Tuesday, June 24, 2008

We Want More Oil, Not More Hot Air from Congress

Senator John McCain recently called for a "thorough and complete investigation of speculators" to see if they've driven up oil prices. And Senate Democrats plan a new bill aimed at commodity speculators - a witch hunt that's clearly about oil.

But, much as politicians would like to blame speculators, it's just not so.

For starters, there's nothing about futures or options that makes it any more attractive to bet that commodity prices will go up than to bet they'll go down. Guess wrong on the direction, and you lose money.

Speculators are now increasingly leaning toward betting the price of oil will go down, not up. So they're unlikely villains if prices do keep rising.

There is no mystery behind the rise in oil prices. They rose too high too fast because of booming demand for oil for electric power, petrochemical products and shipping from many emerging economies (particularly China, India and the Middle East). Meanwhile, the supply of oil slipped in the US, Mexico, Venezuela, Nigeria and Russia (see post below).

The urge to blame speculators is as big a waste of time as blaming oil companies. Americans want more oil and gas - not more hot air from politicians.

Cato Institute's Alan Reynolds article "Scapegoating the Speculators"


At 6/24/2008 10:25 AM, Blogger Dave Narby said...

Mark, I love ya...

But you've got this one wrong!

Per http://transcripts.cnn.com/TRANSCRIPTS/0805/30/ltm.02.html

Michael Greenberger, Former Director Commodity Futures Trading Commission:

"Almost certainly what they're looking at is as a result of Enron pushing for having energy futures contracts being done outside of the United States regulatory purview. There is a theory that has gained momentum among economists and market observers that the price of crude oil is being driven up not by supply/demand principles in whole, but by speculators who are using what are called dark markets, markets that can't be watched by the public or regulators, to manipulate the price of crude oil and, therefore, gasoline and heating oil in an upward direction."

"...It would be as if you said you could trade stocks on the New York Stock Exchange but you could also trade stocks somewhere where the Security Exchange Commission had no idea what was going on. And at the behest of Enron in late 2000 and a lame duck Congress, this kind of unregulated trading was permitted."

Enron happened! History repeats... AGAIN!


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