Would speculation end if buyers and sellers actually had to pony up if the contract came due and they got caught short or long? In other words, take the actual fuel to the pipeline/distribution point? Or would the speculators only then be the refiners? Would it make a difference? If you don’t actually make, raise, grow the commodity traded or belong to an organization that does; should you be able to play the game? If the Feds actually owned 20% of the fuel in this country it would stop some of the abuse. But, that isn’t going to happen any time soon.

Deny speculators AKA gamblers they’re winnings? What kind of Casino is this anyway?

We also know that oil companies that never take ownership of the product also speculate.

You have hit it on the head. Unless speculators actually take delivery, they have zero impact on the clearing price. Pelosi is just demonstrating ignorance of how markets work and hoping the public doesn’t know either.

“One problem is that the CFTC’s agency budget has been clipped over the past year making it difficult to implement anti-speculation rules.”

What does the budget have to do with creating new rules. It cost nothing to create rules. Once law, these rules would/should be enforced by the Justice Department.

In response to Abdul @ 4
No, comrade, you are demonstrating an ignorance of how capitalism works. Compradors must be rewarded; if all 99% were solely victims of thievery, capitalism could not survive.

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“If you have no intention of taking or making delivery of the commodity you are trading, you shouldn’t be allowed to participate in the market.”

Well then there can be no hedging of risk. The hedger transfers risk to a speculator. There is nothing wrong with that. It is part of the reason you can buy an airline ticket now for travel many months in the future. The airline can hedge the price of fuel with a speculator. You wind up with a lower priced ticket because the risk cost has been transferred.

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Every time I read a story about high gas prices I am always surprised no one ever mentions the MOST obvious source of high prices:the oil companies and refineries. The men who own the businesses have stated loud and clear that they will spend or do whatever is necessary to defeat Obama.

The hedger transfers risk to a speculator.

But, as we’ve learned, that is an obfuscation, a lie, to rip off the public via multiple pathways.

Investment “gambling” is only a means to reward sufficient # of compradors in order to prevent the political collapse of a dying capitalist “democracy”.

Shocked, shocked to find that gambling is going on in here!

I have yet to read a coherent explanation for the supposed absence of a spot market. If speculators are buying and selling forward, their beliefs and fears can drive forward prices up or down, but when they have to close out their positions .. Rather than take delivery . . .then there has to be a price at which that occurs, and it would be logical for this implicit spot price to reflect current reality, rather than speculation. that is the piece Ian Welsh doesn’t address in the link David uses.

Is there a better description?

There are valid speculative reasons for forward prices to be up . . . Crazy people are trying to start a war with the worlds 4th largest producer, or imposing an economic boycott, which has similar effect, and Wall Street speculation can pump billions in to magnify this effect . . .

Or for forward prices to fall . . . Inventories are very high and slack economic growth in consuming nations is depressing demand a bit below what it might otherwise be, or the US and others will release strategic reserve . . .

But eventually every forward position has to be settled out, unless the buyer plans to take delivery, which is not done by speculators. How is that price determined?

The common understanding of futures markets is a fiction as price manipulation is a necessary tool for the “brokerage”.

One giveaway to this scam is the lack of consideration given to the speculative losers whose aggregate loss is as much as the winners’ (accounting for the brokerage’s take). From this zero-sum game, Capitalism constructs a net increase in value by ignoring the losses. This fraudulent conventional accounting to justify capitalism only masks a deeper one – outright theft, or price manipulation in this case.

But the masterstroke is the payment to compradors to get them to ignore the theft.

What I would like to see (and don’t have the knowledge to do) is an approximation of:

How much over and above normal supply and demand pressures gas prices have risen in the last year due to speculation, and,

how much this overage and the resultant rise in gas prices have hurt the purchase of goods through the consumer/middle class economy (excluding Wall Street) as a result.

That might get the administrations and the CFTCs attention, I’ll bet that it’s substantial.

The speculative price becomes a factor in raising prices downstream, regardless of the actual cost on delivery. When the speculative price spikes, within a couple of days, pump prices also rise.

I’ve read that for a $100 barrel of oil, $20-$30 (or more) is taken by non end-user speculators. This is the first article I found. It also says

“Prior to the 1990s, speculators made up about 30 percent of the futures market. In the latest reporting period, the ratio on May 3 stood at 68 percent speculators to 32 percent users of oil.”

It was printed in 2011.

Thanks for your comments on this one. You have helped clarify some things for me as I have been reading the articles on this post in conjunction with Greenspan’s comments on oil speculation from the summer of 2008. Thanks.

Thanks. The politicians constant harping in.re. attacking Iran is a major contributor to the speculators’ ability to inflate prices. It’s almost as if the politicians, speculators, and Big Oil were in bed together.

But of course that could never happen here.

“But eventually every forward position has to be settled out, unless the buyer plans to take delivery, which is not done by speculators.”

Every forward position does not have to be settled out in the options market. And the futures options prices do raise the price of the commodity itself. Speculators buy and sell options contracts on futures and that is one of the ways the price gets run up. This applies to all commodities that have options (derivatives) on their futures. Up until about ten or so years ago (I don’t know exactly when) there weren’t options on the oil futures market.
It takes more explanation than I can do here and there are also things like daily position and price limits (I don’t think there is a daily price limit on oil) that affect how much the price can move in one day. These limits have also been raised, which adds to the rise in price. The price of our food commodities has been affected the same way.

Sometimes speculators do take delivery of product. That is why we had tankers full of oil sitting offshore a year or two ago, until the price went up. Buy low sell high.

Also, oil is traded in US dollars, and the weak dollar policy (low interest rates) of the Federal Reserve also contributes to the high price of oil.

I hope this too brief explanation helps clarify at least some things.

Yes, thanks to our invasion of Iraq, the “kinetic military action” against Libya, and the sanctions and threats against Iran, oil is still traded in US dollars.

People are missing the point.

What happened in 2008 proves that oil futures speculators are responsible, once again, for artificially driving up oil barrel and gasoline prices. And just like in 2008, oil supply and consumer demand today are not the main force putting upward pressure on energy prices, oil futures speculators are.

Look at 2008. Oil barrel and gasoline prices skyrocketed in the months before the 2008 financial crisis and stock market collapse, with oil barrel and gasoline prices reaching record heights. This 2008 financial crisis hit everyone on Wall Street hard, including investors, including oil futures speculation investors, severely disrupting trading. Aaaah, inadvertent LIMITS were placed on oil futures speculation and the result was the plummeting of oil barrel and gasoline prices, even as the stock market index plummeted, too, following the same downward curve.

And then the bail-out occurred in 2008 (TARP I) in which GW Bush and Congress pumped $700 billion into Wall Street firms to shore-up the stock market, helping investors retain some of their market value and share, AND the Federal Reserve did its part to help by issuing $7.7 trillion in loans and guarantees to Wall Street. IOW, by the “government” doing this, not only were “too big to fail” Wall Street firms saved, but also oil futures speculators were saved, primarily because they overlap, with many “too big to fail” Wall Street firms speculating in oil futures.

So, of course, energy costs are skyrocketing again, a repeat of what happened in 2008, with bailed-out oil futures speculators back to unrestricted, unlimited oil futures trading, driving up energy costs and their profits. The SEC, the CFTC could be a stop to this, they could enforce even more severe limits than what Dodd-Frank mandates, but just like in 2008, they aren’t doing anything, just letting the ones who almost crashed completely the U.S. and world economies in 2008 get away with it again, a “legal” theft, one cheered on and defended by culture of corruption Grand Theft Larceny Republicans.

Note: Grand Theft Larceny Republicans pulled the same stunt with the U.S. Postal Service in 2006 in an attempt to drive the U.S.P.S. out of business, forcing the U.S.P.S. to pre-fund 75 years of postal employee health care costs in 10 years, causing severe U.S.P.S. budget deficits over the past 5 1/2 years, costing U.S.P.S. jobs (including veterans) and costing thousands of rural communities their local post office outlet.

Furthermore, Republicans control the U.S.P.S. board of governors. They could have raised stamp prices to offset the costs of this onerous Republican 2006 law, but they didn’t. IOW, revenue could have been raised to meet this U.S.P.S.-destroying Republican mandate, but if Republicans on the U.S.P.S. board of governors had done this, the outcry and backlash against crazed and thieving Republicans would have been enormous as both businesses and individuals raised a stink…and the Republicans responsible would have been exposed, probably while Bush was still in office. So, Republicans kept quiet, doing nothing to raise additional U.S.P.S. revenue to address Republican-caused shortfalls. The Paul Ryan budget plan follows the same perverse pattern. Republicans not funding the Iraq War follows the same perverse pattern. And the same perverse pattern can be found in oil futures speculation and Republicans refusing to do anything to put limits on it, except in this case all American motorists are paying an “oil futures speculation tax” whenever they pump a gallon of gas into their gas tank.

Didn’t these same Dems just send a JOBS bill to the President which FURTHER deregulates the financial markets? Thus allowing for more fraud and speculation in the “sub billion dollar company” category? And didn’t the President just SIGN IT?

But now they think I’m stupid enough to think they really care about speculation just because gas prices are high and they need my vote later this year?

Fuck them.

No, comrade, you’re missing the point. Financial capitalism requires compradors to maintain it’s hold so it rewards them while impoverishing their colonized countrymen. Democrats are only the lesser evil in this game and, if Republicans weren’t indoctrinated at home, they’d have to be cultivated, as Raygun helped do.

Under limits to growth, capitalism metastasizes and more so needs compradors. Republicans are willing hatchet-men, but as Obama so clearly demonstrates, Democrats only submit in a more modest fashion. In fact, the reason you don’t have an adequate explanation of this system is because the Democrats exclude it.

But the major point you miss is that domestic compradors must be maintained in order to escalate the colonization at home.

What happened in 2008 proves that oil futures speculators are responsible

Nonsense. The world economy was on the verge of collapse by late 2008. Letters of credit weren’t being honored. World shipping had practically come to a halt. Demand for oil collapsed. So did the price.

Why was oil so expensive before the collapse? In 2005, world oil production averaged just under 74 million barrels of oil a day. In 2012, we are still under 74 million barrels per day. In 7 years, there has been no growth in conventional oil supply, and yet the global economy has grown considerably. All the excess production capacity is gone, and we’ve turned to ethanol and synthetic oil (Canadian tar sands, mainly) to keep up.

Any time the world economy grows, oil prices are going to go up, then come back down again when high oil prices kill the economy. You can complain about speculators all you want, but it is just diverting people from addressing the real problem — the world can no longer increase oil production to keep up with economic growth.

And that’s not such a bad thing. While expensive oil hurts the economy (and make American SUV owners very grumpy), the CO2 from cheap oil is hurting the entire planet.

You can complain about speculators all you want, but it is just diverting people from addressing the real problem — the world can no longer increase oil production

Except that speculators are capitalism’s answer to the problem – preinflating the prices to force transition (brutally) and maintaining a comprador class in favor of brutality.

So the “solution” – an evasion of capitalism’s demise – is a sociological breakdown sprouting out of economic limitations. The breakdown must be treated even if there is a way to evade the limitations.

IOW, speculation is capitalists’ sociopathic diversion from the “real” problem.