I admit I’m a month behind on this but a friend recently pointed me to this Heritage Foundation Web Memo by Ben Lieberman. Now I’m sure that the author is undoubtedly much smarter than me and I largely agree with the stated “Lessons” in his memo but some of this lacks the substantive analysis required to be taken seriously. The two lines that really bother me are:
And if speculators were capable of profiting by driving prices ever higher, why would they allow themselves to be caught holding the bag in a free fall?
and
Clearly, the drop in prices is strong evidence that the market is not so easily manipulated
Regarding the first, I didn’t notice any real evidence that speculators were not capable of “driving prices ever higher”, just the assertions that the FTC found past allegations (not related at all to the current circumstances) “to be without merit” and that price drops somehow prove the rise was free of manipulation. (HINT: Manipulating speculators make money on the way down also.)
I’d argue that this hints very strongly that someone over at the U.S Commodity Futures Trading Commission at least suspected that something out of the ordinary was going on. Furthermore, given the four month warning on these new position limits and reporting requirements, I’m confident that none of the suspected speculators were left holding the bag and the author gives no evidence to the contrary. (HINT: How many times during that 120 day period did Goldman Sachs project oil prices above $150 per barrel?)
Regarding the second quote…and maybe I’m just not smart enough to follow Heritage Foundation logic but again…I just don’t understand how dropping prices are in any way evidence, let alone strong evidence, that manipulation wasn’t extremely easy in the formerly CFTC oversight-free ICE playground.
Alternatively, I’ll continue to argue that dropping prices coinciding with the graciously forewarned implementation of new regulation…and sunshine…on the process would deserve more investigative reporting than the shallow Heritage analysis referenced above would lead one to think necessary.
Anyway, that’s my $0.0125 worth on the subject. (Times are hard and I thought I should get that in before its worth even less.)
Ntrepid
Proud Member for 4 Years and 2 Months
Moe Lane
Steve Maley
Dan McLaughlin
Neil Stevens
Daniel Horowitz
No single person controls oil prices
Spiral (Diary) Sunday, November 16th at 5:38PM EST (link)There are so many factors that determine the market price of oil. Even a rumor that new oil reserves have been discovered could cause the market price of oil to drop during a single trading day.
Sure, I can be a speculator and purchase oil futures. But if I am betting that the price of oil goes up and it instead goes down, I can lose money. Same thing if I decide to sell oil futures. I can still lose money if I make a bad bet and turn out to be wrong.
Put it this way, what if I believed that the current price of oil (about 60 dollars per barrel) has been manipulated to be lower than it really should be?
I start purchasing oil futures.
But for every buyer there is a seller. So, while I might be accused of “bidding up the price of oil” by purchasing oil futures, someone else could be accused of “driving down the price of oil” by selling them.
See?
The Obama Bread Lines
You're right, no "single person" controls oil prices.
mbecker908 (Diary) Sunday, November 16th at 5:51PM EST (link)Everybody knows it is both Bush AND Cheney.
With All Due Respect…Horsehockey!!!
ntrepid (Diary) Sunday, November 16th at 8:10PM EST (link)(Not really trying to be that abrasive…just trying to get your attention with the title.)
I’ll be the first to admit that I don’t have anything close to a full understanding of the inner workings of what was or was not going on at ICE but let me also be clear that I don’t have any issue with future markets that operate as intended.
With that said, I do think there is a growing case to be made that ICE in practice had absolutely nothing to do with “operating as future markets were intended”. In addition to what I’ve posted above, the following quote from a Blackhedd post earlier this year also hints at some of the issues:
Very large unregulated trading volumes, no position limits, no reporting requirements, and now lots of something called over-the-counter swap contracts? Per barrel prices above $140 and totally disconnected from any reasonable assessment of supply-and-demand before CFTC enters the picture. Sub-$70 per barrel prices and coincidently back in line with what many said was the supply-and-demand price point after new CFTC policies take affect. Hmmmmmm?
I think there just may be a story here for an enterprising cable financial channel personality who doesn’t have big dreams of someday working for Goldman Sachs. I hope there is one out there.
I don’t expect there to be…nor should there be…any law suit or congressional hearing to present evidence and assign blame for the purposes of punishment. I don’t see where any laws were broken. But I do think there is some benefit to knowing what happened and why. How and why did gas spike to over $4 per gallon and weaken an already shaky economy. How and why, for example, did some yet-to-be identified municipal pension fund(s) loose some massive amount of money because they were left holding the bag when the manipulators exited the market and let prices fall back to real levels?
You see, I think you miss the bigger picture when you chalk this up to simple futures market forces or glibly write it off as another Bush-Cheney conspiracy theory. For the record, its not.
Ntrepid
Proud Member for 4 Years and 2 Months
“Everybody has an agenda. Except for me.” – Michael Crichton, State of Fear.