By Rob Janicki
President Obama, in desperation to appear that he is doing something for consumers, is seeking a crack down on oil speculators. Obama and Democrats want people to believe that speculators are driving up the cost of gasoline at the pump by bidding up crude oil on the world market. The world market. Think about it for a moment. Just how does Obama plan to regulate a world market?
[...] The White House proposal is designed to act as a deterrent to illegal manipulation of the energy market, which Mr. Obama and other Democrats repeatedly have said is at least partially responsible for high gas prices. [...]
There are several salient points to be made here. First, over the years, a dozen or more investigations into possible oil market speculation have found absolutely no evidence to support any such allegations. There is no substantive information to believe the current oil market has been affected adversely by any speculation.
Next, there are many local oil markets that index their oil grades off of several world grades of oil. As an example, all oil grades in North America are indexed off of West Texas Intermediate grade crude oil, which is considered to be the premium low sulphur, low contaminant crude oil in the North American oil market. Currently West Texas Intermediate in selling around $103 per barrel.
In comparison, Canadian tar sands crude oil is selling in the $60 to $70 per barrel range. Why so low for this grade of oil? Because of two reasons. First, the tar sands crude oil is heavy oil loaded with contaminants that are more expensive to remove in the refining process. Second, transportation costs from the well head source to the refinery are greater, thus contributing to the final refined price of the oil products produced from the tar sands crude oil.
With all that said, Obama still wants people to believe that there are malevolent forces of greed bidding up the cost of crude oil on the world market. One wonders exactly how Obama proposes to regulate speculation that occurs beyond American borders. Does Obama believe that speculation is only related to American speculators, if they even exist? How does Obama propose to regulate alleged speculators around the world? It's a world market folks. There are so many participants that a few speculators could have virtually no impact on the world market. If Warren Buffett were to take his net worth of $30 billion dollars and engage in speculation in the world oil market, he would have no effect. The market is so large, that Buffett would simply be one on many similar sized participants. That illustrates just how big the world oil market is. But that doesn't stop Obama.
[...] “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,” Mr. Obama said at the White House with Attorney General Eric H. Holder Jr. at his side. “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.” [...]
The problem with this logic should be apparent to anyone who understands the world oil market and Obama isn't one of those people. If speculators were to drive up the price of oil through buying and then turning over the purchased oil for a quick profit, the market would immediately react with lower prices based upon the increase in the supply of oil from the sale of the oil speculators dumping oil on the world market. It's a canceling out process that Obama and his minions simply do not understand.
[...] Before the official announcement, senior administration officials were careful not to estimate the effort’s immediate impact on prices at the pump, nor did they point to any hard evidence of illegal oil speculation, deferring questions about possible market manipulation and any open cases to the Justice Department. [...]
This statement speaks to the fact that the entire proposal by Obama is nothing more than a political ploy to make it appear that Obama is exercising leadership in getting the price of gasoline at pump to drop. Those involved in the world oil market know this process will go nowhere for the reasons expressed above.
Today Poland the speculators, tomorrow the world capitalism!
ReplyDelete- Hitler Obama
Speculators are essentially investors engaged in legal activity to make a profit. Why else would someone put their money at risk, if not to make a profit? They are putting their money at risk with no guarantee they will make a profit . That stand equal chances to lose all or most of their investment. Speculation/investment is a risk activity. The greater the risk the greater expectation for higher returns for that risk.
ReplyDeleteManipulators on the other hand seek to take advantage of a system to engage in illegal activity with a certain predictable positive outcome as a result of their illegal activity. Insider trading is the classic example of illegal manipulation of privileged information.
Speculators/investors contribute to stabilizing a market, not making it more volatile. The more investors/speculators in a market the closer the bid and sell prices become. In other words speculators/investors contribute to pulling/pushing the market closer to a balance point. It's when markets have few speculators/investors that we see wide swings in bid and sell prices.
The "speculators" are attempting to profit by accepting risk. They provide essential liquidity to the futures market. The large producers and consumers of the actual deliverable (oil in this case) are reducing their risk by selling it to the "speculators". This is called free market capitalism. The Hunt brothers tried to manipulate the silver market in the 1970s and they failed. The world oil market cannot be manipulated by futures traders. To suggest otherwise is a ridiculous political stunt calculated to manipulate masses of voters who are ignorant of how the world futures markets operate.
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