Very Simple. Take out the speculators.
Make it a requirement that only thosewho actually are hedging theiruse and sale of oil and gas are able to buy and sell oil and gas futures.
It’s that simple. There is plenty of liquidity in place, the market won’t miss the speculators and prices will go down.
It amazes me that while watching all the talk about oil prices on the QVC for stocks channels, that no one I have heard has talked about the role of speculators. They think it’s a problem for housing, even though 70 pct or more of new housing purchases arehomes for the buyers. For some reason the “pundits” seem to think that price movements are driven purely by supply and demand for the commodity. What nonsense.
That’s like saying no one ever speculates on stocks. That speculators had nothing to do with the internet stock bubble.
Speculators influence the prices of oil and gas as much as they have impacted the pricing of TASR and TZOO
Doesn’t anyone remember all those ads on TV that talk about the huge profits that could be made in commodities? The ones we all knew were rip offs? Well, they haven’t disappeared. They are promoting the hell out of how much money can be made in trading oil and gasfutures.
Does any remember momentum “investing” that drove up the price of stocks in the late 90s, early 2000? Well momentum speculators are alive and well and they are all over the oil and gas pits and electronic exchanges. Just do a search on E Mini Crude Oil or trading futuresfor a sample of those that are happy to help you speculate on futures. I know that any day now Stuart is going to be back in a commercial telling his boss its time to “Light that Candle” and trade futures.
Day trading in oil and gas futures. You better believe it. It’s alive and well.
Want to jump in and day trade? Just try the E-Mini Crude Oil Futures. Like the brochure says, “Volatile energy prices make for some terrific trading opportunities” And for the truly excitable, you can trade them electronically 24 hours a day. Now that’s whatI want to see Jim Cramer do :).
The Chicago Merc has training seminars, or you can really get a trading edge from BreakoutFuturesTrading systems…one of the many “systems” to help you spend your speculative dollar.
It’s just as easy to speculate on oil and gas as it is to speculate on stocks.
Unfortunately there is one HUGE difference. With stocks, the company’s whose stocks are being bought by speculators can manufacture and distribute through secondaries and employee options and acquisitions as much stock as the market wants to consume.
The list is long of companies who have sold more in stock in a year than they had in revenues in that year. Heck, you can find companies who have had insiders sell more in stock than they had in revenues. At some point the people last in line tobuy all that stock are the losers. Just like in a ponzi scheme. For better or worse, they are the victims, butthe wounds are self inflicted. They bought nothing but the right to sell that stock in hopes of selling it for more and it didnt work out.
With oil and gas its different.There is a finite supply at any given point in time. The current and future availability of which can be impacted by any number of issues, from natural disasters to man made events. When enough speculators come in and start going long, it drives up prices not of a piece of paper, but of products whose pricing impacts me, you and everyone we know and don’t know.
When a bunch of “momentum speculators” jump in trying to make money off the price movement and push up the price, everyone in this country is the loser with higher gas and oil prices.
It needs to stop.
Then gas and oil prices will come down.
Are this correct, people going out buying oil stock prices at a higher amount increase the price of oil per barrel, so increase our amount and put a bigger profit in the oil company’s pockets. Like you said, “Somebody thinking the hurricane is going to hit certain parts of America, people bought stock at a higher price, and then caused a trickle effect on us.” How do oil companies get to increase the amount of gas because the stock price increases? I work for Software Company and when the stocks go up we don’t increase the price on the software. The department I work for looks for ways to decrease the cost. Do they oil companies make contracts with the people over in other countries on how much they pay a certain amount per barrel? Let me know, just making sure my thoughts are right.
Comment by Tiffany -
http://www.adzforgas.com advertise on your car and get paid. 50+ a week. No money from you EVER! No sign up! No junk mail! No change in you schedule! There are a few requirements like you have to drive a certian amt of milage per commute and you have to drive in populated areas, but it’s all common sence stuff.
Awsome company….new…but awsome! Oh, did I mention it’s mine?!?!? LOL
Please check us out. We’re new and we could use your support! (^_^)
Jamie
PS – The site that is currently up is a temp site. The perm is in the works and should be up within the week! Very Excited About That!!
Comment by Jamie -
There was an interested article in the new york times that talks about how we should be happy about higher gas prices due to less traffic.
LOL sad part is he has some strong points such as less cars means slower global warming, less traffic jams allowing us to get places faster, less chances of a car accedent lowering out cost of auto insurance.
I found one website called http://www.GettingFreeGas.com that will pay up to $2,000 a month in free gas in exchange to sell advertising space on your car. Very cool idea and all you have to do is drive like you already do!
Comment by Derek Seymour -
If we want gas prices to go down ……stop driving one day aweek. If every person would stop for one day ….the prices would go down.
Comment by Catherine -
Can someone please provide the names of the \”American\” gas companies. As I\’m paying $3.50 – $4.00 a gallon, I\’d like to keep the money here in America. Thanks
Comment by Glenn Faircloth -
Here is a poll asking: Would you be willing to pay twice as much for a gallon of gas if we stopped buying oil from Iran and Iraq? I\’m thinking no, but here is a link to vote: http://www.apopularitycontest.com/display_poll.php?ID=4757
Comment by Rob -
An Easy fix is to regulate the market. Period. Government deregulation of key industries has only lead to wide spread price gauging. Does anyone Remember enron? Without regulation the oil market all the american public will see is wide spread inflation.
Comment by mike -
Perhaps Mark. I think we need two more refineries built. But, that aint happening. The oil companies won\’t build refineries to lower their prices. I drive a Honda Civic year 2000. Some friends give me crap for it, but I don\’t care. I get good gas milage. I also have more money saved and invested than my friends who make twice as much as me.
Comment by Jon -
I have talked to a couple of attorney\’s and the common thing that they said is a couple of years ago, Congress passed a law \”allowing monopolies\”, where for years there was a law against it. So that being said, what needs to happen is this. \’We the People\’ need to petition Congress to \’repeal\’ the law that allows monopolies. There by, OPEC would have to disband allowing true \’competition\’ instead of \’cooperation\’ among the oil companies.
Also, \’We the People\’ need to start a \”Class Action Suit against all oil companies, because; \’We the People\’ contest that all oil companies are \’Price Gouging\’. How else can they explain their admitted Exorbitant profits? (i.e.: Posted IRS Tax Returns of $65 Billion in Profit for the first quarter, thats just Exxon/Mobil)
\’We the People\’ also contest that the U.S. government has allowed this blatant abuse of their people, by the oil companies, by not controlling the price of the gas, especially after the natural disasters that we have experienced, and this never ending war on terrorism. There hoping that with all of the \’distractions\’ that \’We the People\’ will just be to busy trying to figure it out that nothing will happen.
\”We the People\’ need to \’Stop\’ for a minute. Think about this if \’We the People\’ do not do something then what about our children, grandchildren what will they see they will see a generation that does nothing and they will be subject to the same abusive government that we are. We all learn by example. What happened the last time \’WE THE PEOPLE\’ were fed up with the way the \’GOVERNMENT\’ was treating them or allowing them to be treated.
I will ask this; If you feel the same way, PLEASE blog this every where. WE THE PEOPLE\’ need to unite.
Comment by Tim -
get $100 worth of gas for $25 – No Catch – Advertisers pay for your gas!!
Get $100 worth of Gas for $25 – No Catch
Comment by wendy -
The Boston Tea Party was a protest by the American colonists against Great Britain in which they destroyed many crates of tea bricks on ships in the Boston Harbor. The incident took place on Thursday, December 16, 1773.
The New Boston Tea Party 2007. This time we will not disguise ourselves as Mohawk Indians as the colonists did. Think of each oil company as one tea crate. We will stand together, America men and women and throw the biggest tea carte over board marked Chevron U.S.A. and see what happens.
Not buying from one oil company will show the rest we can not be pushed around anymore. Boycotting one day a week spread over all the oil companies does nothing.
We still want our system to be free so regulation may not be the answer but we do regulate our utility companies and there must be a reason for that.
Dont count on our elected politicians to help. Its all lip service. Allot of them are accepting moneys from the oil companies and they will be repaid in favors.
Pitiful but thats our system.
Comment by Dave Craig -
What is with the recent fall in gasoline prices? I was paying upwards of 3.20 per gallon and all of a sudden for no reason It’s fallen to 2.87. Great of course but I’m wondering what that reason is. Especially since the news reported oil prices over 72/barrel on monday. The market really has no rhyme or reason to it at all.
Mike
Comment by Screenplay Software -
If we really and truly are a community that can effect change and more importantly WANT to effect change then we should do the following:
Blog everyone you know – phone everyone you know- email everyone you know and tell them to reduce their driving by 25 miles per week.
Now for the math geeks out there they can contribute with the math. But if we averaged the car/truck mpg to 25 miles per gallon of gas and we had 100 million cars/trucks on the highway and we did this for a month……
Who do you think would be crying the loudest – not Exxon, BP or any of the Oil companies but the TRADERS the SPECULATORS. Let them know that we consumers can effect change and most dramatically.
So lets all do our part and change the driving habits of Americans.
Comment by Marianne -
I dont understand all this gasoline sales…all we nee is an alternative syater for gasoline & it can be done but I think Big Oil blocks that path. I saw alternative sorces on TV 7 months ago & one was a French auto that got 300 miles on a tank full of COMPRESSED AIR! can be refilled in five minutes what happened to this news??? Big Oil buy up the rights & buried it?????
Comment by ray patrick -
I never brought up the zero sum game argument, I am talking about the fact that price discovery in oil futures is more representative of true supply and demand (and hence the true price) more closely than practically any other commodity out there, but the zero sum argument proves my point even more. In your laughable ice-cream example, there are only people betting that I will pay more.
Comment by runescape money -
I notice many people blaming taxes on the price of gas, but forgetting what these taxes sometimes go to fund- like the subsidized health and public transportation systems of europe.
Comment by wow powerleveling -
We can do a little to slow the flow and help the enviroment buy using fuel additives, and fuel extenders. Ferox gas pills work. feroxgaspills.com
There are substantial new oil finds in the US.
Comment by Mark Madsen -
crude oil prices are trading +58 cents posted a new record high of $78.40. Oil prices extended the rally as Israel today continued to pound Lebanon. Bullish factors included (1) the Israeli military attacks on Lebanon, Hezbollah rocket attacks on Israel and dicussion about the extent of any involvement by Iran and Syria, (2) Nigerian newspaper reports of rebel attacks on oil facilities in Nigeria although European-oil-company Uni SpA denied the reports, and (3) carry-over support from Wednesday’s bullish DOE inventory report (crude oil inventories -6 mln barrlels, gasoline inventories -426,000 barrels).
Comment by commodity broker -
crude oil prices are trading +58 cents posted a new record high of $78.40. Oil prices extended the rally as Israel today continued to pound Lebanon. Bullish factors included (1) the Israeli military attacks on Lebanon, Hezbollah rocket attacks on Israel and dicussion about the extent of any involvement by Iran and Syria, (2) Nigerian newspaper reports of rebel attacks on oil facilities in Nigeria although European-oil-company Uni SpA denied the reports, and (3) carry-over support from Wednesday’s bullish DOE inventory report (crude oil inventories -6 mln barrlels, gasoline inventories -426,000 barrels).
Comment by commodity broker -
The real reason for the jump in prices is related to supply and demand, but not so much the traders. The reality of the situation is that for the 50 states, there are something like 12-15 different standards for petroleum refining. If we would all put a collective boot up our politicians’ asses, then maybe we could all get on the same page. Additionally, we haven’t built any new refineries in this country in over 20 years. We have the ability to import more crude oil on a daily basis than we can process – which prevents us from “buying in bulk” to the greatest degree possible. Also, due to the fact that environmental regulations necessitate the adding of ethanol to gasoline, we cannot pipe it – we must move it by truck. Pure gasoline will not absorb water, but float on top of it. It’s impossible to keep water out of pipes. Adding ethanol and then piping means the gas will absorb the water and be ruined. We should have regional/local stations where ehtanol is added AFTER piping and it would be much more cost effective to move it around and get it to the end user. Still further, we are not drilling into our OWN oil supply here in the U.S. If we would start driling in ANWR and in Colorado and more in the Gulf then we would be less dependant on foreign oil. Not to mention the more we get on our own, the more the Arabs will think about lowering their own prices. Don’t blame the traders, tell your politicians to FIX IT!
Comment by T.J. -
I have success trading and speculating in the energy markets. Just watch the momentum and go with it. I trade and use the charts at United Futures Trading http://www.unitedfutures.com and have had quite a profitable year. If your worried about prices going higher, hedge your needs with a futures option contract. Everyone hates the energy traders, but anyone can participate in trading the markets.
Comment by Rick Spears -
How to lower gas prices for good.
1. Boycott and do not buy any products produced by the greediest oil company or any products produced by compaines controled by the parent greedy oil company.
2. ExxonMobil is an excellent target.
3. They will have a surplus of product and would be forced by the consumer to lower their prices and others would likely follow.
4. If prices are inflated again, boycott again.
Pershaps the second greediest oil company if the first company yells wolfe to the Feds.
5. It’s time for the American Consumer take advantage of their buying power and unite to stop greed of the good ole boys.
6. If you agree with these suggestions quit ExxonMobil, past the word along to do the same.
Comment by Roger Stafford -
As a commodities trader, I am constantly bemused by the blame which the media heaps upon my profession. Some speculators buy, some sell, all depending on their market outlook. To blame speculators for current prices is just naive.
Comment by The Edge -
I just read a really exciting article about a way for the country to reduce it’s use of gasoline: “Promote better driving, not CAFE laws”
(http://www.roanoke.com/editorials/commentary/wb/wb/xp-69740)
The general idea is that if consumers knew the impacts that their driving habits have on fuel efficiency, they would drive slower, less eratically and save a lot of gas. MPG indicators in all new cars, Reisinger posits, would be a great way to ensure that consumers know how speed can affect fuel efficiency. I think that it’s possible to increase fuel economy over 30% just by changing the way you drive.
I am sending the article to my senator.
Comment by Hot Rod -
Ways To Keep Fuel Costs Down.
Are you tired of high gas prices? Sick and Tired of Gas Prices going UP ? Are you concerned over the HIGH GAS Prices And where they’re going from here. Gas prices shoot up, come down, it’s a crazy game we’re never going to learn how to deal with. Here’s a site that will probably help prevent you from driving off a cliff.Come to my blog and lets talk about it !
I will show some you can save on gas. Please let us know how you save on gas too!
come one come all come and find out to save money on using gas . http://saveongasnow.blogspot.com/
Comment by scott -
One side wins and one side loses, but those brokers always get their cut. Anyways, Pat R that is a unique idea given that they have the size required and the huge potential savings. Why don’t any of those companies go on their own rather than blaming their poor earnings on gas prices. If one more company/person complains….try to catch a ride with someone or take the bus. Until that happens the people complaining don’t deserve an opinion.
Comment by Generators -
Getting the aeronautical industry to adopt and adapt to vegetable oil for their jet engines would certainly provide much needed boost for the airlines, and reduce fuel emissions spread around the planet.
If autos can use it, why can’t airplanes?
If it runs cleaner, and does the job as has been claimed, that proposal may be one that consumers think is worth investing in to keep from remaining grounded, and to further deregulate airline charges. Actually, if it can work, consumers should demand it as the best possible function of public-private partnerships by government.
Comment by Pat R. -
Your blog is “spot” on. (pun intended)
The speculators are the #1 problem with current oil prices. The players who caused the internet bubble have moved to futures.
The #2 problem is Big Oil. They have tried to restrict supply the force the price up, but thye have not been that successful with it as others have been eager to jump in. They do use the futures markets to their advantage. They only release a percentage to the spot for pricing purposes then reap the huge markups on the vast quatities they still have in possession.
The # 3 problem is demand. People do not conserve. Yet, where is the leadership on this? I have not seen a single word spoken to people urging them to conserve or the ways to do it except from private concerns. If there was such a su[pply shortage that threatened the economic health of industry you can be darn tootin they would even be talking about the possibility of rationing. Yet, not a peep.
Comment by Jim -
I believe Americans still have what it takes to make a difference. We just need central location to collaborate and make our voices heard. Websites like fuelshout.com are a step in the right direction.
Comment by Damon Henry -
“Get your BOYCOTT EXXONMOBIL bumper sticker now!”
Kinda counter-intuitive, isn’t it.
How about riding your bike more instead and making it a “helmet sticker.”
Plus I don’t think Americans have the cajones to boycott anything anymore. There are too many people who I believe would be unwilling to make the necessary sacrifices.
Comment by Austen Holmes -
————–BOYCOTT EXXONMOBIL———————
Tired of being robbed at the pump?
Let’s all show our strength in numbers as consumers and BOYCOTT the largest oil company: Exxonmobil.
Get your BOYCOTT EXXONMOBIL bumper sticker now!
Visit http://www.lowergasnow.com
The 3”x 11.5” stickers are red, white, and blue, feature an oil drum behind a prohibitory circle, and the words “Boycott Exxonmobil Stand United”.
————————————————————————-
If we want to see prices lower we have take it upon ourselves to initiate change.
We need to act as a nation and show our strength as consumers.
The bumper sticker is perfect symbol to show our solidarity and serve as a reminder for the cause.
————————————————————————–
SPREAD THE WORD – STAND UNITED – STAY COMMITTED
Comment by mark -
We are not happy about the continue rising gas prices!! We do not think it is fair to the working class people who have to choose between which bills he has to pay each week!!We created a blog for people to sound off or to give ideas for cutting the costs of high gas & diesel prices!! Please NO hate literature-no porn or vulgar remarks!
Just go to my blog listed below and if you want to put a link to your website please email us the link and we will email back to let you know if will put it on the blog!
empireterran@yahoo.com
http://risinggasprices-cybermom.blogspot.com/
Comment by Rebecca Hubbard -
Gas prices is not an easy subject, there are many factors to take into consideration…not only speculators, not only the war…what about our “lovely” Hummers and SUVs..we are all guilty…(a little bit at least)
Comment by Tom -
2 weeks ago, I was given a product to try in my fuel and told it would increase my mpg by up to 19%. I tried numerous products in the past including the pills to no avail. Sure, they saved me a little money, but I was told this was better for the vehicle. After using it for 2 weeks (3 tanks of gas in my 2500 Ram diesel and 4 in my wifes Nissan Quest) I’ve gained approximately 12% in the van and almost 30% in my truck. She’s now getting 22mpg from 19 and I’m getting 31mpg from 22. Email me for more information at fightfuelprices@gmail.com
Comment by Marc -
Dave H,
You got one thing right. You are no expert.
************
Important! must read!! Make gas 1.79 by summer
We’ve all seen the emails to not buy gas on a particular day, or to boycott Exxon and Mobile. But, these will not work, because your level of gas consumption will not change, thus causing no overall price shift in the market. But, there’s a study being published this summer by two University of Chicago economists showing how if we buy more gas in May we’ll have lower prices from June through Septemember, just in time for vacations.
It’s based on what they call the “DVD example.” In 1998, a DVD player cost about $500, and hardly any were sold. But, from 1999 to 2002 DVD sales went up 78% each year, causing prices to go down to the $35 level they are today. It’s a simple economic theory – the more that is bought, the lower prices will go.
My comment:
Prices of DVD players (and computers and cell phones etc) decline in response to more competition and increased production from suppliers. As prices drop, more people buy the item (DVD players).
By contrast, the idea of boycotting a product in the hopes of reducing its price to the consumer is antiquated and been proven wrong. There are easy examples all around. For instance, the span from 1914 to 1919 in the US saw a rise in the cost of lobster due to many reasons. In protest, parts of the country boycotted lobster ENTIRELY – expressing that the boycott would end when lobster prices came back down. However, the smaller remaining group of lobster eaters had to pay more money to cover the costs of the lobster industry, and lobster prices have never returned to adjusted pre-1914 or even 1919 prices. As a result, lobster is now a delicacy that is enjoyed only by the super rich. Do we want gasoline to become a “luxury” item that working families can’t afford?
My comment:
I agree. Boycotts don’t work. Prices of gas and lobsters and everything are determined by supply and demand.
By applying this to gas today, if everyone bought 25% more gas this May gas prices would fall from the $2.99 level they are now to $1.79 by June 30. Some ways you can do this include filling up any extra vehicles you have, buying some gas cans and filling them up, and even by driving more! But, to make this work everyone needs to do their part to increase our consumption by 25% this May. Please forward this to everyone you know, post on your MySpace account, anything to help spread the word so we can enjoy affordable vacations this summer!
My comment:
If everyone bought more gas, the prices would rise. Supply and demand again.
My suggestion is that you enroll in the local community college and take Economics 101.
Comment by Kevin Y -
I had this forwarded to me a few times….I’m no expert, but it seems to make some sense:
************
Important! must read!! Make gas 1.79 by summer
We’ve all seen the emails to not buy gas on a particular day, or to boycott Exxon and Mobile. But, these will not work, because your level of gas consumption will not change, thus causing no overall price shift in the market. But, there’s a study being published this summer by two University of Chicago economists showing how if we buy more gas in May we’ll have lower prices from June through Septemember, just in time for vacations.
It’s based on what they call the “DVD example.” In 1998, a DVD player cost about $500, and hardly any were sold. But, from 1999 to 2002 DVD sales went up 78% each year, causing prices to go down to the $35 level they are today. It’s a simple economic theory – the more that is bought, the lower prices will go.
By contrast, the idea of boycotting a product in the hopes of reducing its price to the consumer is antiquated and been proven wrong. There are easy examples all around. For instance, the span from 1914 to 1919 in the US saw a rise in the cost of lobster due to many reasons. In protest, parts of the country boycotted lobster ENTIRELY – expressing that the boycott would end when lobster prices came back down. However, the smaller remaining group of lobster eaters had to pay more money to cover the costs of the lobster industry, and lobster prices have never returned to adjusted pre-1914 or even 1919 prices. As a result, lobster is now a delicacy that is enjoyed only by the super rich. Do we want gasoline to become a “luxury” item that working families can’t afford?
By applying this to gas today, if everyone bought 25% more gas this May gas prices would fall from the $2.99 level they are now to $1.79 by June 30. Some ways you can do this include filling up any extra vehicles you have, buying some gas cans and filling them up, and even by driving more! But, to make this work everyone needs to do their part to increase our consumption by 25% this May. Please forward this to everyone you know, post on your MySpace account, anything to help spread the word so we can enjoy affordable vacations this summer!
Comment by Dave H -
I recommend keeping the speculators. Commodity speculators like stock investors decide for themselves what they think the economic or intrinsic value of something is (whether a barrel of oil or a share of a company’s stock). They then factor in supply and demand, current events, the probability of future events, and circumstances that they believe impact the supply or demand (like Iran threatening to shut down the Straight of Hormuz, or Nigerian oil workers’ strife, or China and India continuing to increase their demand) to come up with their perception of what the value really is (we’ll call it their perception of true value). They then conclude whether or not their perception of true value is less than or more than the current market price (it could be just a hunch rather than a sophisticated net present value calculation). If they think that their determination of true value is more than the current market price (and that the market will ultimately realize their brilliance and raise the price in the future), then they will buy long. If they think it is less, then they will sell short. In the short-term (which could be months or even years), there will be fluctuations above or below equilibrium (which can actually be quite significant like tech stocks in the late 90’s), but ultimately, the long-term result of competing and self-interested parties buying and selling for profit is that the market price will move in the direction of equilibrium and actual true value, although probably never truly matching either. I would also like to say that speculators add a greater number of participants to the market and add liquidity to the market, both of which can contribute to a greater efficiency of the market. Like Benjamin Graham and Warren Buffett have said, markets are voting machines in the short-term, and weighing machines in the long-term. Speculators, investors, and essentially Mr. Market himself manifest this reality for us every day. However, it can be pretty darn stressful and volatile in the short-term!
Comment by Kurt -
Mark’s got a point. Speculate on all you like on shares, but oil prices affect all, and the poor suffer the worst.
The price of milk in Australia has just gone up because of transport costs, small-time truckies are thinking about turning in their trucks to the banks. Other producers are flagging increases as well. I hate the thought of kids going hungry due to someone else’s gambling.
Back in 97 Asian currency crises, the circuit breakers were:
a) Hong Kong government stepped in to take opposing positions, causing speculators some pain
b) Malaysian government withdrew the Ringgit from forex trading
I’m not sure if the US government can do any of these, after all, oil is a worldwide commodity.
How about the government adding volatility so much so that speculators can’t afford to speculate?
Comment by Chui Tey -
well i hope i don’t come across as screaming…
i just think you’re wrong and hope that i can convince you because you have a louder mike than i do.
when you remove players from a market you remove liquidity. Less liquid markets have two problems:
1) they are more expensive to trade in and out of due to slippage and bid/ask spread. Effectively you raise the cost of insurance against price spikes for the very people you’re trying to protect.
2) Due to #1 and a lower diversity of opinions illiquid markets are riskier and tend to have larger price spikes when players get trapped.
Under your scenario, the warren buffets of energy can’t step in and say “this asset is fundamentally mispriced and i’m going to step in and start providing liquidity in the form of massive selling. i have deep pockets and i will wait for the fundamentals to kick in”
If you’re a guy like that, you can step in sooner and with more size with a liquid market because there is less risk when you are wrong. This in turn leads to further liquidity and feeds back on itself.
If you want stable energy prices the correct move is take steps to increase the liquidity of the energy markets.
here is my three step plan:
1) make the market electronic and anonymous like eurex/cme/cbot. This leads to more fairness and less of the crooked bullshit that nymex is famous for. Big “warren buffet of oil” type players aren’t going to step in as soon if they have to overcome getting ripped off on every fill.
2) make the contract size smaller. This makes the market tradable for a wider variety of players and allows for a more diversity of opinion.
3) make the tick size large relative to the contract size. This will give you thick bid/ask sizes like the treasury, bund and S&P futures and further reduce volality and overshoot.
Another side effect of a fully electronic market with a liquid future is that options on that future can be made automatically quoted with much tighter spreads as well.
Basically i question your assumption that the same liquidity will still be there if you start taking fair, level playing field access to the market away. In the history of markets, things have never worked out that way.
We should do everything we can to encourage automation and fair access to the markets.
Automated hedging and stat arb programs combined with low trading costs lead to reduced volatility. Just ask people trading at the CBOT or CME.
Comment by James Hawfa -
This is for Fast Eddie and those chiming in on that side
First
Think wht you want, but I have traded longer and more successfully then you have any idea of
-A hedge fund based on my trading history was built and sold.
– Won stock picking contests.
-Made a ton of money trading stocks.
All before broadcast.com
As far as speculating and the price of gas. This is where you are way way off
Obviously over time the market does its thing and prices normalize. Unfortunately, unlike stocks where only people who live in a mark to market world are hurt, EVERYONE lives in a mark to market world when it comes to energy prices. So we all are hurt , but most people cant afford the cost of the volatility introduced by speculation.
While dumbasses are piling into futures and even probably getting their heads handed to them over time, in this market, particularly when refinery capacity is fucked up, EVERYONE pays. Remember your markets 101. Volatility costs money.
That’s why I wrote the post.
In all markets we have limits imposed for exceptional circumstances. Circuit breakers. Whatever depending on the market.
The concept of leaving the market only to those who can accept and deliver product means that as long as there is liquidity, the market finds its level on a daily basis. And right now there is liquidity. If there isn’t,you remove the circuit breakers
so instead of screaming, think it through.
m
Comment by mark cuban -
You’re officially becoming a socialist Mark. I can’t even believe I read this garbage post from you. How ironic the guy that cashed out of YHOO which was pure speculation during the tech bubble and cashed out at the fricken top is now crying and whining about how speculators are soo bad. WHAT A JOKE MARK! If it wasn’t for speculation you wouldn’t be where you’re today you ungrateful wanna-be pundit. I swear every time I read a post you make about the stock market I realize how you know nothing at all about the topic and then I really realize how you are the luckiest man on the planet and you truly have no skills in this area. Don’t you think Mark that just maybe their are people who operate in the markets that know their are moron rookie speculators operating in crude futures? Don’t you think just for a second that the market is some what efficient and will promptly take those same idiots dollars as they’re squeezed short or long? I mean come on Mark you are really becoming a joke. What is next Mark, I can’t speculate in Dow futures because that’s not fair to how the stock market “should” open any given day?
Comment by Fast Eddie -
Mark:
The speculator is a hero: http://www.dailyspeculations.com/vic/spec_as_hero.html
Comment by Jeffrey -
I buy my gas from Citgo whenever I can, but I’m looking at one of those Willie Nelson vegetable oil run biodiesel vehicles 😉 My winter thermostat is already down to 65, so don’t know what we’ll do there. I try to limit my use of petroleum products, if the information is disclosed.
And Exxon Mobile profits soar… 32% last quarter; 7.6 billion; 3rd highest in the companies history; ConocoPhillips, the third-largest U.S. oil company, said Wednesday that profit rose 51 percent, to $3.14 billion.
Just wait until China’s economy takes over in about 5 years, and the world economy demands even more of their share.
I’d like to see all markets be electronic, get rid of the middlemen and those specialists.
Comment by Turalee Now -
Mr. Cuban,
I respect most of your opinions and read your blog regularly.
You clearly have a very poor understanding of the operating principles behind futures markets. I can not put that more plainly – you are dead wrong.
I am a professional futures trader (though not energy) and i know what i am talking about. PLEASE read any basic book that explains the role of a futures market and you should understand that if the only people particpating are “hedgers” than you will be ADDING volatility not removing it.
What REALLY needs to happen is that someone needs to clean up the NYMEX and make it all electronic and furthermore make smaller sized contracts so that MORE people can participate.
A tighter more efficient and fair (ie electronic) market would allow a wider diversity of opinion, better price discovery and would also allow people to affordably hedge the risk of rising energy costs for themselves.
Comment by James Hawfa -
I have to disagree with Mark Cuban. I agree with him in the since that speculators have drove up the price of gas prices, but at the same time they can drive the prices back down in a heart beat. Hopefully speculators will change their mind in next few months.
Comment by Blake -
Folks forget that every transaction has a buyer and a seller:
1. What Martha Stewart did was not a victimless crime. Her stock was purchased by someone who didn’t have the insider information she did, and that buyer got burned.
2. Folks complain about the real estate developer who converts their little piece of rural paradise into an overcrowded suburb, forgetting that it was their neighbor who sold the land to the developer.
3. Speculators can’t buy anything that isn’t for sale, and they aren’t interested in buying anything they can’t sell later.
There isn’t really a difference between speculators and investors — at the professional level. One just plays riskier bets than the other.
The important difference is that between informed, experienced individuals and those who think they know what they’re doing, even though they’ve really just been swept along in the tide (which WILL go back out some day).
401(k) accounts and self-directed IRAs have put everyone in the securities market. The vast amount of money seeking investments has bid up prices. The ignorant think the market is risk free. The wise use it as an opportunity to fleece the sheep.
So I’m with you — let make dividends tax free. Let’s also make the capital gains holding period at least 5 years. That will move the emphasis from flipping stocks for a quick capital gain to rewarding companies that actually generate a profit.
Comment by Paul Lambert -
Mark,
I think you are exactly right here despite what people are saying.
btw, I love the blog.
Derrick
Comment by Derrick Pizur -
How do you take out the speculators? Shoot ’em?
Comment by fantasy golf -
Mark:
In of itself, speculation is not a bad thing. It’s just another layer of abstraction away from a pure barter system:
1. The existance of a currency allows people to trade real goods for an abstract representation of value (money). I would hope we all believe this is a good thing for economic efficiency.
2. It is also helpful to have a market vehicle that allows me to set the price for something I won’t actually buy or sell until some time in the future. For example, one would hope the airlines have fuel delivery contracts that go many months into the future so that they can set ticket prices with confidence about their costs.
3. It’s also a good thing to have a the ability to sell that fuel contract to someone else should the airline’s need for fuel diminish. If the price of fuel has gone up, the contract has increased in value and the airline has made a profit without even loading a passenger on an airplane. That’s okay in my opinion.
4. But what if no other airline thinks it needs the fuel, but the first airline needs some cash? Is there not a place in the economy for a speculator to step in and buy the fuel contract (presumably at a discount) on the hope that some airline might need it later and be willing to pay a premium (because the contract price is less than the market price at that point in the future)? What if this speculator has an unexpected need for cash — should he not be able to sell it to another speculator?
See, the issue isn’t speculation. True professional speculators perform a valuable function in converting commodities to cash and visa versa.
The problem is ignorance and stupidity. When you get amateurs in the game, the pros make a bundle on the feeding frenzy and the amateurs get burned.
Capitalism is hard stuff. Survival of the fittest and all that. The real question is what role the government should play in keeping the idiots out of investments they don’t understand. I say let the dumb people blow themselves up.
We’ve got all these amateurs in the market because they don’t sense the risk. Just like in the 1920s…
Comment by Paul Lambert -
Ironically, futures markets are far more free and responsible than stock markets in terms of price discovery and rational valuations. A big part of the reason internet stocks got so overvalued in the dotcom bubble was because of small floats, restrictions on shorting, and irresponsible media cheerleading that worked the public into a lather.
In the energy futures markets, the theoretical float is infinite–so any large player could short in size if prices got out of whack. Restrictions on shorting do not exist, and if anything the popular media position has been to assume energy prices will fall, not rise.
The futures markets are superior to the the stock markets in terms of price discovery b/c they aren’t saddled with limited floats and inherent institutional long bias.
Whatever pox you place on energy speculators as a source of distortin thus goes double or triple for equities.
Comment by Justice Litle -
Awesome post R. Cotter. I like the bio-diesel concept but I don’t think it really has “legs” in the sense that turning to agriculture to solve our impending energy crisis will ultimately be just trading one problem for another. Do we really want to put that type of pressure on the agricultural system and can it sustain it? I’m not certain. I definitely think the issue of cheap and plentiful energy will be solved but not before some serious fallout. I hope I’m wrong.
Comment by James King -
The only way to have even a basic understanding of oil and the energy industry is to DO THE RESEARCH. It is obvioius that most posters, along with Mr. Cuban, feel qualified to explain the oil industry wihout doing the homework first. When I read Mr. Cuban’s posts on digital music distribution, internet search engines, etc. I get the feeling his opinion is valuable because he has done the research/has the proper experience. I may not be as smart as Mr. Cuban or some of the responders, but I have done the research – hundreds and hundreds of hours worth. Here is what my research has taught me: Easily refinable oil is being pumped at close to capacity worldwide; the refining industry is close to capacity worldwide; the CENTRAL reason new refineries are not being built on a regular basis worldwide is because the future growth in supply likely isn’t there. If you are serious about researching this issue, start with peakoil.net; if you disagree with my conclusions, you (or professional doubters) should be able to answer all three of the following questions – (1) Where will the growth in new oil supplies come from (enough to offset natural depletion in current fields) (2) How much new supply will come on line and (3) over what time period; now you need to be specific and not prepare a study that says something like billions of barrels will come from Greenland over the next 30 years like the US Geological Society – remember that it has to be discovered before you can answer the three key questions. Unfortunately, I have yet to find an expert who can answer these questions in detail – which leads to the unsettling conclusion that GROWTH in oil supply will soon come to an end. Unfortunately, there is no CREDIBLE alternative to crude oil (at least for transportation purposes), which produces a sufficient energy profit (more energy returned than invested in production) ratio, to substantially replace crude oil. Thus, we can all expect prices to just get higher and higher until there is sufficient demand destruction (human suffering) to bring the prices down. I wish the markets had an answer to this problem, but they do not appear to at this time. Now you may say “the markets will deliver” and another may say “God will provide.” But both are pure statements of faith and I am not so sure… Finally, before any of you blogmaverick readers tell me why I am so wrong, please do a little homework first. I don’t want to hear about ethanol or shale oil (very low or negative energy profit), hybrids (will only slow overall demand growth at very best), or most pathetically “the hydrogen economy” (hydrogen is not a fuel source found in useable form in nature but is only used as an energy carrier),etc.
Comment by R Cotter -
This is just ludicrous. A man whose wealth is based on a speculation frenzy wants to suppress others rights to the same. I’m glad so many comments have called him to the carpet on this hypocrisy. And the comment of Mark with his populist anti-market, more government solutions is dead on. This isn’t the first time Mark has called more government solutions to market based problems.
The price of oil will continue to rise until consumers reach a point where it is no longer cost efficient for them to use it. There are millions and billions of people throughout the globe who are now just beginning to become consumers of energy. They want a share of the pie the US, Europe, and other modern countries have had mostly to themselves for a century. Unfortunately for us, we thought the party would last forever. The lack of foresight, and planning along with a declining dollar will lower living standards in this country. It already has, as people feel as if they can’t drive as much as they used too. It will come this winter when people won’t be able to heat their homes like they are used to.
The answer is more government. Please! The answer is innovation like Mark used to bring. I guess once you get yours, all you care about is keeping it.
Comment by Mark -
I think this guy has the answer
http://www.pannikos.com/free-speech/my-thoughts-on/alternative-transportation.html
Comment by John Maverik -
Want lower prices drive smaller cars build smaller houses 1200sq ft.In short don,t live above your means ,open a savings account and save save save in other words dump the big thoughts.
Comment by B.F.Brewster -
I almost always agree with you, Mark, but this time you just don’t know what you’re talking about. “Speculation” has become nothing more than a derogatory term for “valuation”. The bottom line is still that nothing sells for more or less than somebody is willing to pay for it, and as soon as our supply of refined gas increases, prices will decrease. Its really not complicated. And at least the fed is continuing with its interest rate hikes despite Katrina and other hurricanes. What really killed us during the tech bubble burst was the fact that the fed had kept interest rates so low before Y2K.
Comment by charlie -
Mark,
It’s not a popular thing to write about, but we only have ourselves to blame. Years of cheap gas prices in the 80’s and 90’s made us sloppy and lazy. Fuel standards were relaxed, sales of SUV’s exploded and a shift to alternative energy sources never materialized.
Growing demand met tighter supplies. There was no incentive to build more capacity with prices so low. All the money went into stocks and bonds.
Higher prices will ultimately lower gas prices. Just let the price go up. People will conserve and more will come on the market.
Comment by John -
How can you put a stop to this when the biggest controlling speculators are sitting in our White House.aka Bush & Cheney!!!!!
Comment by Vash -
I think everybody is wrong equally, it’s just nobody cares when someone without a name is wrong.
I enjoy reading what Mark writes because it gives me inspiration. Not really because of anything specific to him, but it’s nice to see a successful business man not be so pretentious that can’t speak their mind.
Besides, I think that Mark was right a lot more than just once. It wasn’t just Broadcast.com that made him very, very wealthy.
Comment by J. Shirley -
Well, the one important difference between speculation in oil and gas futures and speculation in stocks is the fact that oil and gas futures must be physically delivered if you keep the contract until it expires. In other words, at the end of the day the only players left in the energy pits are hedgers, since speculators cannot actually make or take deliver of barrels of oil and gas. There is no more efficient way to determine the value of a commodity. The reason gasoline prices are so high is because demand has consistently grown faster than supply.
Comment by Rob -
I wonder if it’s just easier to believe you are always right when you are a billionaire. Let’s face it, Mark Cuban was right at least ONCE or he wouldn’t be where he is now. But when it comes to that, I always think of Bill Gates and the incredible stream of quotes he has generated in his career that have been dead wrong. Maybe it’s just that billionaires can AFFORD to be wrong more often than the average guy.
I generally don’t read blogs much anymore because ultimately they’re just opinions. Even the so-called expert blogs of Weblogs Inc. really aren’t much different from the traditional news services. Mark Cuban’s success only proves that he was right ONCE (granted it was a biggie). Hell, even a broken clock is right twice a day. Sometimes I think his blog is very ego driven and he could really give a rat’s ass whether we respond to his posts or not. However, I have appreciated getting a billionaires perspective on certain issues. But if anything, it’s made me feel that he and I aren’t so different, at least intellectually. But his money gives him a credibility that few can compete with. In our system, wealth is the greatest determiner of human value so Mark will always get the benefit of the doubt, at least from the general public. Only another billionaire, like Donald Trump, can criticize Mark Cuban and have it have an effect. Everyone else is just throwing pebbles at a tank.
Comment by James King -
M N
Yeah… without the back and forth, it’s just a soapbox. Kinda lame.
Comment by Laz -
M N
Yeah… without the back and forth, it’s just a soapbox. Kinda lame.
Comment by Laz -
Mark, long time reader, first time (I think) poster. Mad props on the Treo ad. Amaaazing!
Comment by Alex Krupp -
I really enjoy reading Mark’s blog, and I know it’s his sandbox, but I really wish that it would become more of a dialogue. Mark says something, a bunch of users make comments, and that’s the end of it. I’d like to see Mark respond to some of the comments. A bit of back-and-forth would be nice.
Comment by M N -
Huh? Do away with speculators? What about freedom Mark? Freedom, economic and social, is what provided the strength and ability for the USA to go from zero to the moon in less than 200 years. Tell me another cultural economic system that even comes close? Or that beats us when it comes to freedom and economic opportunity?
Mark, you are simply wrong in your understanding of the relationship between markets, speculators and… consumers.
You are arguing from the classic “guilty wealthy white guy” stereotype. It is sad to see; and Jack Welch is out doing the same thing. Please dont take comfort in you company. Both of you are successful by economic measures but are standing against far greater ideas and truths about human nature and economics. Karl Marx and his followers made a very similar and costly mistake disregarding human nature and the laws of economic markets.
Speculators are not the reason for fuel prices. It is the customer who does not want to build refining capacity in “their back yard” which creates these market conditions and economic situations. Not speculators. Speculators are great red flags on the economic horizon and they provide the capital liquidity to weather the economic storm.
If you separate freedom from economics you destroy the market that provides the very economic strength and flexibility [think athlete] that makes this country so great and strong. If you do not give freedom to all, no one has freedom. In economic markets freedom is speculation.
More importantly once one destroys personal freedom and responsibility one unleashes all the limitations and sins of man.
You may be a great businessman but you need to do some more work understanding economics, markets and human nature. I think Friedman, von Hayek, von Mises and of course Mr. Market as explained by Buffet and Graham should be read and understood by all who hold economic freedom equivalent to personal freedom.
Sure hope you dont turn into one of those “Hollywood” types who think their tremendous success in a particular endeavor is a modern “divine right of kings” anointment and begin blathering like a fool.
The world tried the divine right of kings path, it was an ungly path. Except of course if one was King. Mavericks by the way had the habit of ending up dead after the King made use of their particular services.
Good luck & best regards.
Comment by Mr. Market -
The reason the price of oil is so high is because of the OPEC Cartel. It costs the Saudis $1-$5 dollars a barrel depending on which oil field. They sell it to wholesalers around $58 a barrel. Supply is controlled by OPEC to keep the prices up with the happy agreement of many International sources, including many americans interests who own oil fields which cost $40 a barrel to produce.
Comment by Michael Clark -
I really enjoy reading Mark’s blog, and I know it’s his sandbox, but I really wish that it would become more of a dialogue. Mark says something, a bunch of users make comments, and that’s the end of it. I’d like to see Mark respond to some of the comments. A bit of back-and-forth would be nice.
Comment by M N -
And, I managed to veer off subject a bit. I think big suppliers of oil, and major consumers of oil, know whats going on in the market, and the true supply and demand. They have all the information and the speculator really has very little. So any nice trades they can pick up pushing the market, and popping spec’s stop/losses will just line their pockets all the more. And leave the gambling to the speculators. It’s just a transfer of dollars, from people who don’t have the facts, to people who do.
Comment by M Spytek -
My own opinion on this, I don’t believe demand is going to come down. I’ve been on 30-40 trips to Asia and Africa, and one thing I know, is every person out there, would have an auto, and lights in their house. And most of them frankly now do not. That’s 4 billion new consumers out there folks. Unless refining and drilling output increases, the price will keep going up.
My own theory, is it has to hit at least $4/gal in the US market before the masses take serious action, and tighten up. Then smaller more efficient cars, and new energy solutions would finally truly be demand driven.
For me, the best solution is bio-diesal or some other agriculturaly grown source. And a healthy increase in nuclear generating capacity would help. We simply must reduce our dependancy on coal, fuel oil, and natural gas power generation, and the subsidiary consumption that is required to supply them.
I see in the future, a new age of agricultural and farming production for energy purposes, that, and loosening of old fashioned agricultural policies, so the third world in which I travel so much can compete more. The policies now primarily benefit large farming consortiums, there are not as many of the small farmers around any longer. This would help things greatly in the long run.
Comment by M Spytek -
Hi,
great blog. Have you ever thought about ways of getting some more readers?
It is hard marketing a blog, but now there is a way to do it for free.
Just go to http://www.blogrankers.com and add your blog. It’s Free.
There are people out there searching for blogs. Make sure they find yours.
Good Luck!
T.
Comment by T. -
My opinion has been that OPEC has been price manipulating to get back at the U.S. for the Iraq situation. There’s probably some resentment that the U.S. is replenishing its oil reserves at Iraq’s expense… since the Middle eastern countries can’t attack us directly, they’re doing the next best thing which is attacking us economically. It’s just a theory and more than likely an incorrect one but having only rudimentary knowledge of commodities and futures trading, that’s what I’ve come up with. Feel free to educate me.
Comment by James King -
Amazing thing capitalism.
When a man corrected by 90% of his blog commenters on economics, can become a billionaire.
The last thing oil production and the markets need are more regulation.
You know what would really make the price of gas go down in America? Abolishing the DoE, OSHA, IRS, and their state satellites (copycat cronyists).
The price of living in America has gone up ever since the Sherman Anti-trust act killed the “robber barons” and the subsequent creation of the Fed (bought thru legislators paid by previously smacked-down “robber barons”) whose credit expansion fueled the bubbles and busts that gave Mark his fortune.
Yes, more government.
There oughta be a law.
Comment by Champ -
Nice Sloganeering Mark. Are you planning on running for office? With populist jingles, err statements like this; you should get a fairly large portion of the vote.
That is unless your opponent points out how simplistic and WRONG your are on the issue.
Comment by Mark -
People in government like to blame “speculators” to draw attention away from themselves and their policies. Speculators only come into play when the demand/supply situation has been altered to a point that trends can exist for a long time. Many oil and gas stocks began making new yearly/all time high 2-3 years ago before all the hysteria.
Comment by Robert -
I agree 100% with your comments. In fact, I’ve been stating the same for several months.
However, the same ‘pumping’ mentality driving up the price will have the reverse effect once crude inventories start to build. Yes, prices will plummet. And only the truly smart investor will profit.
The not-so-smart investment community that plays fast and loose will get crushed. I can see it now–“Hedge Funds on the verge of collapse. Fed asked to jump in.” It’s a never ending cycle.
Comment by eck -
RE:#9(Frank): lol. very clever. Not only did speculation make Cuban a billionaire, but would anybody care in the least what he had to say were it NOT for the stock speculation of the late 90’s. The man has good timing, you gotta give him that.
Comment by Tim -
I agree 100% with your comments. In fact, I’ve been stating the same for several months.
However, the same ‘pumping’ mentality driving up the price will have the reverse effect once crude inventories start to build. Yes, prices will plummet. And only the truly smart investor will profit.
The not-so-smart investment community that plays fast and loose will get crushed. I can see it now–“Hedge Funds on the verge of collapse. Fed asked to jump in.” It’s a never ending cycle.
Comment by eck -
I agree 100% with your comments. In fact, I’ve been stating the same for several months.
However, the same ‘pumping’ mentality driving up the price will have the reverse effect once crude inventories start to build. Yes, prices will plummet. And only the truly smart investor will profit.
The not-so-smart investment community that plays fast and loose will get crushed. I can see it now–“Hedge Funds on the verge of collapse. Fed asked to jump in.” It’s a never ending cycle.
Comment by eck -
Andrew,
Actually GM is fully aware that large SUV sales are on the way out. They have forecasted capping out at 750,000 units where as previously they capped at 1mm units.
Read this for more information:
http://money.cnn.com/2005/09/20/news/fortune500/gm/index.htm?cnn=yes
However, what will happen is an increase in hybridization so that people can have their SUVs and save in gas. Then we’ll likely make a larger transition to Biodiesel as Toyota starts to manufacture alternative fuel vehicles in the US. Toyota is really the big swinging dick of the auto industry now. Nissan and Ford are both licensing hybrid technology (and Toyota still gets first dibs on the batteries from the manufacturer).
Toyota’s new Scion brand is competition for the economy market which they stated they would exit to help American motor companies. They then raised prices on the Toyota and Lexus lines both. Now they capture all 3, and are securing more awards for entry, luxury and premium luxury vehicles than any other car maker.
If they became eligible for NASCAR and reintroduced the Supra to compete with the new Corvette, GM wouldn’t recover. Ford is already scrambling to fix itself… but their both beleaguered by debt that is rated as “junk”.
Europe has higher gas prices due to taxes, but their vehicles (primarily the diesels) get much better efficiency. We’re just starting to follow suit with Europe. Our gas will be higher (I’m predicting it leveling off at about $4/gallon and not going much lower), taxes will increase slightly but it will be offset by incentives for ULEV/alternative fuel vehicles. We will then reduce consumption, and cause a deflated bubble for refinery usage that will be offset by an increased consumption from newly created markets (China, primarily)
That’s my forecast… Feel free to flame 🙂
Comment by jss -
America is all about speculation.
1. Drive smaller cars
2. Conserve
Do you belive GM still thinks Hummers are hot? Sad thing is there probley right and thats just wrong.
Comment by Andrew Coffey -
it really suprises me that you would say that mark – as someone i regard as a capitalist to hear you talk about free markets with some tinge of anger towards them is just disappointing. i think very highly of your thoughts and comments, but this is just not well thought out. free markets set prices for a reason. if you think this is pure speculation then you should be short just like people who were short tech at top of the bubble in 2000. you yourself put a collar on your yhoo stock because you thought it was overvalued. free and open markets are ALWAYS and WITHOUT QUESTION the best ways to set prices. i would love to hear your rational as to why free markets would apply to stocks but not to commodities. yes its a shame prices are high, but they are there for a reason. thats that the market is telling you.
Comment by Oliver -
Dr Del
The gas prices in England are inflated due to taxes, not as a result of speculation.
Comment by Frank Mascolo III -
While I’m totally against something like this, what’s even more disappointing is the form of your proposal – specifically federal regulation. Government regulation will never, ever result in lower prices over any period of significance, and to think otherwise is pure folly.
Comment by Andy Nardone -
There are a couple of additional points that might be added here.
First, the price of fuel is affected by regulation which creates numerous different blends and adds tremendous costs to refiners and consumers. When these were suspended after Katrina, the price of gas came down. Second, environmental policy, aside from creating a multiplicity of blends, creates substantial costs to the refining business which has made adding capacity virtually impossible over the last 30 years. In addition, the refining business was also one of the worst businesses to be in up until the last few years. Refiners continuously lost money, which also represents a disincentive to add capacity.
The cost of fuel is determined by these factors along with demand first and foremost, not to mention taxes.
Speculation has provided a valuable funtion in this situation. The high cost of fuel and oil has attracted supplies from lower profit areas, to the US. This means that when that first hurricane hit, oil supplies were in much better shape than they would have been at a lower price.
How about the driver? They engage in speculation when they run out to fill the tank under the assumption that the price will increase in the near future. So price has an important impact on behavior.
In addition, people can hedge their fuel bill by purchasing energy shares or funds. These will offset some of the price increases they experience as they increase.
Speculation and high prices have made the American economy the most efficient in the world. It takes half as much energy to produce the same thing as 30 years ago. All innovation requires speculation, risk taking and the desire to make a profit.
I would therefore submit that speculation provides a valuable function in any market place, even if sometimes the impact appears negative. If you want lower prices, then regulation, taxes, and behavior should be your targets, not speculators.
Comment by tw -
If speculators are responsible for the increase in gas prices Mark, then why is it we have been paying a lower price for gas relative to Europeans for such a long time?
Can you please explain that to me?
Are Italian and French speculators better speculators that American ones???
Comment by DrDel -
Mark
Interesting, didn’t specualtors in the 90’s make u a billionaire when u sold broadcast.com??
Comment by Frank Mascolo III -
Thanks Bruce — you beat me to that point. The only perk from all of this is that we may finally get a push for more environment friendly vehicles.
Toyota (Lexus is the same) is coming out with many new hybrid models that are ULEV and get great gas mileage. No longer do the performance sedans (Toyota Aristo/Lexus GS) get a peak fo 17mpg — they’re increasing that near 30mpg and increasing power. This is the nice thing about hybrid technology; it’s not just about the gas savings, it’s about the increase in torque.
So, the luxury car market will save and so will the freight lining (unfortunately hybrid vehicles consume more gas without constant braking) companies because of new technologies regarding torque controllers and hybrid markets.
The peak oil counter-pundits have really got one thing right. The market adjusts other metrics to accomodate ridiculous gas prices.
Here’s another question for everybody… I’m really skeptical of the housing bubble. I don’t own even though I easily could because I’m quite worried about the market. All of the unconventional loans coming knocking at some point really freaks me out. As several people (including Mark) have pointed out, stocks and futures are buying nothing but what other people will pay for it in the future. Doesn’t that hold true for real estate though? The value of the house doesn’t increase, but the land value does. But land is just land, so doesn’t the same statement hold true about the value of the land is worth only what someone else will pay?
Why is it so expensive? Speculators!
I’ve likened the stock market bubble to the real estate game quite a few times… stay up and watch some TV and see how you can find creative ways to strike it rich with stock^H^H^H^H^Hcommodo^H^H^H^H^H^H^Hreal estate.
(sorry, old geek joke…^H was backspace… sort of.)
-jss
Comment by J. Shirley -
The biggest reciepient of the gold is NOT the oil co’s or the greedy speculators it is the TAX man. Lokk at what makes up the biggest percentage of the price at the pumps…TAXES. They are the crooks we should really be angry with. By the way we Americans have it really easy and we are all spoiled kids, I just filled up and it cost me $7.00 a gallon here in Italy…85% of that is taxes!
Comment by Bruce in Italy -
I agree with Stephen, and frankly, I’m rather surprised that MC is taking this position.
Speculation creates ups AND downs, so where’s the complaint? Apparently, I’m really missing something.
Also, how about we as Americans stop consuming so much freakin’ oil? What about THAT option? lol
I heard a statistic last month from CNBC – that Americans consumed more oil in August ’05 versus August ’04. If that’s true, that says it all. We have a socio-economic and cultural addiction to this stuff
And I deliberately use the phrase “addiction”.
On one hand, 9/11, Iraq, pump prices doubling. On the other hand, SUVs, frequent flyer miles, minimal carpooling. Continued behavior in spite of negative consequences.
Comment by Charles -
You have two big misconceptions about commodity futures. First, without speculators there would be very little liquidity in the market–there are no market makers in commodities as there are in at the NYSE–without speculators, who would take the other side of the hedgers trades? Commodities are a zero-sum game–one side wins, one side loses.
Secondly, although there are finite amounts of commodities, there aren’t limited amounts of futures contracts. If you want to buy an oil futures contract, no one will tell you that they’re all gone. Now where it DOES come into play is if people decide to take delivery of the commodity. At that point, and speculators never want to get to that point, you must take physical delivery and there can be attempts to corner the market. The exchanges never let that happen (see the Hunt brothers and their attempt at cornering silver in the early ’80s).
Where you are correct and the financial TV shows and what even he financial industry itself doesn’t understand is that stocks or commodities don’t have inherent values. As you say, they’re just like baseball cards; worth what people will pay for them. There is no rational fundamental explanation why oil prices are up something like 70% in the last year. China’s demand doesn’t even explain a small fraction of that supposed increased demand for oil. It’s up because the oligopoly can limit production, refineries aren’t being/allowed to be built and because people pay higher prices. If what I just wrote is correct, we’re experiencing an “oil bubble” which, when it bursts will drop the price lower than we currently can envision.
Comment by Bob -
So wrong. If only hedgers and end users were allowed to trade futures, prices would be exactly where they are today, except just not as volatile on a daily basis. At the end of the day (figuratively, actually at the expiry of the contract), there has to be a buyer and a seller of those 1000 barrels of oil. Though in any given minute or day or week, the “speculators” can be pushing prices up or down farther than they might otherwise be, there is a self-correcting mechanism called the delivery of a physical product that is the ultimate arbiteur of prices. These deliveries take place at prices that satisfy both the true seller and true buyer of those barrels. The commodity markets are probably the “purest” markets in the world in terms of price discovery. All specs do is provide depth. Whether it’s warranted or not is not for me to say, but they certainly don’t impact what the ultimate price of those 1,000 barrels will be. And in fact, oil is one of the most transparent markets of all commodities. Specifically BECAUSE there is a finite supply of oil at any given time is exactly why those speculative buyers have to ultimately sell those barrels (hence bringing the market back to it’s true supply/demand discoverd price) before they are obliged to deliver something they don’t actually own and have no chance of delivering. To compare oil futures trading to stock trading during the bubble is naivete (sp?) of the nth degree. You don’t have to take your 100 shares of TZOO and put them in your tank to burn at the end of the month, so there’s no price discovery that takes place. There was nothing to prevent daily examples of the greater fool theory. Regardless of the path that the oil price takes, it’s ultimate delivery price (which is discovered every month) is one that reflects the true economic value of that barrel and that is reflective of the true supply and demand that exists. There just aint enough oil to go around – plain and simple. The sooner people and governments realize it, the sooner we can get to work on long term solutions to a problem that has no easy solutions (that’s why it is so difficult to accept) and which will only get worse over time.
P.S. I’m not a “spec” or a spec apologist. I’m just a guy who knows a little bit about this stuff.
Comment by Andre -
Mark,
While you are 100% correct that speculation can drive up the price of gasoline, you fail to mention that it can drive down the price of gasoline just as effectively and just as quickly. No one would complain if the speculators started to short sell oil and gas futures and drove the price of a gallon down to $1.
Also, if only producers were allowed to hedge, who would take the other side of those hedges??? That solution doesn’t make any sense to me because it seems to take away the very liquidity that speculators provide. I love your post Mark, but i’m going to have to disagree with you this time.
Comment by Stephen -
So true. So evil.
Comment by Andrew -
i just hope anyone making money on the trading of oil gets a swift kick in the ass. gas prices affect everyone but its the poor people who are really hurt. can anyone imagine making minimum wage, a whopping 5.15/hr, and trying to live a normal life? I can afford to drive to work and back, but many people can’t handle 3/gal.
Comment by Kyle -
It is my opinion that there is nothing we can do to stop the oil companies. They are too big and have too many oil lobbies in congress. I think the only way to lower the price of gas is to change what gas is made of and how it burns. There is a product available that does just that! It reformulates gas and makes a tank of gas last 7%-19% longer. The product has been on Fox News and NBC. Check out this website for more information: http://ethos.hgpshop.com
Comment by Syd -
Luckily I can’t even afford my $100 a month car insurance bill so my car is parked in the garage. I hope that when I can get back on the road the prices go down though.
Comment by Brandon Connell -
do you know that the Burlington Northern Santa Fe Railroad (BNSF) NEVER SHUTS ITS ENGINES DOWN….NEVER. they run 24/365. Locomotives operate using diesel fuel to run turbines which produce electricity which turns the trucks (wheel carriages). Because these engines run constantly, the railroad is one of the primary reasons that demand continues for fuel, regardless of pricing (the railroads are raking in almost the same profits as the refiners).
We live right next to the BNSF in rural New Mexico. NO ONE seems to know this happens daily. It is a green/environmental/supply+ demand issue. Tell everyone you can think of about this practice. Write your congressman – we’ve endured house-shaking locomotives parked on the tracks for years without anyone caring; maybe now that fuel is getting precious, the BNSF and other railroads could start to do something different: conserve! It would not only help the environment, fuel demands and their bottom line, we would not have to endure pictures shaking off the walls from idle locomotives!
Comment by longearsrescue@wmconnect.com -
i think americans should strike for 1 day… ALL americans, america would come to a halt & nothing would get done….
Comment by hjkrol59@yahoo.com -
I think the futures market needs some regulation or something. I was watching the news on PBS and they had some analysts on there talking about this like it was a Las Vegas Rally. The oil reserves are at an eight year high and the futures markets is buying up oil like it’s going to be gone tomorrow. There is nothing to show oil production is going to fall.
Did you know that off the cost of Florida is on of the worlds largest oil deposits. Guess who is going to be tapping that reserve. China, Russia and Spain! We don’t because of politics regarding CUBA.
UGH!
Comment by fuel freedom international distributor -
I think the futures market needs some regulation or something. I was watching the news on PBS and they had some analysts on there talking about this like it was a Las Vegas Rally. The oil reserves are at an eight year high and the futures markets is buying up oil like it’s going to be gone tomorrow. There is nothing to show oil production is going to fall.
Did you know that off the cost of Florida is on of the worlds largest oil deposits. Guess who is going to be tapping that reserve. China, Russia and Spain! We don’t because of politics regarding CUBA.
UGH!
Comment by fuel freedom international distributor -
NATIONAL BOYCOTT will work. Not only will it cut a finacial swath but bad press. VERY BAD PRESS. This is a mighty weapon just wanting to be tested.
Comment by ecubelle@bellsouth.net -
What people dont realize is that most of these oil companies are not american based. Which means that they are not subject to our anti-collusion laws. This means that these companies can get together and decide uniformally to raise their prices to whatever they want. Forcing us to buy it at those prices because obviously we can’t go without gas.
Another problem to this whole gas/oil problem is the lifestyle we Americans live. Right now THE US CONSUMES 20% OF THE WORLDS OIL. With soccer moms wanting those huge SUVs and every teenage boy wanting some lifted MegaCab gas gussler, we are never going to solve our gas problem. PERIOD. In fact we actually got it easy. Last time I was in Europe (about a year ago) gas was equivelent to $12.00 a GALLON!!! And practically nobody owns a car in Europe, they all walk!
Frankly, it comes down to our lifestyle. If we are not willing to change (this means buying a hybrid or more gas efficient automobile or riding a bike to work every once in a while), then gas will continue to raise to ever higher prices. Besides we would actually be doing ourselves a favor. Think of all the things that would happen if we consumed less gas. The enviroment would be cleaner because less oil is being burned. The average american might not weigh as much because were exercising on the way to work/school/store. Our economy would get a boost because we would have more money to spend. And we wouldn’t have to fight stupid oil based wars and have to suck up to Saudi Arabia for oil.
Comment by Doc -
I just don’t think a National boycott will work. Oil companies are well aware with America’s love affair with the automobile. They know, sooner or later, you’ll be back because you need to have that shiney hunk of metal on the road and will just jack up the fuel price even more. I’m hoping for exponential technology advancement in consumer use of automotive transportation that will make fossil fuel use obsolete. Sure would like to see it in my lifetime.
Comment by bluesteven51 -
It’s time for a NATIONAL BOYCOTT. Let’s begin with the arrogant Exxon for 1 day in a week and continue to chop away at corporate profits until these robber barons get the point.A different company once a week. How many millions do you think it will take in lost revenues before they get the message.
Comment by ecubelle@bellsouth.net -
I can’t believe the idiocy of suggesting boycotting specific companies. That just shows that the problem will never get addressed until people understand what the real cause is. DEMAND IS GREATER THAN SUPPLY, hence prices rise to accomodate. If you drive your car (or actually your 4000 lb SUV – now THAT’S part of the real problem) 300 miles per week and choose to fill up at Marathon rather than Exxon or BP, how does that impact demand if you’re still driving 300 miles per week? News flash – it doesn’t. The gasoline headed to Exxon’s station in tankers will simply head to Marathon’s as they get sucked dry twice as fast.
We are in for a world of hurt at the pumps and this is just the beginning. When people start to turn in their gas guzzlers for Smart cars and their ilke en masse will be when we start to slow down the rise in prices. Note I didn’t say that prices will fall. By the time our consumption patterns change, we might be at $8 gas from which there might be room to fall. But not to $1.50 gasoline. Never in our lifetime again. Get used to it. Unless we change our ways IN A HURRY, we are more likely to see $15.00 gasoline before $1.50 gasoline.
Comment by Andre -
When the media says, “Gas prices may go up tommorrow”
EVERYONE rushes to the pumps and FORCES the price up!!!
The Media should SHUT UP!
Comment by CJ -
One thing that is overlooked in the arument is that it’s NOT just “rich” people and the oil companies making money; it’s your grandma, the policeman, truckers, pastors, anyone who chooses to buy the STOCK!!! Duh, just as the price of old goes up when more gold is bought, the price of oil goes up when you buy shares of oil. Stop your complaining, oil price are running about the same as they have always been when compared with income. If you want prices to come down STOP BUYING THE STOCK, TELL THE DEMOCRATS TO ALLOW US TO PRODUCE MORE BY DRILLING IN ANWAR AND BUILD MORE REFINERINES. ALSO, THEY ARE STOPPING US FROM BUILDING NUKE PLANTS. IF YOU DON’T LIKE CAPITOLISM GO TO NORTH KOREA!!!
Comment by Greg Neff -
The time has come for some sort of unified boycott / protest of big oil. I’m so pissed at these companies and the profits they make. In southernCal it’s 3.15/gal. When will people finally realize that there must be an effort made to stop this. If only there can be a way to make a unified protest, but how? I like the idea of the boycott of one company, but everyone MUST be on the same page. As for posting #89, why don’t you do us a big favor and move to Europe. It’s boneheads like you that don’t get the big picture – life isn’t only about profit and who has the most money.
Comment by John in soCal -
I think I may have a way to hurt the oil companies with out much pain for us. Boycott one company at a time. Have a sight where you can go to and list one of the main Oil Co. and not buy from them for one week. Everyone can still get all the fuel they may need just not from the target company. Even mix it up enough that you might hit the same one for two weeks. Think of the back ups in distribution all the way to the ports. Also the traders would take some hits.
Comment by steve curtis -
Gas prices (or in our side of the world Petrol prices) are rising. Why? Because of demand.
The only way to truly lower gas prices or oil prices is to eliminate the need for it by finding substitutes.
But for now, it is a great commodity to trade – with a lot of profits to be had.
http://www.mysharetrading.com/australian-dollar-falls-petrol-prices-to-go-up.htm
Comment by Share Trading -
I just dont get all the calls for price caps, congressional inquiries, etc on the price of oil. We live in a free market. You choose what you buy and what you dont. If you dont like the price of gasoline, buy less. At the same time gas companies are free to charge whatever the market will bear. In my own business I charge as much as I can to maximize my profits. If demand was down and I thought I would make more money by lowering my price, I would. On the flipside I’d raise my price in a heartbeat if the demand was overrunning my supply, which is currently the case in the oil industry. As long as theres no collusion among oil companies to artificially inflate prices theres nothing to complain about. I’ll just do what I can to use less gas, which is a good idea regardless of its current price.
Comment by Matt -
I URGE YOU TO NOT BUY GAS OR DIESEL FROM EXXON/MOBIL UNTIL THEY LOWER THEIR PRICES TO THE $1.30 RANGE AND KEEP THEM DOWN.
If they are not selling any gas, they will be inclined to reduce their prices. If they reduce their prices, the other companies will have to follow suit.
We have more power than you think – if we unite and stay committed.
If each of us copies this and emails it to ten more people within one day of receipt, 300 MILLION people could conceivably be contacted within the next 8 days!!!
THIS CAN REALLY WORK!
Join the resistance!!!! I hear we are going to hit close to $4.00 a gallon by next summer and it might go higher!! Want gasoline prices to come down? We need to take some intelligent, united action. Phillip Hollsworth offered this good idea. This makes MUCH MORE SENSE than the “don’t buy gas on a certain day” campaign that was going around last April or May! The oil companies just laughed at that because they knew we wouldn’t continue to “hurt” ourselves by refusing to buy gas. It was more of an inconvenience to us than it was a problem for them. BUT, whoever thought of this idea, has come up with a plan that can really work. Please read on and join with us! By now you’re probably thinking gasoline priced at about $1.50 is super cheap. Me too! It is currently $2.81 for regular unleaded in my town. Now that the oil companies and the OPEC nations have conditioned us to think that the cost of a gallon of gas is CHEAP at $1.50 – $1.75, we need to take aggressive action to teach them that BUYERS control the marketplace….. not sellers. With the price of gasoline going up more each day, we consumers need to take action. The only way we are going to see the price of gas come down is if we hit someone in the pocketbook by not purchasing their gas! And, we can do that WITHOUT hurting ourselves. How? Since we all rely on our cars, we can’t just stop buying gas. But we CAN have an impact on gas prices if we all act together to force a price war.
Here’s the PLAN: For the rest of this year, DON’T purchase ANY gasoline from the two biggest companies (which now are one), EXXON and MOBIL. If they are not selling any gas, they will be inclined to reduce their prices. If they reduce their prices, the other companies will have to follow suit. But to have an impact, we need to reach literally millions of Exxon and Mobil gas buyers. It’s really simple to do!
Now, don’t wimp out at this point…. keep reading and I’ll explain how simple it is to reach millions of people. I am sending this note to 30 people. If each of us sends it to at least ten more (30 x 10 =3D 300) … and those 300 send it to at least ten more (300 x 10 =3D 3,000)…and so on, by the time the message reaches the sixth group of people, we will have reached over THREE MILLION consumers. If those three million get excited and pass this on to ten friends each, then 30 million people will have been contacted! If it goes one level further, you guessed it….. WE WILL REACH THREE HUNDRED MILLION PEOPLE!!!
Again, all you have to do is send this to 10 people. That’s all. (If you don’t understand how we can reach 300 million and all you have to do is send this to 10 people…. Please just trust me on this one.) How long would all that take? If each of us e-mails this out to ten more people within one day of receipt, all 300 MILLION people could conceivably be contacted within the next 8 days!!! I’ll bet you didn’t think you and I had that much potential, did you? Acting together we can make a difference. If this makes sense to you, please pass this message on. I URGE YOU TO not buy from EXXON/MOBIL UNTIL THEY LOWER THEIR PRICES TO THE $1.30 RANGE AND KEEP THEM DOWN.
We have more power than you think – if we unite and stay committed.
THIS CAN REALLY WORK!
Comment by Steve K -
Everyone back me here I am from Sacramento California Tired of prices going up on gas pver 3.00 dollars a gallon here. Lets boycott for day and see what happens to the gas companies.
Comment by S. Martin -
CNN has a survey “Can consumers do anything to affect high gas prices?”. It is a 50/50 split between Yes and No. What do the YES people suggest we do?
Comment by Sue B. -
CNN has a survey “Can consumers do anything to affect high gas prices?”. It is a 50/50 split between Yes and No. What do the YES people suggest we do?
Comment by Sue B. -
I am TIERED OF PAYING sooo much for gas….if u are too then PLEASE read this and pass it on it can lower the gas prices!!!
This was originally sent by a retired Coca Cola
executive It came from one of his engineer buddies
who retired from Halliburton. It’s worth your
consideration.
Join the resistance!!!! I hear we are going to hit
close to $ 4.00 a gallon by next summer and it might
go higher!! Want gasoline prices to come down? We
need to take some intelligent, united action.
Phillip Hollsworth offered this good idea. This makes
MUCH MORE SENSE than the “don’t buy gas on a certain
day” campaign that was going around last April or May!
The oil companies just laughed at that because they
knew we wouldn’t continue to “hurt” ourselves by
refusing to buy gas. It was more of an inconvenience
to us than it was a problem for them. BUT, whoever
thought of this idea, has come up with a plan that can
really work. Please read on and join with us!
By now you’re probably thinking gasoline priced at
about $1.50 is super cheap. Me too! It is currently
$2.79 for regular unleaded in my town. Now that the
oil companies and the OPEC nations have conditioned us
to think that the cost of a gallon of gas is CHEAP at
$1.50 – $1.75, we need to take aggressive action to
teach them that BUYERS control the marketplace..not
sellers. With the price of gasoline going up more each
day, we consumers need to take action. The only way we
are going to see the price of gas come down is if we
hit someone in the pocketbook by not purchasing their
gas! And, we can do that WITHOUT hurting ourselves.
How?
Since we all rely on our cars, we can’t just stop
buying gas. But we CAN have an impact on gas prices if
we all act together to force a price war.
Here’s the idea: For the rest of this year, DON’T
purchase ANY gasoline from the two biggest companies
(which now are one), EXXON and MOBIL. If they are not
selling any gas, they will be inclined to reduce their
prices. If they reduce their prices, the other
companies will have to follow suit. But to have an
impact, we need to reach literally millions of Exxon
and Mobil gas buyers. It’s really simple to do! Now,
don’t wimp out on me at this point…keep reading and
I’ll explain how simple it is to reach millions of
people!!
I am sending this note to 30 people. If each of us
send it to at least ten more (30 x 10 = 300) … and
those 300 send it to at least ten more (300 x 10 =
3,000)…and so on, by the time the message reaches
the sixth group of people, we will have reached over
THREE MILLION consumers.
If those three million get excited and pass this on to
ten friends each, then 30 million people will have
been contacted! If it goes one level further, you
guessed it….. THREE HUNDRED MILLION PEOPLE!!!
Again, all you have to do is send this to 10 people.
That’s all!
(If you don’t understand how we can reach 300 million
and all you have to do is send this to 10 people….
Well, let’s face it, you just aren’t a mathematician.
But I am so trust me on this one.) 🙂
How long would all that take? If each of us sends
this
e-mail out to ten more people within one day of
receipt, all 300 MILLION people could conceivably be
contacted within the next 8 days!!! I’ll bet you
didn’t think you and I had that much potential, did
you! Acting together we can make a difference.
If this makes sense to you, please pass this message
on. I suggest that we not buy from EXXON/MOBIL UNTIL
THEY LOWER THEIR PRICES TO THE $1.30 RANGE AND KEEP
THEM DOWN. THIS CAN REALLY WORK
Please Foward on and Re-Post! Can’t hurt to try
Viva la revalucion
Comment by Doc -
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Comment by Solomon -
I agree that the speculators are driving up the petroleum markets, however if you want to see them panic all we have to do as consumers is agree to boycot two (2) of the major companies. Example: Do not purchase any gas or other petroleum products from BP AMOCO or EXXON for a period of 30 days. There are plenty of options for the purchase of your gasoline and other products for that period. BP AMOCO and EXXON would be forced to sell off their production that is not moving therefore flooding the market with refined gas and other products.
The futures traders would panic upon hearing news of such a nationwide plan and sell off their positions. The market would quickly reach a level of reality!
Currently any rumor is making the market rise. There is a saying amongst traders “buy the rumor, sell the fact”!!
Comment by Joe -
In our area of Southern California gas prices has left a lot of people with no money to spend. A lot of business are closing and business spaces for lease are poping up in spaces that never had empty spaces. The signs of economic growth is revering. Are we getting into recession?
Comment by Lilian Nawar -
You can reduce the price of gas by added this pill to increase the miles you get per gallon. Up to 25% or more! You’ll also help reduce emission. http://www.pillsavesfuel.com
Comment by Kent Labadie -
Hey everyone,
Gas prices are $2.60 a gallon in Indiana!!! $20 bucks got me 7.5 gallons in my tank!!! I can bet the way things are going, we will be over $3.00 a gallon by summer!!!!!!! I’m sick and tired of this!!
I’ve been getting e-mails on how all of us should boycott getting gas from the gas stations for one day to show the oil companies we are tired of the high prices.
I have another idea. We all know the oil companies will just shrug off this feeble attempt, because they know America can’t live without any gas at all. Everyone will just go back to paying for the gas because it is a “need” people can’t live without.
My idea is simple. Everyone should stop using the damn convenience stores at all gas stations. No buying cigarretes, coffee, pop, snacks, ANYTHING! Just buy gas and nothing else. This way each station is going to lose revenue big time! Most stations make the majority of their money off the items in the stores and make little off the actual gas. If eveyone did this, then I think the oil companies would get the message when all their stations start losing profit from not selling all the “extras” in the stores.
Do you think this would catch on? If so, send this idea to other people who might think the same and have them pass it on. Maybe we can get enough people to start mass
e-mails of this Idea.
Something has to be done to stop this gas price crap.
Comment by Tim -
very good!
Comment by 11nong -
You are mistaken that people would praise energy traders if they lost money and drove down prices. That would be the ultimate sin a party could commit against the citizenry. Remember the hue and cry when Enron did that? They drove prices to all time lows while losing billions of their own money (yes – their money. The shareholders owned the company and took the loss.) Thank god the admin. Issued them a “death sentence” barring them from competing with Exxon for ten years.
For those who complain the industry is too consolidated in the hands of few companies, which allows them to commit two atrocities:
1-Charge above market prices – to make big profits.
2-Charge below market prices – to prevent competition.
This complaint is followed by demanding the government to interven with and regulate who / where / and how much companies can do, enact price controls, and limit demand. This rhetoric eminates from npo’s claiming to represent the people, but that I suspect are funded by wealty shareholders of the energy sector.
These proposals, individually and collectively,ensure consistent above market prices while eliminating any threat of competition. Would you build a new refinery in the face of strict regulation, price controls, and falling demand?
Comment by Rich Truxel -
Simply, OPEC should increase production of oil as long as the demand is increasing at this rate.
Comment by Computational -
GAS PRICES AREN’T SO BAD
Have you noticed that a lot of people are moaning and complaining about the price of gasoline these days? I have to admit, I used to be one of ‘em until something changed my mind the other day.
You see, my wife and I went to the mall so she could buy a new bottle of her favorite perfume. On the way home, we stopped for gas. As I was pumping 15 gallons of regular into her white mini-van, I started thinking about the transaction my wife had just completed at the mall and, all of the sudden, it hit me! She had just paid $50 plus tax for a 3.4-ounce spray bottle of perfume. That’s almost $15 per ounce!
Of course, she let me know that it normally cost $80 per bottle, so she was getting it at a huge discount. Some discount.
If I had to pay that much for gasoline to fill up my 1,920-ounce tank each week, it would cost me $1,497,600 a year at the pump!
Makes you feel a lot better about the price of gas now, doesn’t it?
If you enjoyed this humor, more are available at http://bobmccartyhumor.blogspot.com.
Comment by Bob McCarty -
I agree 100% with your comments.
Comment by Pol -
Andre – Great defense. Just to add a little twist to the conversation…
“everyone in this country is the loser with higher gas and oil prices”
It’s my hope that we will all end up winners as a result of the increased interest in the development of alternative energy, and other fuel sources for automobiles.
Comment by Six figure jobs -
Midwest Gas Price Investigation – Investigation Likely To Continue
The Federal Trade Commission (FTC) issued an interim report to Congress on its investigation into Midwest gas price increases that was cited at the reasons that the FTC launched the investigation. It also provides a status report on the continuing investigation, including progress and a description of the work not yet done. The report details the history of the price spikes of reformulated gasoline (RFG) in the Midwestern part of the country and how these increases caused Commission staff to initiate a preliminary investigation in June and prompted the Commission to begin a formal investigation during the latter part of July.
The report analyzes many conditions reported as potential causes of the gas price spikes – ranging from higher than normal crude oil prices, to the expectation of compliance with EPA Phase II regulations for summer-blend reformulated gasoline in high-ozone urban areas, to the damage to the critically important Explorer pipeline during March. However, the report says that “although it is likely that each of these supply factors contributed to the dramatic recent price spikes in the Midwest, no single factor appears from staff’s preliminary investigation to be likely to provide a full explanation, and staff does not yet have sufficient information to assess the impact of these factors in combination.”
In accordance with the report, Commission staff is investigating “the possibility of collusion or tacit coordination, conduct that could be illegal under Section 5 of the Federal Trade Commission Act.” Due to the abundance of potential interwoven causes as well as the monstrous amount of evidential information being collected for the course of the investigation, the report also states that “this investigation is likely to consume, at a minimum, another three or four months.”
The report shows that on June 29, Commission staff issued the first round of subpoenas to the nine refiners that currently supply the Midwestern markets and that within the month, staff has accepted and logged approximately 200 boxes of documentation. Around mid August, most documents requested from the first round of subpoenas will be delivered to the Commission offices.
The Commission also issued a second round of subpoenas to other refiners last week, and has issued Civil Investigative Demands (CIDs) to the refiners recently, requesting that the refiners compile data and answers to all of the Commissions written questions. Commission staff issued another set of subpoenas on July 25 to the entities that own or control the gas transportation pipelines serving the Midwest markets of the United States. Documents from that set of subpoenas are expected to begin arriving shortly at Commission offices.
The report further details the Commission’s plan to conduct a series of in depth interviews as part of the investigation. Staff has already conducted nearly 15 interviews with market participants, consumers, corporate consumers and many others with knowledge of investigation relevant information, and continues the process of capturing pertinent industry-wide data from the Oil Price Information Service (OPIS). After the documentary evidence has been reviewed and analyzed, staff will take depositions under oath of key participating personnel throughout the gasoline distribution chain in the Midwest United States.
Federal Trade Commission staff will also coordinate all of the investigative efforts with the Attorney General of Michigan, Ohio, Wisconsin, Illinois, Iowa, Minnesota, Kentucky, South Dakota, Indiana, Missouri, and West Virginia.
You can find more information on this and other current events topics at http://www.lookster.com
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Comment by DAVID SKUL -
These comments about socialism miss the mark. Every market needs some government regulation to limit externalities and to function efficiently. In addition, the initial proposition did not advocate price controls, it regulated entry and exit of the market. While the criticisms may be correct about needing speculators for hedging to work, the problem with the proposal is not ideological, it is effectiveness.
Comment by Eric Truett -
Rex – your ice cream example is flawed. If you owned an ice cream store, and you were selling ice cream to a “speculator” at 50 cents, who was then re-selling it unchanged for two dollars and pocketing $1.50 in profits – you would raise your prices. That’s how a marketplace works, the seller’s price ultimately meets the buyer’s willingness to pay. The volume of buying and selling added by speculators makes that demand-based price discovery happen faster and with more precision.
Comment by David -
How about we get our government to give incentives to corporations for developing fuel-efficient vehicles instead of gas guzzling fuck-u-mobiles.
Comment by gas nation -
How about we have price controls so Exxon-Mobil can’t make 9.9 billion in profit per quarter.
Comment by gas fireplaces blog -
The concept of leaving the market only to those who can accept and deliver product means that as long as there is liquidity, the market finds its level on a daily basis. And right now there is liquidity. If there isn’t,you remove the circuit breakers
so instead of screaming, think it through.
Comment by flash -
I can’t do the code but this speaks volumes (the graphic) – It finally thanks W
Finally – placing the blame where it belongs!
http://www.thanksalotw.com
Comment by Roycew -
One correction to my previous post. When I said OPEC is irrelevant, that’s untrue. They are now powerless to flood the market with oil and depress prices, but they are very relevant in the sense that they can easily cause a dramatic upward spike in oil by witholding even a small portion of those barrels of oil that they produce that are globally important now; not that I’m suggesting that will happen. Obvious political ramifications, but I won’t go there.
And here’s a link that’s just a few days old that talks about the current oil situation and that doesn’t mention the word “speculator” even once. There’s some hyperbole within, but for the most part presents many useful and eye-opening facts.
http://www.financialsense.com/stormwatch/2005/1014.html
Comment by Andre -
Rex,
Your attempt at obfuscating the facts with a pithy hypothetical example that has no basis in reality, though valiant, is completely off the mark, so let’s come back to the real world for a minute. Firstly, don’t put words in my mouth, or incorrectly paraphrase. Nowhere to I say or even imply that I “pretend that speculators don’t exist.” The truth, and what I say, is that while speculators do impact the hour-to-hour or even the day-to-day volatility in energy prices, the ultimate price is determined by the true supply and demand. There’s nowhere this is more true than in the oil market. If the oil price is (for example only, this is an example which I don’t believe but just for the sake of argument) $15 too high because of the “speculators.” Then there would have to be oil tanks all over the place filled with oil that is not being consumed, but is being hoarded by these speculators that believe they can profit from it. That clearly is not the case. The oil is being consumed (ergo – demand). There was in fact a good example of this type of trading going on when the Hunt brothers tried to corner the silver market in the 79-80. Ultimately, the price came down to where supply/demand dictated it would. The reason why they had success for a short period of time and moved the price of silver up manyfold before it collapsed and they were bankrupted was specifically BECAUSE they were able to not only buy the futures but also buy all the physical warehouse supply they could and hoard it. This CANNOT happen in the oil market because there is no significant long term storage capacity anywhere in the world in any significant quantities (besides the Strategic Petroleum Reserve and that is a drop in the bucket representing 9 days of global oil demand or 29 days of US demand) and hence it is precisely why the oil price is one of the most accurate reflections of true supply and demand and true price discovery that exist.
So by Mark’s (and yours I presume) logic if we were to eliminate all the speculators we would get an instant $15 (using the prior example) reduction in the price of oil. Let’s look at some facts now using real world stats, not made-up ice cream stories. The Oct 11 Commitment of Traders report shows Commercials (true, declared hedgers, or primary users and suppliers of oil) position on Oct 11 increased by 14,126 contracts (that’s 14 million barrels of oil or nearly 1 billion dollar’s worth of oil) over Oct 4. That increase would have to be offset by other traders (the speculators) reducing their positions by that same amount. Now if you don’t understand this point, then stop reading this and go open a National Enquirer or something. So in a week where speculators liquidated almost $1B worth of oil, or almost 40% of their net long position, what happened to the oil price? On Oct 4 it closed a shade under $64 and on Oct 11 it closed about $63.70. Hmmmmmmmm.
I never brought up the zero sum game argument, I am talking about the fact that price discovery in oil futures is more representative of true supply and demand (and hence the true price) more closely than practically any other commodity out there, but the zero sum argument proves my point even more. In your laughable ice-cream example, there are only people betting that I will pay more. If there were also a group of people betting that I would pay less, it wouldn’t go up very much because the economic value of that ice cream cone is not much more than 50 cents. Let’s look at a more realistic example like sports betting. There’s two teams (long and short) and we are permitted to bet either way. Some bet Indy, some bet St. Louis. The odds are the ultimate price at which that game “costs” to bet. It is determined solely by the amount of money being bet on either team. All bets, both long and short are treated equally, they are not subdivided by hedgers and speculators, they are not divided by Colt fans or Ram fans, or by men and women. The flow of money, or the supply and demand for each team, determines the price, or the odds. At a certain odd, there is an equal amount of Ram betters as Indy betters. This is called price discovery. If you want to talk about the vultures (bookies) taking their cut, that’s another issue and has nothing to do with the price discovery. If a bookie wants to make his own bet, do you then count him as a speculator and his money is treated differently? Not at all. It is all a part of the same price discovery mechanism and has no impact on the price other than what the price would have been regardless of the source of the bet. Don’t forget, if he’s betting Indy (long), there’s someone on the other side betting St. Louis (short). Just like the futures markets.
One other illustration of this point of the long term non-impact of speculators can be found at http://eneken.ieej.or.jp/en/data/pdf/276.pdf
There’s a graph on p.15 that shows the relationship between WTI prices and speculators from 2002 to 2004. Again, this is real data, not a made up example. The first point on the chart where the net speculative position was flat in Feb 2002 was when oil was approx $24. The last point on the chart where the net speculative position was also flat was Nov 2004 when the oil price was approx $50. Lots of squiggles in between that can be interpreted any way you want on a short term basis (and on a short term basis, specs DO impact the price), but over the long term, oil prices doubled and the specs had ZERO impact. That’s purely supply and demand and cannot be interpreted any other way. Game, set, match.
A couple more things and I’m done. I need to correct a couple more of your erroneous facts. “Both Saudi Arabia and Kuwait have cut production.” Go to http://www.eia.doe.gov/emeu/cabs/saudi.html
About 1/4 of the way down is a chart labelled “Saudi Arabia’s Oil Production…….” Apart from the period between 1982-1985 I don’t see any production cuts there apart from rounding errors. For Kuwait, go to http://www.eia.doe.gov/emeu/cabs/kuwait.html
Again, apart from the first Gulf War in 1990, I don’t see anything that would support your claim. With oil prices at $60, every company and country in the world is producing every single drop of oil they possibly can. They would be stupid not to. Especially since everybody knows oil prices are too high and it’s all because of the speculators. (can you feel the sarcasm in that sentence?) OPEC (which is the ultimate strategic alliance) was releveant at one time when there was spare production capacity in the world. Today there is not a single oil well anywhere that is lying idle by choice. This makes OPEC irrelevant. If you want a better look at the true nature of the Saudi oil situation, read “Twilight in the Desert” by Matt Simmons.
One final point of yours that just magnifies the point of supply and demand is water. You are absolutely right that the cost of water will skyrocket. The exact same reasons that are causing energy prices to rise will also cause water prices to rise. It’s called supply and demand. Slow but steady demand growth due to global population increases and increased conversion of forest to farmland in order to feed this growing population just serve to increase the demand for clean, potable drinking water. There is only so much available due to the depletion of natural, cleansing aquifiers and the steady increase of pollution and sewage that comes with population growth, so the rationing factor in the future will be the price. Now I’m not so pollyanna-ish that I don’t think there will be profiteering and price gouging and all that stuff going on. For sure it will. But that affects prices at the margin. That doesn’t cause prices to double or triple, but will take a little off the top of whatever that price is, disguised by the rapidly rising prices. But I digress.
In summary, do specualtors matter? In the short term, yes. In the long
Comment by Andre -
How about getting rid of the boutique gas that raises production costs across the country?
Wouldn’t it be nice if the same fuel could be shipped to every county in the same state, then to every state?
P.S. Don’t forget how Hillary made her fortune…
Comment by Ken -
Interesting comments about oil commodity speculation here.
My limited knowledge of commodities exchanges hinders me to know about the degree of effect this may have on current oil prices.
I’m assuming the most knowledgeable experts will be oil company executives since they have to pay open-market prices that affect their humungo profits…
Having said that, it’s informing to read what their internal memos revealed in a Senate investigation on oil price-fixing in 2001.
http://news.bbc.co.uk/2/hi/business/4296812.stm
Essentially, the Seven Sisters and auto companies took these steps over time:
o Block any additional refineries from re-opening to eventually reduce refining capacity (~1995 memo)
o Over time, this will create a tenuous supply-demand balance that will be sensitive to any supply problems (~now)
o Be certain to not reduce the demand-side by fighting CAFE standards legislately
o Insert legislation that will classify SUVs as “truck-based,” thus avoiding fuel-economy standards (exempt), pollution standards (5x more than cars), enforcing safety standards (rollover deaths increasing every year, while overall traffic fatalities go down).
o Ergo truck-based SUVs have highest profit margin of any class of vehicles sold by Big 3 (because it costs less to make a “truck-based” SUV with no muffler, less safety technology, and low gas mileage engine)
o Be sure that Vice President asserts on national TV that it’s Americans’ “right” to buy whatever SUV and use as much gasoline as they want…(avoiding softening demand-side)
….equals $6.5 BILLION profit (and rising) for ExxonMobil (and all other oil companies) last quarter (and the previous 2-3 years).
Note that because of Katrina/Rita (and the President finally asking for conservation), demand-side has softened by 2.4%, despite supply shortfalls from 10% refining capacity being knocked out from the Gulf Coast… making oil prices go DOWN.
http://olympics.reuters.com/news/newsArticle.aspx?type=businessNews&storyID=2005-10-14T094304Z_01_MAR363155_RTRUKOC_0_US-MARKETS-OIL.xml
(Things that make you go “hmm.”)
Comment by KT -
Count Bush in as he says to Americans to drive less and conserve gasoline(more on Talk About Cars!)
some excerpt:
Appealing for Americans to cut back on driving, Bush said “We can curtail nonessential travel. If it makes sense for the citizen out there to curtail nonessential travel, it darned sure makes sense for federal employees. We can encourage employees to carpool or use mass transit.”
Comment by Sarah McBride -
Andre.. your ability to leave out the variable of the profits sucked out of the system by the speculators with your “zero sum game” argument is amazing. Did you read what Mark wrote? The things you mention that are true- that when the contract is fullfilled that the buyer and seller have come to an agreement is to remove the main point of the argument- your pretending the speculators don’t exist.
Perhaps you need this broken down to a simpler example… imagine that every time you went to buy an ice cream cone, you couldn’t communicate with the actual seller of the ice cream, instead, there was a group betting that the ice cream is underpriced and that you will pay more.. its starts with “he will pay a buck more.. no. a buck 50 more.. no two dollars more”. Eventually you get your cone, but by that time the ice cream seller gets his long ago contracted for 50 cents, but the vultures between you and the ice cream get the buck fifty more that they claimed you would pay (and they were right.. just wait until this is water- the next big commodity that we are privatizing globally, the speculation on what you will pay for a drink of water is going to be incredible)
I notice many people blaming taxes on the price of gas, but forgetting what these taxes sometimes go to fund- like the subsidized health and public transportation systems of europe.
Another myopic region seems to be the “strategic alliances” that are struck between producers and distributors, this used to be called collusion in a less orwellian and more honest age. Both Saudi Arabia and Kuwait have cut production (Kuwait actually having a negative GDP growth rate, thanks to this)
So as BP announces their deal with the chinese oil companies, just sit back and be ready for a further tightening of the open oil supply, and another excuse for the psychology of oil to point towards increased prices again.
Mark is right, as is John Bogle (ex head of Vanguard funds) when they point out that we have a middle man, or agent economy that leaves those on either end poorer for it.
Imagine how much cheaper the Mavericks would be without the middle men (agents, hangers-on, minions and sycophants) between the players and the owners- the same principal applies here, but in spades.
Comment by Rex -
Mark,
Though I disagree with the personal attacks, it’s apparent that you understand very little about futures markets, so quit while you are ahead. There ARE circuit breakers in place for oil futures, they’re called trading limits. They’re in place for every month but the front two months. If there were limits on the front months, that would be called price controls. Bring in price controls and what you end up creating is an artificial scarcity. If you’re for that, then you don’t understand ECO 101 (but I know you do). Oil is one of the deepest markets out there. You can trade oil futures out 6 years. If the speculators have driven the price so out of whack then that discrepancy would have been arbed out faster than you can blink. Surely, it’s not speculators that are trading every contract of every month out there for the next 6 years. Oil prices are high because the current supply/demand is so tight that the slightest hiccup has a big impact on prices. Gasoline prices are up because refining capacity is tight on top of the high oil price. Both of these things are the direct result of demand that has been slowly but steadily increasing over the past few decades because of steadily increasing population growth and economic growth, both globally and in the US. It has now reached the choke point where demand has caught up with supply. As time goes on, due to the same factors just mentioned, demand will surpass supply and prices will go even higher. This has nothing to do with speculators. They just move the price a few dollars (and that’s being generous) above and below the level that supply/demand dictates it will be anyway. As far as marking to market hurting, you’re completely wrong because your supposition that the overall level is too high because of speculators is wrong. On a day when the price is (for example) $2 too high “because of speculators,” the next day it will be $2 too low as that corrects, because the futures market reflect true price discovery better than any other market out there. That’s the part you don’t get. Now if that two-way volatility isn’t reflected at the pump because it seems that the pump price goes up faster than it comes down (which is true and I agree with that), that’s a separate issue that has nothing to do with speculators, but with big oil and maximizing profits.
Comment by Andre -