Just call it a case of the pot calling the kettle black. OPEC, which for decades has manipulated and artificially distorted the price of oil through cartel supply reductions, now wants U.S. regulators to curtail oil trading by hedge funds and other speculators it claims helped create 2008's volatile oil market, Bloomberg News reported.
Research is incomplete, but several models argue that speculators, assisted by excess leverage, artificially boosted oil's price during the recent economic expansion, culminating in oil hitting a gargantuan high of $147.27 per barrel in the summer of 2008. Oil's price later collapsed with the onset of the U.S. and global recessions, as demand waned and investors / traders exited long positions. Oil traded early Wednesday down 19 cents to $41.39 per barrel.
Economist Richard Felson said traders or speculators "no-doubt contributed to oil's bubble and recent bull market" but that the manipulation charge is not exclusive to those who buy or sell futures contracts. "When one reduces supply as a cartel, one is manipulating price, as well. Frequently, trader position decisions are in response to OPEC's decision, so who is really manipulating price?" Felson said.
Felson said he's against banning speculators, long or short, from futures contracts, and wants only minor trading system changes. "We may see some effort to increase collateral per contract, but if it goes too far, liquidity will suffer, which will hurt everyone. Price discovery would be hurt and that's precisely the direction we don't want to go in," Felson said.
Oil Analysis: As economist Felson noted, OPEC has a weak argument when it accuses others of price manipulation or of distorting prices. Three times (1973-74, 1979-80, 2008) OPEC has delayed supply increases -- manipulating supply -- to force already high prices even higher, to the detriment of the U.S. and global economies. Three U.S. recessions ensued, including the current one.
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Reader Comments (Page 1 of 1)
1-28-2009 @ 12:00PM
thedude said...
I'll be the first to admit I was on th eoil train and made some serious profits. More than enough to eaily absorb the increase in fuel prices. But I also feel that oil should be removed from trading competely and a fixed price negotiated with OPEC.
With a fixed price at between $45 or $55 per barrel we can maintain reasonably inexpensive gas prices and still provide excessive income to OPEC members reducing the chance that they will simply stop selling to us and shift selling to the Chinese.
Fuel is an essential to modern day living and with things like this the gov't should regulate it. The gov't should regulate ALL aspects of energy generation due to the simple fact that 99% of US citizens require energy and all are currently being gouged by independant power companies.
2-13-2009 @ 1:01PM
Dee said...
We were at the mercy of Opec in 1973-1974. We learned nothing from it. In 1979-1980 Opec did it to us again. We responded by producing Not only slightly more fuel efficient vehicles but the Ugliest cars any decade had ever seen. The 1990's was the advent of gas gussling "cup holders" or SUV's. In our infinite "wisdom" we started a new decade 2000-2008 driving Hummers!. We've met the enemy and it is us, Not Opec!
1-28-2009 @ 12:28PM
Beltway Greg said...
Nailed this back in June but here's as Paul Harvey used to say, the rest of the story......Who were those speculators? Well, in addition to the usual suspects we'll come to discover that the sovereign wealth funds of the Arab states were pushing the price via speculation. Neat trick. Front run the contracts, control the supply, have a few meetings and pretend to be concerned. And in the end still control the market. Here's the barrel, take the gun, shoot the fish.
Yes, I'm jealous.
Beltway Greg
1-28-2009 @ 12:54PM
Carl M. Welch said...
Government cannot provide the solution to any of our problems. Only registered first producers (oil and gas operators) and first consumers (refineries) should be able to trade on the futures market. Only real oil and gas should trade, not paper. This is how the commodities markets were originally set up.
1-28-2009 @ 10:24PM
Ronsonit said...
Futures "Trading" in fuel should be eliminated. Nobody should be allowed to purchase a percentage of a contract for resale, something they never plan to take delivery of. They should only be allowed to sell once they've taken posession (and paid in full) of the entire "Contracted" production. I believe that the speculators drove the price, not necessarily the consumption requirement. Can't pay the mortgage if you can't afford the fuel to triple.