youth replica soccer jerseys cheap Blame falls on speculators in gas
Gasoline prices nationwide topped $2.80 a gallon on average last week, and some of the reasons were obvious.
A busy summer driving season is just around the corner. Stimulus spending has weakened the dollar, which pushes oil higher. And the global economy continues to mend, boosting demand for the precious juice.
Federal regulators have proposed new rules to limit the role of financial speculation in the futures markets that establish petroleum prices. Over the counter energy markets also are being targeted for an overhaul that could restrict the participation of big banks.
Neither measure is a sure thing. The five member Commodity Futures Trading Commission is said to be divided over its plan for new limits on trading positions. The financial reform bill pushed by Democratic Sen. Christopher Dodd of Connecticut, chairman of the Banking Committee, won be unanimous either.
Still, changes probably are coming, all the more so if the oil market takes off on another fast ride, predicts Craig Pirrong, finance professor at the University of Houston. “In some respects, the prospects are hostage to oil prices,
” he said.
Typically, springtime is a rough time at the gas pump.
During nine of the past 10 years, prices have shot up an average of 13 percent in March and April as refiners switched to summer fuel blends and motorists logged more miles, according to AAA.
Oil closed Friday at almost $81 a barrel on the New York Mercantile Exchange, up sharply over the past year, though nowhere near the 2008 peak.
Back then, Goldman Sachs Group Inc. shocked the market with a forecast for $200 oil. That didn materialize, but some of the long term factors underlying the prediction haven changed: Rich new sources remain off limits to drilling, exploration costs have stayed high, and existing fields won last forever. Those fundamentals point to higher prices, eventually.
Some believe the oil rally of 2010 has run its course already. Given a stronger dollar in the future and excess refining capacity,
gas prices probably will peak for the year around Memorial Day, said Phil Flynn of Chicago PFG Best Research. “There plenty of oil out there,” he said.
But what if speculators have other ideas? Will they manipulate the market?
“They innocent,” Flynn said. “Totally innocent.”
Among market pros like Flynn, it a common sentiment. From the CME Group Inc. to the swap dealers on Wall Street, financiers often ridicule the idea that excess speculation “causes” price swings. At least one scholar recently declared that no evidence connects speculators with higher volatility. The opposite may be true: Just look at the mild reaction in the heating oil market over the past few months, despite frigid winter weather.
Main Street, for the most part, disagrees, as reflected in comment letters to the CFTC applauding the proposed changes. Some academics, too,
see evidence of excess. Research shows that so called noncommercial traders such as banks and hedge funds betting on oil account for half the market, up from 20 percent less than a decade ago. Over the same period, price swings expanded dramatically.
At Navistar International Corp., where higher fuel costs can play havoc with orders for the company big trucks, speculative position limits sound like a good idea, said Chief Executive Dan Ustian.
“The speculation can cause significant increases,” Ustian said. “It creates more problems than it helps.”
For the crude oil market only is it possible to change the law so that only “non speculator” entities are allowed into this market and prohibit noncommercial traders such as banks and hedge funds from participating. For some dumb scholar to say that speculation doesn lead to higher volitilty is so absurd that he should be called an idiot rather than a scholor. How else besides through speculation can a barrel of oil go from $147 and than drop 75% in less than a year. Since consumption only dropped marginally than the only reason for the increase in the first place was SPECULATION.
Whenever prices increase substantially in the commodity markets, Washington always tries to blame the speculators. The risks of fluctuating commodity prices must be borne by somebody; they have in fact been borne in modern times chiefly by the professional speculators. In general, the more competently they act in their own interest as speculators, the more they help the market. For speculators serve their own interest precisely in proportion to their ability to foresee future prices. But the more accurately they foresee future prices the less violent or extreme are the fluctuations in prices. It is absurd that people blame speculators. Think about it. For every speculator betting on future price increases,
there another speculator on the otherside of the contract who betting on future price decreases. And when one speculator makes a profit on their bet, that profit represents a loss for the speculator on the other side of the contract. If they really could drive up prices, why would they ever stop? Oil did have a run up in prices in the summer of 2008, but few people point out that the dollar index was trading at a low of around 70 during that time. When oil prices reached their bottom in March 2009, the dollar index was around 90. Right now, oil has been trading around $80 per barrel and the dollar index has fallen from 90 to around 80 as well. Since oil is priced in dollars, when the dollar loses value, it takes more dollars to purchase the same amount of oil. Washington should be pointing the finger at themselves for running up huge deficits and creating inflation.
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