unregulated speculation that is costing consumers billions of dollars – and vastly enriching people like T. Boone Pickens.
Speculators – not supply and demand – are to blame for skyrocketing gas prices
COMMENTARY | July 11, 2006
A bipartisan Senate report, largely ignored by the media, says that there's no oil shortage and none is expected. Rather, it's massive, unregulated speculation that is costing consumers billions of dollars – and vastly enriching people like T. Boone Pickens.
By Henry Banta
Hbanta@compuserve.com
The conventional explanation for high gasoline prices doesn't work. The notion that energy demand, especially in places like China and India, created a world-wide oil supply shortage which drove up prices and caused Americans to pay more at the pump cannot be squared with the facts.
On June 26, the Senate Permanent Subcommittee on Investigations issued a report on the role of market speculation on the prices of oil and gas that leaves the accepted wisdom in need of stark revision.
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The precise effects of the infusion of speculative money into the oil and gas markets cannot be determined, but they are clearly significant. First, the amounts involved are enormous. Financial institutions, hedge funds, pension funds, and other investors have put billions into energy commodities markets. One of the more important economists in the field has calculated that the amount of money invested in commodity index funds "jumped from $15 billion in 2003 to $56 billion in 2004 and on to $80 billion today."
Needless to say, these institutions have no use for petroleum other than to sell it to someone else. Second, by all accounts, the traders are doing extremely well. Out front is T. Boone Pickens who is reported to have made around $1.5 billion last year. While not in that league, there is a long list of others who have made millions.
snip
Finally, lurking in the report is more than a hint that all this speculation in ever-rising oil prices could come to a bad end. The report quotes one oil trader, "At some point, this oversupplied market has to begin to break down this house of cards which is dominated by speculative entities, and when those entities decide to start liquidating their futures positions in crude and gas, look out below."
COMMENTARY | July 11, 2006
A bipartisan Senate report, largely ignored by the media, says that there's no oil shortage and none is expected. Rather, it's massive, unregulated speculation that is costing consumers billions of dollars – and vastly enriching people like T. Boone Pickens.
By Henry Banta
Hbanta@compuserve.com
The conventional explanation for high gasoline prices doesn't work. The notion that energy demand, especially in places like China and India, created a world-wide oil supply shortage which drove up prices and caused Americans to pay more at the pump cannot be squared with the facts.
On June 26, the Senate Permanent Subcommittee on Investigations issued a report on the role of market speculation on the prices of oil and gas that leaves the accepted wisdom in need of stark revision.
snip
The precise effects of the infusion of speculative money into the oil and gas markets cannot be determined, but they are clearly significant. First, the amounts involved are enormous. Financial institutions, hedge funds, pension funds, and other investors have put billions into energy commodities markets. One of the more important economists in the field has calculated that the amount of money invested in commodity index funds "jumped from $15 billion in 2003 to $56 billion in 2004 and on to $80 billion today."
Needless to say, these institutions have no use for petroleum other than to sell it to someone else. Second, by all accounts, the traders are doing extremely well. Out front is T. Boone Pickens who is reported to have made around $1.5 billion last year. While not in that league, there is a long list of others who have made millions.
snip
Finally, lurking in the report is more than a hint that all this speculation in ever-rising oil prices could come to a bad end. The report quotes one oil trader, "At some point, this oversupplied market has to begin to break down this house of cards which is dominated by speculative entities, and when those entities decide to start liquidating their futures positions in crude and gas, look out below."
