President Barack Obama announced today a new proposal to help Americans at the pump by reining in excessive Wall Street speculation.
Obama’s proposals include funding for more “cops on the beat” to better monitor market activity, increasing authority at the Commodity Futures Trading Commission, raising penalties for illegal manipulation, requiring oil traders to finance transactions with more of their own money, and creating stricter penalties for illegal market manipulation.
Obama said these initiatives would prevent Wall Street speculators from artificially driving up gas prices:
We can’t afford a situation where speculators artificially manipulate markets by buying up oil, creating the perception of a shortage, and driving prices higher — only to flip the oil for a quick profit. We can’t afford a situation where some speculators can reap millions, while millions of American families get the short end of the stick. That’s not the way the market should work.
Mitt Romney, who has repeatedly blamed Obama for gas prices, slammed the one initiative that could truly ease gas prices in the short-term — unlike Republican calls for increased drilling. He called the president’s proposal a “gimmick” to “dramatically increase federal regulation.”
Romney dismisses oil speculation. But even ExxonMobil CEO Rex Tillerson admitted last year that Wall Street speculation adds as much as 50% to a barrel of oil.
McClatchy reported in March, “While tension over Iran has ratcheted up over the last few months, the price of oil and gasoline has leaped far beyond conventional supply and demand variables. Financial speculators are piling into the market, torquing the Iranian fear factor into ever higher prices.” Speculators made up 64 percent of the market last month.
Romney’s response is also out-of-step with the American public, since 54 percent want the U.S. to crack down on excessive speculation, according to a Hart Research poll. His campaign, however, is bankrolled by oil companies and Wall Street, with $750,000 from Big Oil donors and nearly $15.2 million from the financial industry.
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See, Romney’s already attacking American jobs. He doesn’t care about high gas prices at all, so long as it means more profits for hedge fund managers.
Though, I’d say Tillerman’s estimates on the price of speculation may be a bit exaggerated. Oil needs to stay over $55 per barrel to keep about 20 million barrels per day of high cost production on the markets now.
OK guys. Just a little fact check for you here. Tillerman, in his statement, noted that the marginal price of a barrel of oil would be $70 to $80 dollars without speculation. That would be a reduction in the price of oil by around 20-30 dollars after speculators were removed. Your article states that speculators add $70 to the price of oil, which isn’t what Tillerman said, nor is it realistic.
My own estimate for the cost of a marginal barrel came in lower than Tillerman’s. But if the cost of a marginal barrel is now at 70-80 dollars, we had really, really better get working on alternative energy quickly. What this means is that the expense of producing new oil is rapidly becoming uneconomical even as it causes more damage to the climate.
Best regards…
Let the speculators speculate. Let the price of oil and coal skyrocket. If the speculators help to push the prices higher than they otherwise would be, GOOD.
In case y’all have forgotten, we urgently need to END ALL FOSSIL FUEL USE as fast as possible.
And increasing fossil fuel prices help to move us in that direction.
Could not agree more….
We’ve covered this terrain before on this blog. Whether or not we end ALL fossil fuel use, we need to make inroads on this addiction. You CANNOT blog people into doing this, you CANNOT fireside chat people into doing this, you CANNOT MSM message people into doing this. You have to force their hands. People are under-informed, defiantly ill-informed, and downright lazy on this issue. And IF our government ever imposes a carbon tax, radical consumption adjustments will be needed anyway and people will be caught with their pants down in their SUVs, cross-town commutes to work, and stupid driving-driven hobbies and pleasures(and desired).
So, wean the masses off of their excessive and often wasteful gasoline usage for their own damn good — 1) prepare them for increasing peak oil impacts and foreign oil supply disruptions when the climate wars kick in; 2) prepare them to handle a carbon tax that will pass through to them unless you are prepared to nationalize the oil companies, and 3) help them MAYBE delay the day of reckoning in dealing with escalating extreme weather and climate deterioration impacts.
Quick f–ing around with this issue. You know, when the going gets tough, I’m betting the right and the middle will dump its allegiance to fossil fuel interests and DO SOMETHING. The left keeps catering to people’s vulnerabilities and doing them a disservice in the process.
Unbelievable. Speculators are the only effective human change actors out there right now. They are anticipating the future direction of oil supply and price, probably correctly. Celebrate the fact.
Even if any US government imposes a carbon tax, that tax would in all likelihood hike oil prices far, far less than speculation has so far.
What might this mean? Have Wall Street types done a bigger good for the climate than any government could ever dream? Amazing how high that oil price had to go before the rest of the market responded isn’t it? And the response to the prices, to date at least, hasn’t been anywhere near what’s required. Although now that prices seem to be more consistently high the story might change.
So the answer to all those wondering how to dedicate their lives to helping mitigate climate change … go into oil speculation? Then use your earnings to invest in renewable energy-backed securities?
SecularAnimist,
Thanks for correcting me the other day. You are, of course, right. Oil speculation bad, stock speculation good!
Completely agree. The oil industry is in a fight for its life against the forces of depletion and climate change. Depletion keeps the price of oil high (according to Tillerman — 70-80 dollars per barrel) and the speculators add a premium of another 20-30 dollars or more.
Over time, the cost of a marginal barrel has continued to go up. Just a few years ago, it was around 50 dollars. The reason for this is that much of the new oil and liquids is expensive to produce. This is happening because of depletion in traditional, easy oil fields. Depletion puts screws to the world economy by making oil ever more expensive to produce and, therefore, less useful to society.
If depletion is the anvil, making oil less useful to society, then climate change is the hammer. The more we see the visible effects of climate change the more the oil industry must invest in advertising and misinformation that muddies the issue.
This makes our job easy. All we need to do is continue to point at the truth: oil is dirty, economically and climatological dangerous, and it is depleting.
This is Obama in pre-election mode, peddling ‘Hopium’ to the masses again. After re-election, it will all be forgotten. Speculators, ie the rich and the financial interests, are Obama’s owners.
And even as Obama says one thing while doing another, we’ll be hearing lots and lots of excuses about how Obama absolutely must say one thing while doing another, because His Hands Are Tied yadda yadda yadda…
– frank
Someone well-versed in finance and the commodities markets please explain this…
Let’s say I’m a physical supplier of crude oil. I have active fields pulling up and moving crude oil. I have super tankers loaded with crude oil moving across the oceans. I have pipelines and terminals holding barrels upon barrels of crude oil. I have to MOVE it. I cannot sit on it. I also have a competitive market dictating price for delivery RIGHT NOW, tomorrow, next week. Competitive, because sales equal revenue equal profits equal stock price and salary and that’s why I’m in the business…. not to sit on oil supplies to push up prices so three years from now I can maybe make more money.
So, that being the case, how does a futures contract between paper-pushers — at any price — dictate what I HAVE to do today, and do end up doing today, with real inventory?
This is not like Goldman Sachs synthentic collateralized debt obligations created solely to allow for a speculative credit default swap market underwritten by morons at AIG, where no one buying insurance holds the real underlying mortgages or asset-backed bonds. That was a pure speculative casino. A playground for Mulga’s friends ;)
I don’t see how that works, to any appreciable degree, with a market grounded in deliverable hard commodities… how far can you really drift from the real world by-the-moment deals and still have a meaningful price impact solely by speculating in futures? Physical suppliers have to buy futures contracts to hedge risk against default for non-delivery, but they still have real world inventory to look to. They’re not going to pay an arm-and-a-leg above market unless they feel there is some appreciation of risk in that futures price. And you can only speculate in futures, not in the real time trades/sales in the present backed by physical product transfers, which are the transactions that work their way into price for refined product at the pump.
We need to stop “reassuring” people that the good guys in Washington will somehow make sure prices stay low… so no one has to make any “painful” lifestyle adjustments. No more, “Life is beautiful, and always will be.”
Steve, there is a lovely recording somewhere, in which a couple of Wall Street finance industry grifters are heard laughing at the stupidity of the patsies that they had unloaded toxic waste as supposedly AAA-rated ‘securitised assets’. The had a real chuckle recalling the ‘Ossies’ as particularly dumb.
I don’t buy this general “personal responsibility” garbage — because, to wit, it’s just saying that when anything goes wrong, it’s never the higher-ups’ fault, but always the lower-downs’ fault.
– frank
To continue from what I said: Increase in gas prices should be accompanied by a phasing in of renewable energy. What the higher-ups can do is to promote and subsidize renewables as a way to wean the US off the oil addiction.
(But they’re not going to do that, not with people such as Steve making excuses in the name of “personal responsibility”.)
– frank
Frank,
The White House and Congress, Big Oil board rooms, and Wall Street traders generally look to me for clearance before acting. Thanks for recognizing my influence.
Steve
This is a gasoline issue, not a renewable energy issue (and, by the way, since you are so preoccupied with me, my personal rooftop solar generates 125% of my electical needs).
The Obama administration has done a fair amount to promote higher fuel-efficiency standards and to encourage investments in electrical and hybrid vehicle technology, despite efforts by the GOP to block those efforts.
Now, yes, people have a personal duty to try to buy those vehicles, and failing that, to reduce gasoline consumption. The traditional “look to government and powerful people for all answers” ideology is not going to do it alone. Sorry.
A little problem of supply Vs demand, no influence at all?
Speculation cannot affect prices long term. Yes short term price increases where there are expected increases due to supply problems.
We are post peak oil, there is a limit to how fast we can suck out what is left. We are not drilling in very hostile places because there is a plethora of cheap easy oil available. The cheap easy oil is rapidly disappearing.
I also tend to agree with Mulga, there will be no action after the election.
“Romney dismisses oil speculation. But even ExxonMobil CEO Rex Tillerson admitted last year that Wall Street speculation adds as much as $70 to a barrel of oil.”
Looks like Romney likes the high price of gasoline…it doesn’t affect him one bit. Even if speculation added only $50 to the price of a barrel of oil, a barrel of oil would be prices right around $50. Gasoline would then be $2.50/gallon. Click on the link to see the correlation of oil to gasoline prices….
http://inflationdata.com/inflation/Inflation_Rate/gas_vs_oil_price_comparison.htm
Think about it…if there were true supply and demand the price of gasoline would be around $2.50 per gallon. Wall Street is transferring massive amounts of wealth to itself by just speculation of commodities. We pay through the nose for all this voodoo, perhaps corrupt economics…
“McClatchy reported in March, “While tension over Iran has ratcheted up over the last few months, the price of oil and gasoline has leaped far beyond conventional supply and demand variables. Financial speculators are piling into the market, torquing the Iranian fear factor into ever higher prices.”
It would be great if Obama stops all those fears by unambiguously ruling out an attack on Iran nuclear facilities. That would stop the speculators from exploiting the fear of a middle east war.
If you think about it, bombing Iran nuclear reactors is a super-crazy idea, because it would cause a nuclear fallout worse than Chernobyl and Fukushima combined, poisoning the entire region and, in addition of being a war crime like the bombing of Hiroshima and Nagasaki, would almost surely start a regional war that will shut down oil traffic in the Persian Gulf and make oil prices to skyrocket to 200 or even 300 $/barrel.
But it seems Obama is not brave enough to make clear that he will not behave as Bush did in 2003, when a war was started with the (totally false) excuse that the Iraqui regime was producing weapons of mass destruction…
Neither Obama, Romney, or anyone else for that matter is ready to adress the problem of oil prices, which is just a symptom of a global unsustainability problem. It is our fault really, because we let everyone from left and right get away with obscenely inacurate statements and claims.
http://zoltansustainableecon.blogspot.com/2012/04/larry-kudlow-sarah-palin-president.html
You misquoted Tillerson. Please correct. He did NOT say speculation adds 60-70$ to the price of oil. He said that without speculation, the price would be 60-70$ rather than 100$.
Thanks. Fixed.