Posted: Fri May 09, 2008 7:18 am Post subject: Re: Americans to be banned from overseas oil trading
Jack wrote:
JohnDenver wrote:
No, because such attempts at manipulation are illegal, and policed on the NYMEX by the CFTC.
Let's see now. You were arguing that speculation and manipulation by hedge funds was driving the price of oil up. And now you're arguing that manipulation by others to drive oil down cannot happen because of legal mechanisms.
Cube nailed it. The silliness is breathtaking.
There's a difference between manipulation and speculative bubble-mania. Manipulation is where individuals or a small group collude to squeeze or corner a market, and it happens quite frequently. In fact, "The shift to futures market [for crude pricing] was justified by the perceived inadequacies of the spot market which have become vulnerable to manipulation, distortions and squeezes."Source And "Platts introduced its new BFO assessment methodology for establishing Brent values on July 10, 2002 after a series of squeezes on the Brent market in the first half of the year undermined confidence in the benchmark."Source. Or the case of Amaranth:
Quote:
Greenberg says the speculation is that Amaranth may have conducted most of its trading away from the Nymex in a bid to "corner" the long contract on natural gas futures.
"If that's the case, it amounts to manipulating the market," says Greenberger. "It has nothing to do with supply and demand. It's playing games in the opaque markets."Source
Enron-style criminals and profiteers are always looking for an opening, and that's why it's important to close the Enron Loophole. In fact, Bart Chilton, one of the current commissioners of the CFTC, urged congress to do so as soon as possible:
Quote:
A Pitfall Called the Enron Loophole
Washington Post
Thursday, October 25, 2007; Page A24
As winter approaches, the issues raised in the Oct. 21 front- page article "Energy Traders Avoid Scrutiny" become timelier.
The exempt-commercial-markets provision in the Commodity Futures Modernization Act -- also called the "Enron loophole" -- has turned out to be the Achilles' heel of the law. It was inserted at the eleventh hour at the behest of Enron's attorneys. There was never a hearing or any open discussion of this provision. The good thing it did was increase competition; for example, it helped foster the incredible growth of the Intercontinental Exchange. But the provision has resulted in some significant unintended consequences that need to be addressed now.
It is very difficult for the Commodity Futures Trading Commission to achieve its mandate of guarding against energy-market manipulation when there are look-alike energy markets (such as the Intercontinental Exchange) operating "in the dark" and not subject to the rules that apply to other risk-management markets. The good government approach to this is not to wait for an economic calamity to occur. The collapse of the hedge fund Amaranth Advisors last year showed us what can happen. So the question should really not be "if" something should be done but how and when. Closing the Enron loophole is something that should be done as soon as possible -- preferably before winter.Source
That said, I'm not claiming that market manipulation is the cause of the last 6 months of feverish price rises in aluminum, barley, coffee, cocoa, copper, corn, cotton, gold, lead, oats, oil, rice, silver, tin, wheat and uranium. I agree with Prof. Hamilton that the cause is essentially financial -- everyone bailing from the dollar and other currencies, and dogpiling into a "dot commodity" bubble. It's clear that futures markets can be distorted by a large inrush or outflow of money, because they are so small.
The solution is to disincentivize the flight into commodities, and get the speculators back into stocks, bonds and real estate, where they belong. Instead of windfall taxes on productive entities like the oil companies, we need windfall taxes on the profits of *non-productive* entities, like commodity speculators. Like I said, I like the idea of beefed up reporting requirements and a 95%+ windfall tax on gains from oil speculation. _________________ Peak Oil Debunked
Joined: May 13, 2005 Posts: 2615 Location: The Urban Village
Posted: Fri May 09, 2008 7:37 am Post subject: Re: Americans to be banned from overseas oil trading
I run into this argument all the time about the speculators. The price of oil has been on a steady, more or less constant rise since 2003 (the only "sustained" drop was 6 months at the beginning of '06). I can see how speculator exuberance can make the short-term slope of that increase for brief periods (followed by a dip or correction) but I don't believe a speculator can cause the sustained increase. Unlike gold or silver, you have to take delivery of and use the oil in a fairly short period of time. Is anyone here arguing that the 5 year steady increase is due to speculation ?
BTW, I don't pretend to know much about this type of commodity market/investing. My rail stocks have been doing gangbusters though and I believe I understand the factors behind that. As long as the economy doesn't completely collapse...
Posted: Fri May 09, 2008 8:08 am Post subject: Re: Americans to be banned from overseas oil trading
cube wrote:
Like I said before the ridiculousness on this forum knows no limits.
If you want to see all hell break loose start imposing capital controls. That's what you're advocating JD.
History has made it very clear, there is no better "signal" of a collapsing society.
Happened in Malaysia, prior to the Asian meltdown of, I believe, '98. It was the only economy in that region to escape the currency roller coaster, triggered by the baht crisis, that destroyed most of the other countries in that region.
Posted: Fri May 09, 2008 8:14 am Post subject: Re: Americans to be banned from overseas oil trading
Those who write off J.Denver, could easily get caught. When supply is constrained, the actual severity of the problem is obscured by the financial goings on he is describing. The piling on effect is distorting the hell out of the price.
Remember, too, that oil went up to around 80. per barrel a few years ago and settled back to 55. for quite some time, on sentiment, more than anything else. It is a huge mistake to see it's rise in price purely in geologic terms.
Posted: Fri May 09, 2008 8:22 am Post subject: Re: Americans to be banned from overseas oil trading
Dude, Your first chart is off. Look at mine, in nominal terms, and adjusted for inflation. Also, check out the correction of price sometime in 2005 through 2006, back to around 50.00. How do you explain this?
Posted: Fri May 09, 2008 8:27 am Post subject: Re: Americans to be banned from overseas oil trading
Jack wrote:
JohnDenver wrote:
The bottom line is that Jack's position that hedge fund operators can't influence oil prices is a crock of crap, as I said. The NYMEX oil contract is controlled by a very small amount of money, and the NYMEX price governs prices because the NYMEX is used as a benchmark in contracts throughout the world.
So all those E-V-I-L hedge fund types are going long. They buy a contract. It forces the whole market up.
But when they buy a contract, another party must sell a contract. Thus, for every buyer of a contract, there is a seller.
It balances.
That argument is an obvious fallacy. It is always the case, in all markets and all times, that there is a buyer for every seller. There was a seller for every buyer at every step up the dot-com speculative fiasco:
And the 1980 silver futures fiasco:
In every speculative mania in history, from tulips to the real estate bubble, there has always been a buyer for every seller, and that didn't stop speculators from driving the price up.
The fact is: prices are determined not by the relative number of buyers and sellers *after the sale*, but by the relative number of bidders and sellers *during the auction process*. A massive influx of new long bidders will drive the price up.
As for the E-V-I-L thing, I don't have to go any farther than your sig to demonstrate that you're a subhuman scumbag, Jack. Speculators like you are going to be great poster boys as the anti-speculator propaganda gears up. Yes indeed folks, speculators are valuable members of your community. They ratchet up the price of necessities, make money without working, and enjoy buttered popcorn while they watch human beings die. Think we should cut them some slack? <surging roar of the crowd... thumbs down> Or rape them with bone-crushing taxes? <surging roar of the crowd... thumbs up> _________________ Peak Oil Debunked
Joined: Oct 04, 2004 Posts: 5139 Location: Oklahoma
Posted: Fri May 09, 2008 8:28 am Post subject: Re: Americans to be banned from overseas oil trading
threadbear wrote:
Dude, Your first chart is off. Look at mine, in nominal terms, and adjusted for inflation. Also, check out the correction of price sometime in 2005 through 2006, back to around 50.00. How do you explain this?
His chart was also adjusted for inflation - it just goes a few months farther out than yours. Yours ends Dec. 07 and his ends May 08. _________________ "Every junkie's like a setting sun..." - Neil Young
Posted: Fri May 09, 2008 8:38 am Post subject: Re: Americans to be banned from overseas oil trading
Shannymara wrote:
threadbear wrote:
Dude, Your first chart is off. Look at mine, in nominal terms, and adjusted for inflation. Also, check out the correction of price sometime in 2005 through 2006, back to around 50.00. How do you explain this?
Posted: Fri May 09, 2008 8:45 am Post subject: Re: Americans to be banned from overseas oil trading
dinopello wrote:
Is anyone here arguing that the 5 year steady increase is due to speculation ?
Not me. Most of the last 5 years has been fundamentals. However, like Prof. Hamilton, I think financial distortions began to kick in hard about 6 months ago. There are good reasons to think so:
1) The surge since since late last year has affected not only oil, but also aluminum, barley, coffee, cocoa, copper, corn, cotton, gold, lead, oats, rice, silver, tin, wheat and uranium.
2) This surge has coincided with huge, rapid interest rate cuts by the FED, an unprecedented surge of speculative money into commodities, and a "dot commodity" boom mentality.
It strains credulity to the extreme to believe that all storable commodities are suddenly hitting a Hubbert peak in late 2007/early 2008. There are waaay too many fishy coincidences to swallow the "it's just supply and demand" theory of the last 6 months. _________________ Peak Oil Debunked
Posted: Fri May 09, 2008 8:47 am Post subject: Re: Americans to be banned from overseas oil trading
threadbear wrote:
cube wrote:
Like I said before the ridiculousness on this forum knows no limits.
If you want to see all hell break loose start imposing capital controls. That's what you're advocating JD.
History has made it very clear, there is no better "signal" of a collapsing society.
Happened in Malaysia, prior to the Asian meltdown of, I believe, '98. It was the only economy in that region to escape the currency roller coaster, triggered by the baht crisis, that destroyed most of the other countries in that region.
*cough*
I don't know about that threadbear (I'm not an expert on the Asia crisis) but I do know some countries got hit harder than others, for whatever reason. I think you're trying to over simplify things by just mentioning capital controls. I think there were a lot more variables than that.
Getting back to the USA:
If JD got his way and ALL his proposals were enforced, rest assured the US dollar would lose it's status as the world reserve currency. The dollar has strength because people have the freedom to do whatever they want with it. Once government steps in and starts telling people what they can and cannot do with their money then their money losses value.
Shanny, A "short term" spike down of around 40%, that lasted over a year, is the main reason I'm posting here. Does anyone have a good theory as to why this occured, in 2005 through 2006? It doesn't appear it is related to geologic peak, at all.
Posted: Fri May 09, 2008 8:58 am Post subject: Re: Americans to be banned from overseas oil trading
JohnDenver wrote:
....
As for the E-V-I-L thing, I don't have to go any farther than your sig to demonstrate that you're a subhuman scumbag, Jack.
.
I'm a speculator too BTW.
JohnDenver wrote:
....
Speculators like you are going to be great poster boys as the anti-speculator propaganda gears up.
It's okay I can live anywhere in the world. So long as it has internet access I can apply my "trade".
I'm an American but I'll gladly accept payment in other currencies aside the US dollar.
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