don't they will be closing by Thanksgiving travel season 2008.

I even have the proof to tell them why they need to shut down now before they go out of buisness. remember the over 40 billion dollars profit each quarter big oil reports , well i believe most of the money paid comes from airline fuel alone. How you can tell is look at what was just reported in the price of fuel from the previous year at 41 billion jumping to 61 billion , thats 21 billion cash in big oils pocket. If you follow the money the profits are being made off the airline industries by the billions. If you follow the money back to its source you will see the demand has not really increased which means the price of producing the oil hasn't changed, which means the profits are being manipulated on the backs of the airline industries around the world.

egghead

Jun 24 2008, 09:34 PM

QUOTE (georgia @ Jun 23 2008, 11:16 PM)

Hilarious. Krugman argues that the futures market doesn't affect the spot market but goes on to present a graphic that shows a direct relationship between the futures and spot markets.

Something strange going on at the NYTimes. A lot of spin and cover going on all over the place. Why wouldn't they? We are talking about the most precious commodity on the planet. Heck, wars are fought over it, right?

egghead

Jun 24 2008, 09:42 PM

QUOTE (hansolo01 @ Jun 24 2008, 07:59 PM)

I have a plan to stop big oil in its tracks. All the airlines have to shut down at the same time , just like the truckers do to protest the price of diesel fuel only on a larger billion dollar scale. If they don't they will be closing by Thanksgiving travel season 2008.

I even have the proof to tell them why they need to shut down now before they go out of buisness. remember the over 40 billion dollars profit each quarter big oil reports , well i believe most of the money paid comes from airline fuel alone. How you can tell is look at what was just reported in the price of fuel from the previous year at 41 billion jumping to 61 billion , thats 21 billion cash in big oils pocket. If you follow the money the profits are being made off the airline industries by the billions. If you follow the money back to its source you will see the demand has not really increased which means the price of producing the oil hasn't changed, which means the profits are being manipulated on the backs of the airline industries around the world.

It would be quite interesting to see what happens, if the airlines just made the threat. Perhaps just the threat of shutting down like that would bring forth some truth from these oil barons who think they rule the world.

PaineInMyHead

Jun 25 2008, 06:56 AM

Mr. Fadel Gheit, Managing Director & Senior Oil Analyst @ Oppenheimer & Co. and a source for Rep. Levin's statement which started this thread appeared before the House Energy & Commerce Subcmte. Hearing on Energy Prices (Part II June 23, 2008). Recall that in that statement Gheit pronounced:

QUOTE

The speculators have seized control and it’s basically a free-for-all, a global gambling hall, and it won’t shut down unless and until responsible governments step in.

He produced a written testimony for the hearing that contained:
http://energycommerce.house.gov/cmte_mtgs/...t-testimony.pdf

QUOTE

There were no unexpected changes in industry fundamentals in the last 12 months, when crude oil prices were below $65 per barrel. I cannot think of any reason that explains the run-up in crude oil price, beside excessive speculation.

Then, Mr. Gheit said this before the committee during the oral question period (2:30:00):
rtsp://video1.c-span.org/project/energy/energy062308_manipulation.rm

QUOTE

Gheit: One more thing, for us to think that there is one silver bullet if you will that's going to take care of all this problem we are kidding ourselves.
Rogers: I agree, so you agree that it has to be a whole series of things, and this is not the silver bullet it is a bullet.
Gheit: It has to be the complete course if you will.
Rogers: Including more domestic supply and our impacting demand with alternative energy.
Gheit: Everything should be on the table, everything should be on the table.

Not consistent with what he said previously. Maybe the lights and cameras had something to do with it?

So what does Mr. Gheit and the rest of the panel do? (1:28:00)
rtsp://video1.c-span.org/project/energy/energy062308_manipulation.rm

QUOTE

Rep. Barton: ...my first question, I just want to make sure I understand generically what you guys do. Do you risk your own money, or do you advise others on how to risk their money?
Gheit: I will start, I don't risk my money or other people's money, I don't risk anybody's money.
Barton: You don't risk anybody so you don't advise anybody.
Gheit: no , I try to -- I am research analyst, I cover 22 oil and gas companies, all in the U.S. I talk to those companies regularly, I have known them for almost 22 years.
Gheit: I've got limited time, I just need to know if you're advising or.
Gheit: We advise investors, we don't advise, we don't advise anybody to buy or sell crude future, we advise investor which stocks we think are attractive (unintelligable)...
Barton: I'd like the next gentleman to answer.
Diwan: I never invested in the oil market. I am an advisor to a lot of people.
Masters: The answer to your question is we do take risks both with our own money, and with other peoples money
ahhh, not in commodity futures though.
Krapels: We are consultants to the oil industry, not traders.

Gheit has a long relationship with gas and oil companies and he advises stock investors. Masters invests in something other than commodity futures. Diwan, not sure who he advises. Krapels is a consultant to the oil industry. Then Masters describes what is likely to happen in the wake of regulating the commodity futures market (1:58:00)
rtsp://video1.c-span.org/project/energy/energy062308_manipulation.rm

QUOTE

Masters: ...look I mean one thing that's important to understand is because commodities are uncorrelated with other asset classes. And I don't consider commodity futures an asset class to begin with, so I'll just say that on the record. But they typically behave in ways that are different from other parts of ones portfolio. So it's very likely that prices of commodity futures and therefore prices of commodities would come down relatively quickly. Now the interesting thing about that because today the vast majority of institutional investors funds are still in stocks and bonds. It is also very likely that those prices would go up, relatively quickly. So yeah, they're gonna lose on their commodities position, which on a gross average is roughly 1% of their portfolio but with a 50% or more position in common stocks and fixed income they're gonna way offset that in the benefit that they get in the rest of their portfolio. So this would actually have a very powerful, positive effect on their portfolio.
Rep. Burgess : Unless they were invested in the financial sector.

It seems to me Masters and Gheit have a conflict of interest here since they stand to benefit. Possibly the others do as well, since the scenario that Masters lays out is likely to benefit the companies they associate with.

Also, in Mr. Gheit's written testimony:
http://energycommerce.house.gov/cmte_mtgs/...t-testimony.pdf

QUOTE

Sharing our conclusion that the surge in crude oil prices is driven mainly by excessive speculation are; Energy Secretary, Samuel Bodman, OPEC oil ministers, and the CEOs of major oil companies.

No, Bodman doesn't share his view. I wonder how that got in there? I thought it was weird.

PaineInMyHead

Jun 25 2008, 07:07 AM

QUOTE (georgia @ Jun 24 2008, 12:16 AM)

Hilarious. Krugman argues that the futures market doesn't affect the spot market but goes on to present a graphic that shows a direct relationship between the futures and spot markets.

Correlation does not mean causation. In fact if speculation were the culprit, the futures line would be above the spot line. Check Krugman's latest stuff for the details.

KimFromLongIsland

Jun 25 2008, 07:13 AM

QUOTE (PaineInMyHead @ Jun 25 2008, 07:32 AM)

Correlation does not mean causation. In fact if speculation were the culprit, the futures line would be above the spot line. Check Krugman's latest stuff for the details.

I find it interesting that everytime something MAY happen (unrest in Iran, hurricane heading toward oil rig, Israel acting up) the price of oil goes up in CASE we have a cut in oil production because of said event. Yet when nothing happens, the price never goes back down to where it was before.

PaineInMyHead

Jun 25 2008, 07:15 AM

QUOTE (egghead @ Jun 24 2008, 09:59 PM)

Something strange going on at the NYTimes. A lot of spin and cover going on all over the place. Why wouldn't they? We are talking about the most precious commodity on the planet. Heck, wars are fought over it, right?

So how is Krugman wrong. You're gonna have to do better than "spin". Krugman gives a 101 class on speculation and the "signs" that would appear if it were there.

He even shoots down the Enron comparison.

Check his latest work at the Times.
http://krugman.blogs.nytimes.com/

georgia

Jun 25 2008, 11:08 AM

QUOTE (PaineInMyHead @ Jun 25 2008, 07:32 AM)

Correlation does not mean causation. In fact if speculation were the culprit, the futures line would be above the spot line. Check Krugman's latest stuff for the details.

From Masters' testimony:

QUOTE

This began to change in the 1980s, when spot market participants in the agricultural and energy
markets moved to embrace centralized futures markets as the best indicator of overall supply and
demand conditions across all spot markets.12 Because of the benefits of price discovery and risk
hedging that the futures markets provide to physical commodity producers and consumers, today
those participants have agreed to price nearly all spot market transactions at the futures price plus
or minus a “local basis” or “differential.”13

The CFTC describes it this way: “In many physical commodities (especially agricultural
commodities), cash market participants base spot and forward prices on the futures prices that
are “discovered” in the competitive, open auction market of a futures exchange.”14 Platts, which
is the leading pricing service for the energy industry, describes it this way: “In the spot market,
therefore, negotiations for physical oils will typically use NYMEX as a reference point, with
bids/offers and deals expressed as a differential to the futures price. Using these differentials,
Platts makes daily and in some cases intra-day assessments of the price for various physical
grades of crude oil, which may be referenced in other spot, term or derivatives deals.”15

As an example, a wheat farmer delivering his crops to the local grain elevator is going to be paid
the CBOT futures price plus or minus the local basis spread. A New England Heating Oil
distributor buying heating oil from the local wholesaler is going to be paying the NYMEX
futures price plus or minus a local differential. That means that when the futures price rises by
$1, if the local basis/differential does not change, then the spot price will also rise by $1,
- http://energycommerce.house.gov/cmte_mtgs/...s-testimony.pdf

georgia

Jun 25 2008, 11:17 AM

or straight from the CFTC:

QUOTE

Price Discovery or Price Basing
Futures contracts are often relied on for price discovery as well as for hedging. In many physical commodities (especially agricultural commodities), cash market participants base spot and forward prices on the futures prices that are “discovered” in the competitive, open auction market of a futures exchange.

This price discovery role is considered an important economic purpose of futures markets. In financial futures contracts such as stocks, interest rates, and foreign currency, the price discovery role of futures occurs in tandem with the cash markets, which also contribute significantly to price discovery.
- http://www.cftc.gov/educationcenter/economicpurpose.html

georgia

Jun 25 2008, 11:32 AM

QUOTE (PaineInMyHead @ Jun 25 2008, 07:21 AM)

He produced a written testimony for the hearing that contained:
http://energycommerce.house.gov/cmte_mtgs/...t-testimony.pdf

QUOTE

Gheit: One more thing, for us to think that there is one silver bullet if you will that's going to take care of all this problem we are kidding ourselves.
Rogers: I agree, so you agree that it has to be a whole series of things, and this is not the silver bullet it is a bullet.
Gheit: It has to be the complete course if you will.
Rogers: Including more domestic supply and our impacting demand with alternative energy.
Gheit: Everything should be on the table, everything should be on the table.

Then, Mr. Gheit said this before the committee during the oral question period (2:30:00):
rtsp://video1.c-span.org/project/energy/energy062308_manipulation.rm

QUOTE

Gheit: One more thing, for us to think that there is one silver bullet if you will that's going to take care of all this problem we are kidding ourselves.
Rogers: I agree, so you agree that it has to be a whole series of things, and this is not the silver bullet it is a bullet.
Gheit: It has to be the complete course if you will.
Rogers: Including more domestic supply and our impacting demand with alternative energy.
Gheit: Everything should be on the table, everything should be on the table.

Not consistent with what he said previously. Maybe the lights and cameras had something to do with it?

That is not inconsistent. "The complete course" would be all the regulatory changes. Rogers threw in the last bit, and of course it should be on the table, but as the panel agreed, none of Rogers' suggestions would have as immediate of an impact as the regulatory changes.

QUOTE

It seems to me Masters and Gheit have a conflict of interest here since they stand to benefit. Possibly the others do as well, since the scenario that Masters lays out is likely to benefit the companies they associate with.

Do they stand to benefit? Undoubtedly. Where's the problem? So many people in the wrong wing worship Ronald Reagan. What did Ronald Reagan do to grow the economy (and hurt Russia)? He got money out of commodities and back into the stock market. Of course, Reagan's method was a bit different, lowering the capital gains tax rate, but the goal was the same. Was Reagan wrong? Wouldn't the benefit to this panel really be a benefit to the nation's economy overall?

PaineInMyHead

Jun 29 2008, 09:51 AM

QUOTE (georgia @ Jun 25 2008, 11:57 AM)

Do they stand to benefit? Undoubtedly. Where's the problem? Wouldn't the benefit to this panel really be a benefit to the nation's economy overall?

I'm not so sure. If the real problem is oil scarcity, then they are only throwing up a smoke screen. Who would American's be blaming if not the speculators? I'd bet it would be big oil.

QUOTE

Also, in Mr. Gheit's written testimony:
http://energycommerce.house.gov/cmte_mtgs/...t-testimony.pdf

QUOTE

Sharing our conclusion that the surge in crude oil prices is driven mainly by excessive speculation are; Energy Secretary, Samuel Bodman, OPEC oil ministers, and the CEOs of major oil companies.

No, Bodman doesn't share his view. I wonder how that got in there? I thought it was weird.

Was wondering what you thought about Bodman's name erroneously appearing in Gheit's written testimony?

Tabula-rosa

Jul 9 2008, 12:12 PM

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QUOTE (rottmom @ Jun 21 2008, 02:57 PM)

There is a time limit, 5 minutes I believe, in which you can edit your message. After that you'd need a mod to do it if it was something really important.

And btw, you really need to cite your sources when you are stating data as fact, which you did in a couple of your posts.

Thanks. We really like to read the articles for ourselves so we can make up our own minds about what they are saying so it is required.

oo00OOPS. much of what I've learned about the subject comes from watching C-SPAN.
Watch C-SPAN
I also subscribe to Visit My Website
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I believe that my explanation of why the price of both crude & refined products are off the charts, still stands.
I haven't seen any rebuttals that are credible. Krugman overlooks a very simple fact, & I explained it in my missive.
Krugman is merely speculating himself, he proves nothing.

I read that Amadinejad is going to convert fleets of Iranian motor vehicles to burn LPG as a motor fuel, so a US boycott of gasoline to Iran won't cause a fuel shortage. Iran probably won't have to ration gasoline.

I heard T. Boone Pickens agree w/ my contention that the US should convert more automobiles to LPG, & that we can't drill our way out of this 'freakin intentional fiasco.

I have been obsessed w/ LPG as an w/ alternative fuel source since the Clinton administration.
I feel vindicated.
The last link that I provided is the Kenworth truck company. This is the 1st year they've introduced LPG as a fuel choice for their tractor/trucks.
India, China, & Ford/Argentina all have contracts w/ Impco Technologies, the American mfg. of LPG conversion units.
I wonder why Bu$h didn't think of this, he claims to be an oil man.

The oil bubble is a tumor. If Congress really wanted to solve the problem, they would give all the players 1 month to divest, & then close the commodities counter to everyone who can't take delivery of the crude. That leaves mostly the refiners. Screw everybody else who was buying crude, because they have been putting the screws to us in the name of their profit.

There is no shortage of oil, that's a total BS diversion.

Tabula-rosa

Jul 10 2008, 11:53 AM

Click to view attachmentI thought that I had included the dollar's loss in value, which also has a big bearing on what the US pays for crude on the international mkt.
I guess that I need to add some more of the dirty details about the M1, M2, & M3, money supply reports., etc...
The M1 is no longer a factor.

For another time, 'gotta go.