As Gasoline & Oil Prices Fluctuate, Isn't It Time We Heard From AllYou "Price-Gouging" Goofballs?

America's enduring CONSPIRACY ...

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"Oil's Puzzling Spring Surge Reignites Debate About Speculators"

By Steven Mufson
Washington Post Staff Writer
Tuesday, July 14, 2009 6:13 AM



THE RUN-UP IN OIL PRICES that began earlier this year was not as steep
as last summer's record climb, but it was almost as mystifying.

Demand was low, the global economy was sagging, and the world's oil
consumers and producers were brimming with excess supply. Those
factors ought to keep prices down, but the monthly average price of
crude oil jumped $10 a barrel from February to April, another $10 in
May and again in June. Gasoline prices in the United States rose 54
days in a row, and AAA called the increases through May "the largest
five-month retail advance this century."

Then over the past 10 days, oil prices tumbled back, falling to $59.69
a barrel, to the lowest level in eight weeks, summoning memories of
last year, when prices hit a record $147 on July 11 before falling
back down. Renewed pessimism about the economy was one reason for the
10-day swoon, but the abrupt shift has been dizzying. And not entirely
reassuring. Many regulators, oil analysts and oil executives say that
the lurches in price this year -- even more than last year's -- must
be attributable primarily to one factor:

Speculators.

"Here we go again," Bart Chilton, a commissioner at the Commodity
Futures Trading Commission, said late last month. "Crude oil prices
are up 60 percent on the year. Supplies are at a 10-year high, and
demand is at a 10-year low. You do the math. Why should prices be over
$70?"

Last week, the CFTC said it would consider new measures to curb
speculation and increase transparency in energy markets, where the
agency's data suggest that a substantial amount of oil trading was
concentrated in the hands of just a few investment banks and trading
firms. Also last week, the leaders of Britain and France urged
measures to counter "damaging speculation."

Regulators worry that even a small bubble in oil prices could stifle
economic recovery by draining money from savings or other purchases,
undercutting the government stimulus program and reigniting
inflation.

"It's almost as if these current prices are in an alternative
universe," hedge-fund manager Mike Masters, a fixture at congressional
hearings on commodities oversight, said in an interview with the trade
publication Mastering Derivatives. "You've got the speculative price
of oil, and you've got what the actual price of oil would be."

Speculation, many analysts note, is a loaded term. It conjures images
of unprincipled middlemen who manipulate and bet on prices. In
reality, "speculators" are simply investors who have no commercial use
for oil and never plan to take delivery. They can include state
pension funds and college endowments, as well as investment banks and
hedge funds seeking to use oil futures the same way they use other
financial instruments.

" 'Speculation' isn't a dirty word," Chilton wrote in an e-mail.
"Speculators are a necessary part of futures markets, and they play a
critical and important role in the price discovery process. If,
however, a group of entities is affecting the price of a critically
important commodity in an uneconomic fashion, the CFTC has a
responsibility to investigate and address it."

Some oil experts, economists and analysts said supply and demand have,
in fact, been bigger factors than speculation in driving oil prices.
And those experts expect costs to keep going up.

"We continue to gain confidence that the trough in the oil cycle has
passed and a new up-turn is underway," Goldman Sachs oil analyst Arjun
Murti wrote in a report last month. He cited stagnant world oil
supplies -- and declining production outside the Organization of the
Petroleum Exporting Countries -- along with a gradual revival of
demand. Goldman Sachs boosted its price forecasts by $10 a barrel,
saying the cost would surpass $100 over the next couple of years.

Adam Sieminski, chief energy economist for Deutsche Bank, asked, "How
long can a commodity stay below its replacement cost?" He estimated
that the cost of finding a new barrel of oil is "at least $60 and
might be $80."

Chilton -- like others who see a bubble in oil prices -- points to the
wave of money coming into oil markets from investors. Last year, the
CFTC estimates, about $200 billion flowed into regulated oil markets.
Chilton said billions of dollars more probably flowed into
unregulated, or "dark," markets, where it is impossible to identify
players or track trade volumes. Investment banks say money has been
flowing into oil funds.

Many of these investors are seeking to diversify their holdings or
protect themselves against inflation that governments and central
banks might foment while jolting the global economy. "It's like a
barbecue that is not catching fire," said Jan Loeys, J.P. Morgan
Chase's London-based head of market strategy. "You put all kinds of
lighter fluid on it, and it's not taking. Then at some point, it
takes, and then you don't have a lot of time before it blows up in
your face."

Loeys has been telling clients that oil has been a better inflation
hedge than gold, a traditional haven in times of instability or
inflation. While he accurately predicted in late June that oil prices
could drop $10 with falling stock markets, he added, "I think there's
a high chance that in the next six months, the oil price will be
higher, and a large part of that will be fear of the upside risk of
inflation."

James C. May, head of the Air Transport Association, said the opacity
of oil markets distorts prices. "People are playing the same
expectations game as a year ago," he said. "We've got an average
consumption somewhere in the 80- to 84 million-barrel-a-day range in
physical trades out there, and at the same time well over a billion
barrels being traded on the speculative side."

Does all that trading change the price? Most economists say no. They
say speculators are essentially placing side bets while supply and
demand dictate prices. "They matter for a little while, but they can't
fight gravity," said Kevin Book, an energy expert at ClearView Energy
Partners, pointing to last week's price decline.

CFTC statistics show that physical and speculative traders have
different views of the market. In May, for example, noncommercial
traders increased their bets on rising prices, while commercial
traders adjusted their positions in anticipation of falling prices.
Therefore, some analysts say, noncommercial traders can skew markets.
(In the week ended July 7, the CFTC reported that noncommercial
traders sharply reduced their bets on rising prices, one reason prices
dipped.)

Economists say that a sign of a speculative bubble is a buildup in
inventories because people will hoard supplies in anticipation of ever
higher prices.

Last year, there were few signs of that. This year, however, worldwide
inventories have been at or near record levels. Additional oil has
been floating offshore in tankers. Last week, the Energy Information
Administration reported that U.S. commercial stocks are high enough to
cover 60.6 days of demand, several more than usual.

Roger Diwan, an oil expert at the Washington consulting firm PFC
Energy, argues that there can be a bubble even without excess physical
stockpiles. He says paper contracts for oil futures on the New York
Mercantile Exchange -- which requires physical delivery -- are an
easier way for people to lay aside supplies without having to lease
ships or storage tanks.

Wei Xiong, an economist at Princeton University, has studied financial
bubbles and has been looking at last year's oil shock.

He said CFTC data show that when prices started soaring in 2007, the
"long positions," or bets on rising prices by noncommercial traders --
those trading for investment and not for delivery -- were 4.5 times
the average of the previous decade.

"This evidence does suggest that many investors are speculating on the
appreciation of oil prices," he said.

Moreover, he said, OPEC members can curtail output instead of adding
to inventories. "Since the cost of storing oil is much higher than
many other commodities, the best way for producers to build up
inventory is to keep the oil underground," he said.

"The latest surge in oil prices defies fundamental logic," Edward
Morse, oil expert at Louis Capital Markets Research, wrote in late
June. "But in a disturbing echo of the 2007-08 commodity bubble,
markets are again shrugging off the fundamental picture in favor of
financial positioning and return-chasing."

http://www.washingtonpost.com/wp-dyn...071400565.html

On 2009-07-14, John Fartlington Poopnagle > wrote:

> "Oil's Puzzling Spring Surge Reignites Debate About Speculators"
> http://www.washingtonpost.com/wp-dyn...071400565.html


"The Great American Bubble Machine"
http://www.correntewire.com/great_am...bble_machine_0

"So what caused the huge spike in oil prices? Take a wild guess.
Obviously Goldman had help - there were other players in the
physical-commodities market - but the root cause had almost everything
to do with the behavior of a few powerful actors determined to turn the
once-solid market into a speculative casino. Goldman did it by
persuading pension funds and other large institutional investors to
invest in oil futures - agreeing to buy oil at a certain price on a
fixed date. The push transformed oil from a physical commodity, rigidly
subject to supply and demand, into something to bet on, like a stock.
Between 2003 and 2008, the amount of speculative money in commodities
grew from $13 billion to $317 billion, an increase of 2,300 percent. By
2008, a barrel of oil was traded 27 times, on average, before it was
actually delivered and consumed. "

Be sure to read the rest and see how the regulation was changed to favor
those well connected to government.

"Retail Results Ride Rise in Gasoline Prices"

"Despite the Gains, Consumers Still Showing Restraint"

By Ylan Q. Mui and Neil Irwin
Washington Post Staff Writers
Wednesday, July 15, 2009



HIGHER GAS PRICES helped boost June retail sales 0.6 percent compared
with the previous month, according to government data released
yesterday, but economists worried the price at the pump would dampen
consumers' discretionary spending in the long run.

Sales at gas stations rose 5 percent in June compared with the
previous month, the biggest increase of any category. The price of gas
went from $2.50 a gallon to nearly $2.64 in June before moderating at
the end of the month.

"That's actually a bad thing," said Paul Ashworth, senior U.S.
economist for Capital Economics. "It's not like consumers are getting
any more for their money. It's just costing them more to fill up."

Wholesale inflation, meanwhile, came in twice the level analysts
expected for June, according to a separate government report.

The producer price index rose 1.8 percent, driven by higher fuel
prices. Even excluding volatile food and energy prices, the index rose
0.5 percent, compared to an 0.1 percent drop in May and a forecasted
rise of 0.1 percent.

The numbers are consistent with other data in recent months that
suggest that the economy is not entering into a dangerous process of
deflation, in which falling prices lead people to pull back on
spending in a self-reinforcing cycle.

The signs of a stabilizing economy and higher-than expected price
increases drove investors to demand higher interest rates on long-term
U.S. government bonds. The yield on 10-year government bonds rose 0.1
percent, to 3.47 percent.

Retail sales are vital to the nation's economic health, because
consumer spending accounts for roughly 70 percent of the gross
domestic product. June marked the second consecutive month of growth,
but sales remain 9 percent below the same month last year.

Auto sales had the second-biggest increase at 2.3 percent, which
Ashworth characterized as a "classic dead cat bounce," unlikely to
point to a true rebound. Electronics and appliance stores also made
gains last month, up 0.9 percent, after struggling to persuade
shoppers to buy such big-ticket items as flat-panel TVs. Sporting
goods stores also rose 0.9 percent, while supermarkets inched up 0.2
percent. But department stores continued to struggle, with sales
dropping 1.3 percent, the largest decline of any category.

The report "suggests that real consumer spending continues to
stabilize, but is not yet on a firm recovery path," said Patrick
Newport, U.S. economist for IHS Global Insight.

Discounting the impact of autos, gas and restaurants, retail sales
actually declined 0.2 percent in June from the previous month,
according to an analysis by the National Retail Federation, a trade
group. NRF chief economist Rosalind Wells said consumers continue to
be constrained by the rising unemployment rate and uncertainty about
the prospects of recovery.

"Although several economic indicators are starting to show signs of
improvement," she said, "it is going to take a few more months --
maybe longer -- for people to feel comfortable spending again."

Industry experts said retailers must remain on guard. According to an
analysis by Goldman Sachs and the International Council of Shopping
Centers, a trade group, sales at the country's biggest chain stores
fell 0.9 percent last week compared with the previous week. Cooler
weather and sparse inventory dragged down the results.

"Mother Nature was not kind," Michael P. Niemira, ICSC chief
economist, said. "July will likely be another tough month."

http://www.washingtonpost.com/wp-dyn...071403247.html