Stop Oil Speculation

[mirjo]

Below is a news-blip from Sen. Sanders re: the high price of gas and what a few members of congress (very few) are attempting to do about it. This is very telling about where our elected officials stand on this matter (I think), when there are hundreds of members in the total congress and only a very small handful are willing to stand up to the giants for the American people? What's wrong with this picture? 23/100 senators  that's not even 25% and 47 representatives out 435 that's barely 11%! Hmm, less than 13% of our congressional leaders support curbing speculation on crude oil. What does this really say about  our elected officials in D.C.

Since higher gas prices drives up the cost of all goods and services, it seems clear by lack of support that our government wants for us all to struggle with the cost of living. Unless I'm viewing this all wrong, I don't understand why the entire congress can't/shouldn't get behind this sort of thing? I'd like to know which 69 members have a conscience. Some here may complain about Bernie, but no one can ever say he doesn't try to do what's right for people.


Sen. Bernie Sanders and 69 other members of Congress say federal regulators should curb speculation in crude oil markets which has artificially pushed up gasoline prices to nearly $4 a gallon. The lawmakers - 23 senators and 47 members of the House - said Monday in a letter to the Commodity Futures Trading Commission that the regulators must stop Wall Street futures traders from dominating the oil market.  The commission has flouted a provision in the 2010 Wall Street reform law that required regulators to put tough new trading limits in place by Jan. 17, 2011. "We are disappointed that, more than a year later, the commission has not fulfilled this important regulatory duty," the letter said. 

"It is one of your primary duties - indeed, perhaps your most important - to ensure that the prices Americans pay for gasoline and heating oil are fair, and that the markets ... operate free from fraud, abuse, and manipulation," the lawmakers added.

They stressed that gasoline pump prices are up despite high supplies and low demand. According to the Energy Information Administration, the supply of oil and gasoline is greater today than it was three years ago, when the national average price for a gallon of gasoline was just $1.90. Today, the national average is more than $3.70 a gallon at a time when the demand for oil in the U.S. is at its lowest level since April of 1997. 

There is a growing consensus that speculators are to blame. Exxon Mobil, the Saudi Arabian government, the American Trucking Association, Delta Airlines, the Petroleum Marketers Association of America and the Federal Reserve Bank of St. Louis all say excessive oil speculation significantly increases oil and gasoline prices. Citing a recent report from the investment bank Goldman Sachs, a Feb. 27, 2012, article in Forbes said excessive oil speculation adds $.56 to the price of  a gallon of gas.

"As the cost for American people to fill their gas tanks continues to skyrocket, the CFTC continues to drag its feet on imposing strict speculation limits to eliminate, prevent, or diminish excessive oil speculation," the members of Congress told the commissioners.

"We urge you to take immediate action to impose strong and meaningful position limits, and to utilize all authorities available to you to make sure that the price of oil and gasoline reflects the fundamentals of supply and demand."

[mirjo]

I'm told it's not oil speculation that's driving up prices--since I don't know and someone likely does, please post what is. There is a lot of "speculation" about what the problem is, so I'm not sure anyone really has an answer, including so-called experts on the matter.

[David Shea]

Devaluation of the US dollar. 

[Rev. Elizabeth]

speculating on oil futures has driven the price up in the past.

[Norton]

How is it that retail prices are so affected by speculation when most things we buy (food, household items, haircuts, appliances bicycles, whatever) are not?  I think it's another indication (and effect) of how "close to the edge" we are in this oil game.  If supplies were secure and demand wasn't going crazy, there would be little or no money to be made in speculation, which is essentially betting that things will get bad fast.  But supplies aren't secure and demand is rising.  The folks who control large amounts of money can see that it wouldn't take much of a supply disruption to drive prices up substantially, and therefore there's a resonable chance that will happen, so they might as well position themselves to take advantage of our vulnerability.  In a way, it IS about supply and demand, but it's not so much today's supply and demand but uncertaintly about tomorrow's.

Devaluation of the dollar has a long-term effect of the average prices in the US, but doesn't account for wide fluctuations whenever there is sabre rattling or political stress in oil-producing countries.

Why doesn't congress do anything?  Perhaps some of them buy into the unfettered capitalism strategy and others are hesitant to annoy those who fund their reelections.

[mirjo]

Thanks, to those who posted an answer; however, it's all still speculation right? In that vane, why should anyone assume Senator Sanders is wrong  in his opinion on "speculators?" Do we know for sure it's devaluation of the dollar? No. Do we know for certain it's the uncertainty of future supply/demand? No. We also don't know for certain if speculation on Wall Street is the root cause. The only thing we do know is that many in congress have a stake in the oil industry and won't ever do anything to upset their own apple carts--especially politically.

Today was a beautiful spring teaser--Happy Spring coming up!

[Chris Santee]

After rumors send oil prices falling, Welch renews call on President to tap nation's oil reserves

BURLINGTON, VT – A day after rumors that the U.S. would tap the Strategic Petroleum Reserve (SPR) spooked Wall Street speculators and sent oil prices falling, Rep. Peter Welch is pointing to that episode as exhibit A of the effect such a move would have on gas prices and is renewing his call on President Obama to take action.

In a letter to the President, Welch, Rep. Ed Markey (D-Mass.) and Rep. Rosa DeLauro (D-Conn.) are urging him to use the SPR to bring relief to consumers struggling under near four dollar a gallon gas prices. They point to yesterday's events, when the rumor that the SPR would be used caused oil prices to drop $1.58, as further evidence that such a move would be effective. Welch, Markey and DeLauro are leading the charge in Congress urging the President to deploy the SPR.

"If we needed any more evidence that deploying the nation's oil reserves can disrupt Wall Street speculators, we now have it,” Welch said. “Deploying the reserves is not a long-term fix to high gas prices. But it is an effective, American-owned tool that can bring relief to struggling consumers. Democratic and Republican presidents have released oil from the reserves to great effect in the past. It's time for President Obama to do the same."

Releasing oil from the SPR has driven down prices in the past. When President George H. W. Bush deployed oil from the SPR in 1991, oil prices immediately dropped by more than 33 percent. When President Clinton exchanged oil from the SPR in 2000, it again drove prices down by nearly 19 percent. When President George W. Bush released oil from the reserve in 2005 following Hurricane Katrina, oil prices fell by more than nine percent. And last year, when President Obama directed the release of 30 million barrels of oil from the SPR – less than 5 percent of the reserve – in conjunction with the release of an additional 30 million barrels from international partners, prices declined by eight percent.

The full text of Welch's letter is copied below.

The Honorable Barack Obama
President
The White House
1600 Pennsylvania Avenue
Washington, DC 20500

Dear President Obama:
On March 15th, the Wall Street Journal reported that U.S. crude oil futures dropped by as much as $1.58 per barrel in reaction to a Reuters report suggesting that you and British Prime Minister David Cameron had reached agreement on a plan to release oil from both countries’ national oil reserves.  After government officials denied that any such agreement was imminent, oil futures prices quickly rebounded.

This incident only further underscores the sensitivity of world oil markets to the possibility that you might exercise the authority that you have to release oil from the Strategic Petroleum Reserve (SPR), and the ability of releases from the Reserve to help bring consumers short-term relief from current high oil prices.  We are writing you because we believe that it is essential that the United States have an aggressive strategy for releasing oil from the Strategic Petroleum Reserve to combat the speculators capitalizing on the fear in oil markets and to send a message to Iran that we are ready, willing, and able to deploy our oil reserves.

While the policies that you have put forth to move the United States away from its dependence on oil through increased fuel efficiency and accelerated deployment of alternative energy technologies provides the best medium- and long-term solution to our nation’s dependence on imported oil, the one tool that the United States has at its disposal to protect against the short-term threat of supply disruptions and related speculation in the oil markets is the SPR. As we approach the summer driving season, we believe that you must consider all immediate options in order to prevent a runaway increase in prices. We commend you for your willingness last year to use this weapon that the American people have against OPEC. We urge you to consider again deploying oil from the SPR to respond to combat the rapid price escalations resulting from speculation in the oil markets.

As you know, releasing oil from the SPR has driven down prices in the past. When President George H. W. Bush deployed oil from the SPR in 1991, oil prices immediately dropped by more than 33percent. When President Clinton exchanged oil from the SPR in 2000, it again drove prices down by nearly 19 percent. And when President Bush released oil from the reserve in 2005 following Hurricane Katrina, oil prices fell by more than 9 percent. And last year, when you directed the release of 30 million barrels of oil from the SPR - less than 5 percent of the reserve – in conjunction with the release of an additional 30 million barrels from our international partners, prices declined by 8 percent.

Right now, the Strategic Petroleum Reserve holds approximately 696 million barrels and is filled to more than 95 percent of its capacity. Releasing even a small fraction of that oil could again have a significant impact on speculation in the marketplace and on prices. It would remind the markets that the United States is ready to employ an aggressive and effective SPR drawdown policy if needed. Signaling that the United States will continue to employ an aggressive SPR policy in the near-term would send a strong signal to oil markets responding to the unrest in the Middle East.

Gas prices are up 57 cents since Iran threatened to block the Strait of Hormuz at the end of December and high energy prices have the potential to derail the progress our economy is making in recovering and adversely impact American consumers. In the long term, we agree with you that America needs to develop clean energy alternatives that can reduce our dependence on oil. However, as a short-term step, once again considering the release of oil from the SPR could help prevent oil prices from spiking in the short term and help American consumers and our economy.

Thank you for your consideration of this request.

Sincerely,
Peter Welch
MEMBER OF CONGRESS

Ed Markey
MEMBER OF CONGRESS

Rosa DeLauro
MEMBER OF CONGRESS

[Chris Santee]

The speculators got burned here.
The rumor of more oil in the market sent prices down.

[Chris Santee]

This link will show a chart of the price of a barrel of oil over the past year or so:
http://www.wtrg.com/daily/crudeoilprice.html

The first half of the graph shows a steep decline and
the second half shows a steep incline.

There were speculators speculating in the first half
when it was falling
and speculators speculating in the second half
when it was/is climbing.

The "put the blame on specualtors" argument
doesn't hold oil.

It's politicians in office sayiing "It's not MY fault".

[tfence]

There is a plan going around facebook, not to pump gas on April 15, 2012. they expect the oil industry to loose 27 billion dollars that day. The last time this was done the price dropped 30 cents over night.

[Chris Santee]

I saw that, Tom. What the heck, I won't buy gas on April 15th.

Here's an article from CNN, Fortune & Money magazines discussing rising oil prices against a falling dollar:
http://money.cnn.com/2011/04/20/markets/oil/index.htm

[Norton]

Any effect from tapping into the reserve will be temporary and will be reversed when we buy oil to restock the reserve.  It's the same with the April 15 strategy.  It doesn't change the supply and it doesn't change the demand.  It only moves them to a different day.  People (most of them at least) who don't buy gas on April 15 will simply buy that same amount of gas on April 14 or 16.  And if releasing gas from the reserve drives the prices down temporarily, then common sense and economic theory dictate that restocking the reserve will have an approximately equal opposite effect when we buy the gas back later.

Kinda like "Cash for Clunkers", or a sales tax holiday.  Benefits a few people in the short term, makes folks feel like something is being done, but really doesn't change anything in the long term.

[Chris Santee]

Exactly !

The reserves were also created for national emergencies, not economic downswings or re-elections.