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Goldman Sachs Admits Record Speculation To Blame For Skyrocketing Gas Prices

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jest's picture
Submitted by jest on

I hate it when some sites don't update the new links section, and you grab the link. 2011 is a bit past the sell-by date.

Submitted by jawbone on

"Speculation is now part of the DNA of oil prices. You cannot separate the two anymore. There is no demarcation," said Fadel Gheit, a 30-year veteran of energy markets and an analyst at Oppenheimer & Co. "I still remain convinced oil prices are inflated."

Consider that light, sweet crude trading on the NYMEX changed hands at $79.20 a barrel just four months ago, but soared past $106 a barrel Tuesday afternoon, partly on news that Iran would halt shipment of oil to Britain and France. But those countries already had stopped buying Iranian oil. And Didier Houssin, the International Energy Agency's director for energy markets and security, said that "there are alternative supplies that can make up for any loss of Iranian exports," The Wall Street Journal reported.

Still, oil's price shot up because it trades in financial markets, where Wall Street firms and other big financial players dominate the trading of oil, even though they have no intention of ever taking possession of the oil whose contracts they are trading.

Figuring the percentage speculators are adding is difficult, but article asserts the Iran/US tensions should add about $10 per barrel -- and big traders on Wall St. are predicting it to rise to $112/barrel.

"I put the Iran security premium at about $8 to $10 (a barrel) at this point, which still puts crude at about $90 or $95," said John Kilduff, a veteran energy analyst at AgainCapital in New York.

The fear premium is the froth above what prices would be absent fears of a supply disruption_ somewhere in the $80 to $85 range for a barrel of crude oil. It means that even with the extra cost put on oil from Iran fears, prices are at least another $10 higher than what demand fundamentals would dictate.
Why? Financial speculators.

What should the price of oil be if left to conventional supply and demand market fundamentals? Canada's the largest supplier of imported oil to the United States, which now actually produces more than half of the oil it consumes. Production and delivery costs for a barrel of oil from Canada are about $75 a barrel. The market-fundamentals cost for a barrel of oil is in that ballpark; above that, speculation sets the prices.

"It's as simple as that," said Gheit, who has testified before Congress and called for regulatory limits on speculation in commodities markets.

Read more here:

Congress and the president could have done something about this speculation run amok -- or at least tried mightily to do so. But it and he did not. If this bites Obama it may be simple karma.

Everything old is new again, especially since the speculators can make big bucks this way. And, no doubt, some may see this as a way to ensure that a Repub, preferably Romney, will get the presidency and take even better care of them than Obama has.

Via b at

Submitted by jawbone on

of long positions, per one 2011 report).

.... Gary Gensler, formerly a Goldman Sachs executive and now head of the Commodities Futures Trading Commission, laid the issue out for all to see. As published by McClatchy Newspapers on June 9, 2011, "Gensler cited May 31 data that show end-users accounted for just 12 percent of the 'long' positions in futures contracts for benchmark West Texas Intermediate crude oil. That means that 88 percent of bets on price hikes for oil were held by financial players - mainly Wall Street investment banks and hedge funds that invest for the ultra wealthy - not interests seeking to use the oil." (My emphasis)

Read more here:

Also, China's usage simply is not the cause of price increases, and if the XL Pipeline goes through it will absolutely not lower costs for US drivers. Indeed, it will probably mean regional price increases. But higher profits for the Canadian tar sands producers, so not all bad. Riiiiight.

Too bad our Dear Leaders couldn't have added carbon taxes to oil production, to be passed on to gasoline, etc., when the base price was lower. That might have promoted more conservation and demand for higher mileage cars back then, when it might not have hurt as badly for the lower income 99 Percenters. The revenues might have been used for a moon-landing like program to develop alternatives, increase the efficiency and percentage of electricity coming from solar and other renewables. Damn...woulda, coulda, shoulda, eh?

Oh, more recently, too bad our current Dear Leader was so enthralled to Wall Street and the Big Banksters that he couldn't have pushed for more control over speculators. Gee, seems I've read he has executive power over an executive function which he could use without permission of Congress.... Alas, alack, we get just another big FU from Dear Leader.

Via Commenter Scottindallas at Moon of Alabama.