Are oil speculators the cause of sky-high gas prices?
U.S. Senators must think that market speculators are the reason why gasoline prices have skyrocketed in recent months. They voted 94-0 on Tuesday to move ahead on legislation to curb speculation in oil markets. Few expect anything to come of it.
The Senate bill would require the Commodity Futures Trading Commission to set limits on trading in oil markets by investors and speculators and close a loophole that allows speculators trading on the London oil market to escape scrutiny by U.S. regulators.
But the majority say the bill will only end with both parties blaming each other for not doing enough to combat this summer’s $4-a-gallon-plus gasoline prices.
House Speaker Nancy Pelosi, D-Calif., says in the story that she won’t let the House or any of its committees or subcommittees allow a vote on offshore drilling. She and other Democrats say the oil companies should first look to areas offshore and in Alaska where drilling is already allowed.
But despite another round of huge quarterly profits, giant oil companies such as Exxon Mobil and ConocoPhillips insist they’re trying to find new oil that might help bring down gas prices, but the money they spend on exploration is nothing compared with what they spend on stock buybacks and dividends.
But that’s not true, according to a report by Rice University’s James A. Baker III Institute for Public Policy.
The report says that the five biggest international oil companies plowed about 55% of the cash they made from their businesses into stock buybacks and dividends last year, up from 30% in 2000 and just 1% in 1993. The amount the companies spend to find new deposits of fossil fuels has remained flat for years, in the mid-single digits.
Are oil market speculators really the cause of our high fuel prices? Or should we be forcing big oil companies to use larger portions of their huge profits to find new sources energy, be it oil, solar, nuclear or wind power – or something else?
They better hurry up and pass this…otherwise they won’t be able to claim credit for the fall in oil prices we’re seeing right now.
The bill won’t really do anything–speculation will still be legal in London. Their supposed oversight of groups that trade there isn’t meaningful enough to curb the market’s ability to set a price for oil.
Not that it really will do much anyway. Prices go up and down over the long term because of fundamentals. Speculation doesn’t change the fact that it’s becoming harder and more expensive to meet the world’s demand for oil.
If oil were really $50 higher than it should be, every speculator in America would be betting against oil. The price of oil is high because of supply and demand (and perceived worries about it).
If big oil companies really thought it was worth it to invest in finding more oil, wind power, etc. they would do so. They’re spending billions to find new sources of oil and gas when they have the right opportunities.
Companies pay dividends and buy stock back because they don’t have the ability to spend that cash on profitable investments. The massive growth in payouts to shareholders is a symptom of big oil’s biggest problem–Exxon, Chevron, et al have a lot of trouble accessing new oil fields. Many of the places they’re allowed to drill for new oil are in rough terrain (such as under thousands of feet of water) or in places where the government isn’t exactly shareholder friendly (like Russia).
The profit margin on a gallon of gasoline is the same as the margin on a bottle of Budweiser. Their profits come from scale, not pricing power.
It appears that it is according to many analysts in that industry. But speculation on the mineral rights of massive amounts of lands are another issue. It is so silly that we are talking about opening up more lands when so many leases are traded back and forth in a speculative manner with no drilling going on. It’s a shell game that many in those twin towers perfected at your expense. The reason you are noticing it more now is that the rest of the world simply wants its rightful energy share. I just saw yet another news report about electric cars that was so dated about the technology available today. The black energy interests keep putting out propaganda to keep alternative PROVEN cheaper energy technology at bay. So anti-american they are!
Gas prices will go down…………
Oh boy, Congress and oil issues. The same outfit that claimed prices would drop if topping off the strategic reserve was stopped. Well it was and prices still went up 15 percent. Oops. Wake me up when the next Congress and President are sworn in because this bunch is as slimy as an oil slick.
Watch it.
Learn it.
Live it.
http://www.youtube.com/watch?v=_hi3VvIeAUc
Anyone who can look at what happened in Californias energy market in 2000 and Enron’s role in that debacle and say “it wasn’t deregulated speculation” is, quite frankly, a buffoon.
“Artificial shortages. Bogus deals. Total market control”. Indeed. Sound familiar?
In 2000 and 2001 energy prices in California TRIPLED because of speculation in a deregulated market. Remember the blackouts and the rage? Read a book titled “The Smartest Guys In The Room” (or watch the movie) and know the truth.
What’s happening in the current oil and natural gas markets is the exact same, and was engineered by the exact SAME PEOPLE. Lobbyists from ENRON are the ones that lobbyed for the LOOPHOLE in the CFMA (in 2000) that deregulated the current oil market and allowed the orgy of speculation you are seeing now. On The Hill they are calling it THE ENRON LOOPHOLE.
Schucart himself admits that most of the oil companies profit margins are going to STOCK BUYBACKS. Why do you figure that is?
There are TWO types of people who deny the truth of oil speculation.
1. “Flat Earth” types that aren’t educated on how the market’s work and lack the common sense to work it out for themselves.
2. “Gordon Gekko” types that truly believe that “greed is good” and admire and defend the behavior that is a) ruining our economy b) enriching countries which do not have America’s best interest at heart and c) hurting people. These people are the intellectually dishonest ones that KNOW the truth, and still smirk and scream “SUPPLY AND DEMAND!” when confronted with the unethicalness and cruelty of their positions.
Mac
http://www.brownsludge.com
Almost every analyst believes speculation is driving up prices, the only debate is by how much. Personally, I think any amount is too much – common sense regulations need to be re-applied (yes, the stops were removed) so we can slow this runaway train.
What strikes me as twisted is that the same people who will use military force to maintain a steady supply will fight tooth and nail to allow speculators to disrupt the demand. I hope the Congress will be able to reign in the worst abuses, but with this much money at stake, I’m not optimistic.
These oilbusinessmen are such liars. The government have given them a load of money (grants) for the purpose of drilling and they have placed that money into their bottom line profits. Why aren’t these oil executive businessmen prosecuted?
Oh, by the way, don’t you all realize the price of oil fell because Bush annouced that he was lifting the bans on off-shore drilling? (LOL), Right Si, where are you?
One last thhought, I think that our country, THE GOVERNMENT, because of oil being such an important and neccessary comodity, this country should take back their leases from these oil companies, place these oil companies completely out of the picture and go into the drilling oil business.
This is just plain non-sense. Oil should become government jobs. No country should depend on greedy businessmen for something so neccessary to their country and the world.
Retirement, security, food, housing, education, healthcare, oil…..is there anything else that the government should be responsible for DWalk?
Geesh this country is in trouble.
Are oil speculators responsible for high oil prices? About 5% responsible. Consumers are 60%, Government 35%.
Amazedbythelunacy,
I see that you would rather continue to place faith and hope into greedy oil businessmen and corpprations instead of the government where the people would have much oversight.
You really are blind.
Mac–the problem with comparing this to California is that prices didn’t spike anywhere besides California. It was clear that the price increases had nothing to do with a shortage of energy or the cost of doing business.
There’s real evidence that oil supply is tighter. Go read the EIA update on oil supply and demand–in general, the only place in the world with any excess supply is Saudi Arabia. That’s very different from 10 years ago.
There’s also real evidence that companies are investing in oil that is harder to get out of the ground. The “break even” point on projects begun by oil companies has increased steadily over the past few years. Look at the billions of dollars being spent on oil shale–Big Oil wouldn’t be spending billions on such a tough source of oil if it knew the real market price was something materially lower than what it really is on the NYMEX.
D. Walker–should we nationalize all of our farms, too? Since food just as vital to our lifestyle and its price has also shot through the roof.
Just FYI, the energy shortage in California was because of two things: 1) All the environmental lawsuits holding up the construction of new power plants, and 2)the fact that the business was not COMPLETELY deregulated. California “deregulated” the market but did not let higher costs get passed on to comsumers, so when prices went up for the companies there was no way to pass on the cost to end users. Therefore the end users had absolutely no reason to conserve power because it was still costing them the same. The classic populist price control idea that has ruined whole nations like Venezuala and Mexico almost brought down the power grid in California. That is why oil prices are dropping because people DID have a reason to use less gas when the prices went up and, just as supply and demand dictates, the smaller demand for gas (as a percentage smaller than the month before for the last several months according to AAA and other organizations that track gas usage) has started pushing oil prices down.
It’s simple economics, EXCEPT when states like California take away market forces on the end users of a product.
D Walker is apparently a communist. Should we take the land away from hospitals too since medical care is expensive, D? Google populist price controls and read about how your line of thinking has destroyed the economies of whole countries…
Paul,
The answer is NO. The situtions are totally different. For example there are enough ordinary people here who can grow their own food, barter crops and sell them among one another, communities etc.., we really don’t have to have commercial farmers if it ever had to come to that, NOT THE CASE WITH OIL. Doesn’t take much common sense to see and understand this, and is why I am so puzzled that you would even ask me such a question.
Tim,
America has a history doing just what you have asked me, JUST TAKE WHAT WE WANT! But, no I do not agree with this. You do realize that the land I speak about for drilling by the governement already belongs to the government and the oil companies only lease this land. Now they (the oil comapny) want more of it and has done nothing with what the government have already allowed them to have.
But the truth be told, it is not the oil companies desiring this off-shore lift, but Republicans making it an issue, like they did abortions in 2000. Oil companies are not even interested in off-shore drilling. What a stupid joke!
You guys certainly do not know much, do you?
Perfect illustrations.
Again… I assert :
Only two kinds of people deny the impact of speculation on the oil market.
1. “Flat Earthers” who are just too uneducated on the issue to fully understand it :
like Paul :
Uhm… that would be because California was the first and only state to deregulate at that time. As my daughter would say… “duh”. If you had taken the time to educate yourself a little bit - you could see that in NOT ONE of the states that have fully deregulated electrical energy has the price actually gone down - on average - they’ve MORE THAN TRIPLED since deregulation.
Paul isn’t dishonest. He’s simply a “flat-earther”. Uneducated and unwilling to learn the truth because it conflicts with what he wants to believe so deeply.
Tim… on the other hand… knows the truth - but is intellectually dishonest.
Despite the conviction on Federal charges of Enron executives and despite the 10’s of thousands of newspaper articles, books, magazines, and headline news stories explaining the California energy meltdown - Tim insists on screaming “SUPPLY AND DEMAND!” in shrill tones - not because HE believes it (he doesn’t) but because he needs YOU to believe it (we don’t).
Energy prices for consumers in San Diego (the first county in CA to be hit with the new laws) TRIPLED in ONE BILLING CYCLE.
Tim in uninformed, in addition to being intellectually dishonest.
And… as if you needed on more shining example of Tim’s shocking level of dishonesty…
That just… pretty much speaks for itself.
Mac
http://www.brownsludge.com
The IEA
D. Walker said :
See Mr. Walker, this is the problem.
The Republican Party, MY party, has been taken over by people like this. It’s becoming increasingly difficult to find an AUTHENTIC conservative who hasn’t bought into the Gordon Gekko “greed is good” pablum that so pervades the party.
Real conservatives, “authentic” conservatives, care about people. They want the government out of EVERYONE’s business, not just Corporate American’s business. It bothers a real conservative when American jobs are shipped overseas and when American interests and economies are damaged. They have a sense of pride in their country and they don’t want to see it sold to the highest (foreign) bidder.
The sale of A-B should be a wake-up call to everyone who considers himself or herself a “conservative” - because it is a perfect example of what happens when we as conservatives worship at the altar of the false god of the “global economy”.
I know I’ve said this before, but you will see the great ‘correction’ to this come this fall, when we are thrown out of the White House and BOTH houses this November. The gubernatorial outlook is pretty freakin’ grim too.
Which is a good thing really. Once the party has sort of been “purged” of these men of low intellect and the libertarian poseurs - the conservatives will have to begin to put the American PEOPLES interests first - or they will face political obscurity - (can you spell WHIGS?).
Then you and I can go back to arguing about abortion and the place for unions in our nation and the other classic left/right squabbles.
Mac
http://www.browsludge.com
Mac I usually respect you and your arguments, but you are way off base on this and are guilty of either out and out lying to make your point or completely unable to understand the reasons behind the California Energy Crisis. Read and learn:
The state of CA, expecting energy prices to decrease as a result of deregulation, wrote into the law a cap of energy prices at the pre-dereg price that could be charged to end users. But, to avoid energy disruption, they ALSO wrote into the law that utility companies were required to buy electricity from spot markets at uncapped markets when demand outgrew available supply. Also, the price cap became a disincentive for companies to fight the lawsuits on new plants since long term prices were capped and recouping those costs proved impossible.
When the demand outpaced the supply in 2000-2001, and no new plants coming on line, companies had to buy their extra power on the open market but still could only charge end users that mid-90s fixed rate. Since the end users had no reason to curtail usage because they were paying, at most, the ceiling rate from the mid 90s, the demand for power did not decrease. When Enron and others manipulated the open market, it caused havoc. The bankruptcy of Pacific Electric and the PUBLIC bailout of SC Edison were some of the results. (How much did that cost taxpayers verses raising rates to curb usage I wonder?)
You mention San Diego. Prices went up, but only as high as the FIXED ceiling rate set in the mid-90s! Prices had initially gone down once deregulation hit in San Diego so producers could still raise rates some. But, again, consumers in the entire state were never charged rates high enough to curtail usage.
This, Mac, is why it was not COMPLETELY deregulated, and those populist price controls were partly to blame.
Gas prices, meanwhile, are set on a free market. Do you want to know what “speaks for itself”? From MSNBC.com business section today: “Wednesday, when oil tumbled $3.98 to settle at $124.44 a barrel, its lowest finish since June 4. Crude has fallen in six of the previous seven sessions, and is now trading nearly 15 percent below its peak above $147 a barrel earlier this month”. Also, “Americans used 2.4 percent less fuel over the past four weeks than they did last year, the latest figures by the Energy Department’s Energy Information Administration show. While that may not sound like much, industry experts say it represents a significant shift by the world’s largest energy consumer.”
AAA tracks gas usage also, and reports decreases every month for the past several months. Check their website for confirmation if you like.
It’s uninformed and intellectually dishonest for you to comment about economic issues when you obviously have no clue what the data means or how to interpret it. Too much brownsludge between the ears methinks…
You’ll notice that Tim never speaks to the facts. Ever. He never once addresses any fact given in my previous post. He simply continues to post the same data from the same Wiki page over and over and to scream “SUPPLY and DEMAND!” at the top of his lungs like a frightened woman.
Said the guy who is trying (with a STRAIGHT FACE) to convince people that Enron was able to triple energy bills in California because the market wasn’t regulated ENOUGH.
ROTFL.
Laugh… I thought I’d die.
Never… ever… wonder why the Republican party is going down to a historical, stullifying, ignomious defeat this fall. It’s because of libertarian poseurs like Tim. While people are being exploited and caused to suffer real damage by unethical and predatory practices - people like Tim like to sneer and scream that it’s “SUPPLY and DEMAND!”.
As I stated before: California’s energy bills TRIPLED. Overnight. That’s a fact that any sixth grader with an internet connect and a rudamentary knowledge of how to “google” can look up. The fact that they were ‘capped’ as Tim keeps reposting from the same Wiki page meant very little to the poor, elderly, fixed income, and small business people who were bankrupted by the treble increase.
They TRIPLED because of what Enron did to manipulate the market. Anyone trying to argue that fact is… well… in a place where they simply can’t be helped I’m afraid to say.
Here is a little exchange between the energy traders at Enron - laughing about the energy companies who wanted their money back - caught on tape and a matter of public record :
These are the people and the behaviors that Tim admires and is trying desperately to defend.
Another fact that I stated that Tim just ignores is the fact that deregulation has resulted in higher energy bills in every state that has allowed it.
http://www.usatoday.com/money/industries/energy/2007-04-21-electricity_N.htm
Read that and learn.
Tim also states that oil is traded under a “free market”. If Tim had ever spent a day in an economics class he would have learned that we do not have an unrestricted “free market” economy in the United States. We have a “mixed” economy - where the government is partially responsible for making sure that the market’s aren’t gamed or manipulated unfairly.
And this what REALLY chaps Tim’s behind.
Because if he and his other libertarian buddies had their way - there would be NO government oversight of ANYTHING.
His statements that Enron was allowed to rip the people of California off because the market was only PARTIALLY deregulated stand in absolute testimony to that truth.
Interestingly enough - congress has acted recently to stop up the Enron Loophole, and the thing that every reputable financial publication from Money and Fortune to the Wall Street Journal has called the SPECULATIVE BUBBLE has began to pop.
But you keep screaming “SUPPLY and DEMAND!” like a little girl Tim. Perhaps someone will believe you.
I don’t.
And the people who USED to vote Republican don’t any more either.
They see what the deregulation of healthcare has done to that system and what deregulation is doing to the energy markets and know that they simply can’t afford to buy the lie anymore.
Mac
http://www.brownsludge.com
Mac,
Once these people are purged from the Republican Party, I will try my best to keep an open mind. These people have caused much trauma to the psyche of many of our citizens, including myself.
The moron (you can’t drill anywhere) DEMOCRATS
are the real reason for high gas prices…..Grrrrrrrrrr
Mac, you insulted me and pretended to rebut me while ignoring my main point. That’s impressive.
Until you can explain how a one state’s increase in prices when the rest of the world had comparably stable prices compares to the change in prices for the ENTIRE WORLD’S OIL MARKET you have a useless comparison. All you have explained is that California did an extremely poor job managing their electricity market relative to the rest of the world. Congrats on making such an obvious point.
Yes, speculators are driving the price of oil sky high, and they know it. But it was congress that allowed them to do this by repealing certain laws back in 2001/2. American Style capitalism of let the markets decide is like letting criminals decide whether they should rob the 711, or the bank. Unless you have rules, American style capitalist will do whatever they want, as long as they can make a profit. Capitalism without rules may have made a few in our country very wealthy and very profitable, but its destroyed 1000 times more than its helped. There needs to be laws to protect people from the natural tendency to let greed take over for morals and ethics. Like it has in politics.