In my previous post, I mentioned that the quickly rising prices of oil go back to the speculators on Wall Street (all the “Wall Streets” around the world, that is). From all this so-called speculation, it appears to be more about manipulation. A few people make mega-bucks trying to push the price of oil up, up, up, while the rest of us spend more at the pump.
Well, the Senate is listening, and they want to know what the hell is going on.
High oil prices, driven by decreasing crude supplies and increasing demand could drive the U.S. economy into a recession, George Soros, the famous fund manager and commodities investor, told lawmakers Tuesday.
The Senate Commerce Committee held a hearing on Capitol Hill in an attempt to find out if oil prices are being manipulated by speculators, what can be done to regulate commodities trading, and what effect high oil prices have on the economy.
Now, here is the issue: Are speculators manipulating the price of oil?
Recent investor interest in commodities is an issue of intense debate. Though some analysts say market fundamentals are playing a large role in the doubling of oil prices in a one-year span – driven by strong global demand and a shrinking supply – others believe that commodities investors have boosted the price of crude with speculative trading, treating oil as a hedge against inflation due to the weakened dollar.
“We have what I think is a speculative bubble, and the laws of bubbles is that all bubbles burst,” said Sen. Byron Dorgan, D-N.D. “The problem is, this bubble is causing a dramatic amount of damage to our economy and to individuals.”
Nearly all of the witnesses agreed that speculation has artificially boosted the price of oil.
“Excessive speculation on energy trading facilities is the fuel that is driving this runaway train in crude oil prices today,” said Gerry Ramm, president of Inland Oil Company.
How pervasive is this speculator manipulation?
“We’re paying, some believe, as high as a 50% premium to the pockets of speculators that are operating in markets that are completely unpoliced,” said Michael Greenburger, a University of Maryland professor and former CFTC official. “At least 70% of the US crude oil market is driven by speculators and not people with commercial interests.”
Now, granted, this may be a high estimate, but even if 50% of the oil market is “driven by speculators” is too high.
So, what’s the solution? In a word: Regulation.
The loophole, which was codified in the Commodity Futures Modernization Act of 2000, allows oil futures to be traded electronically in unregulated markets outside of the jurisdiction of the Commodities Futures Trading Commission.
How many more bubbles must we the people suffer before we come to the realization that “free market” economy does not live up to it’s definition, and that speculators are the ruin of many.
