Thursday, April 5, 2012

Oil Speculators Still Playing Us for Fools!

Oil speculators ....getting ready to make their bids for higher cost oil! Can these clowns be controlled?

It was Kevin Phillips, in his superb book Arrogant Capital, who first noted that whenever an empire or nation is in decline, rampant speculation preceded it. Gaming and the creation of dubious speculative devices dominate over all else and drive the economy, even as manufacturing real goods plummets. Such was the case with the 16th century Dutch, as with the British at the end of the 19th century.

It is as true today in the U.S.A. The problem is that speculative enclaves are mostly hidden away from public view, so they are able to conduct their shenanigans beyond the scrutiny of the public mind. G.P. Brockway (The End of Economic Man, Harpers, 1991) has noted that before about fifty years ago one had roughly equal 'productive' and 'speculative' economies based on Main St. and Wall Street, respectively. Real productivity kept growing because real investment was made in hands-on materials, plant, research and labor.

Sometime after Reagan was canonized, in the 1980s, the speculative economy (which up until then had been kept in the background) began to take control. Much of this became possible through de-regulation, especially of the banking system. The effect was to shift enormous volumes of capital from Main Street to Wall Street.

Now, as oil prices spike to absurd highs, pack rats of inept economic morons on the Right continue to hold Obama responsible while if they had any sense, their attention ought to turn to the commodity "traders" .....errr....speculators. (See graphic attached - of a couple of oil speculators in their bunny ears)

By some independent estimates, up to 30% of the current per barrel price of oil is due exclusively to speculation by individual as well as institutional traders in the oil commodities market. (Alas, these institutional outfits include pension funds, who put their members future welfare and livelihoods at grave risk especially if the oil prices should crash) .

Here is the real absolute fact: THERE IS NO SUPPLY PROBLEM!!!

Even if Obama opened up the strategic reserves, and then drilled and fracked in every efing state of the Union it would not drive down oil prices, gas prices because they are detached now from supply and demand! They are rather being bid upwards by the speculators who see only higher gas prices and hence do ficititious "buys" to send the prices upward while not actually buying any physical gallons. One way they do this is to foresee Iranian problems at the oil spigot then saying "Hey! This means higher oil prices!" and then bidding them up.

This is much like Enron's shell game (in “energy trading” in 2000), wherein no real kilowatts were generated and moved. Rather kilowatts were shifted on paper and increased costs put on as the transactions crossed particular state lines (say from AZ to CA). In the same way, future costs of future oil are bid upon on PAPER by speculators, and these amounted to something similar to auction bids. "One twenty -five! Do I hear One-twenty-five! Yessir, you over there! Got it! One thirty! Do I hear one thirty!..."

The difference is that in the hidden commodity-energy auction, unlike an actual auction for a real barrel of oil at say, Sotheby's, every manjack pays the final bid! So imagine this room, where dozens of commodities speculators ("traders") are bidding on a future amount of oil. The bidding begins maybe at today's market price, say $100. Then some guy yells out: "I bid $104"! And another bozo in the back yells: "I bid $114!" And it finally ends when some clown in an Armani custom-made pinstripe suit bids "$120".

Does he purchase it? Well, only in a hyperbolic way. You see, rather than paying the full price as a real bidder must, say at Sotheby's, the oil trader has margin requirements in oil futures that are often as low as 5%. This means he need only put up 5% of the total cost of the amount bid! Would that all auction bidders everywhere had such a grand deal!

By one estimate the price of gasoline has nearly 50 cents arising from speculators in the commodities markets due to their fiendish moves, and that may be an under-stated. (The speculator burden could well be as much as $1 per gallon in states like California, Alaska).

This has led some observers to suggest that Obama at least threaten to release the strategic reserves (thereby inclreasing suddenly the supply) just to "spank the speculators". However, I am not sure this could work and calling bluff is never a full solution.

What we need is for the Commodities Futures Trading Commission to get tough and lower the boom on all oil speculation. A first step is taxing each transaction, or putting a surcharge of $1 on each such move. Make the bastards pay for what they're doing to the rest of us....through the eyes, nose and even those fucking bunny ears!

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