What Happened to Oil Prices II (read the post on the previous page first)
That old saying about laws being like sausage "if you like sausage don't
watch it being made" was never more appropriate than this hearing.
The Democrats on the panel take a typical partisan stance on gas and
oil prices. After putting aside the grandstanding there are some
significant points made. The important parts of the hearing are extracted
from the transcript, it's faster reading than watching. The full transcript
is much longer than the few pieces here.
At one point in the discussions the case was made that the 2008 $35 bottom
in oil was a measure of the true cost without the gouging by the NY Invest-
ment banks. We've discussed the same point in this forum for a couple of
years.
Rep. DeLauro sets the tone at the introduction. Her ratio of Speculators
to Commercials is fairly accurate, Goldman-Sachs estimate is self-serving
and far too low. The ratio should be based on relative contract volume.
De Lauro confers too much credit on Dodd-Frank. New CFTC regulations
are being created that will have dubious results on the elimination of
the Investment Bank Speculators control. (See transcript on CFTC Chairman)
The funding of an additional $100 million (beyond an additional $308 million)
for more "cops on the beat" at CFTC is a sad example of pork barrel politics
diverting focus from the real problem. The battle for this extra $100 million
surfaces throughout the hearing. Nowhere is their given a method by which
the $100 million was calculated. At the end Prof. Greenberger just waves his
hand and says $100 million is nothing when compared to the $10 billion extra
Americans must pay every month at the gas pumps.
Rep. De Lauro at the end mentions that the CFTC may have to reset margins
and position limits as if this was new to Dodd-Frank.
Transcript:
House Democratic Steering and Policy Committee 4/4/2012
Rep. Rosa DeLauro: Goldman-Sachs estimates speculators at 20% to the
price of gasoline. President of Mobile said oil should $60 to $70. Speculators now make
up 60% to 80% of the market. Dodd Frank gave CFTC new wide powers to investigate.
Republs have allegedly tried to gut the CFTCs new powers in Dodd Frank. CFTC needs
$308 million for investigators. 696 million barrels in the Strategic Reserve, release some
to reduce speculation. CFTC may have to reset margins and position limits.
Rep. Markeys' 4 point plan has only two pertinent parts, points 2 and 3.
He seems to be the only one on the panel who is aware that refined oil
in the form of gasoline an diesel fuel is being exported from the US while
Americans cut back on purchases only to encounter higher gasoline
prices.
The President has recently sped approval permits for the Cushing Oklahoma
to Louisiana pipeline. At the same time the President and stalled the
Keystone pipeline from Canada to Cushing. This is all contrary to Mr. Markeys
desire which is to speed delivery to the US only. The Presidents' move will
transport more oil to the gulf for delivery to points outside the US thus
raising the demand for Cushing and thus raising US gas prices. The
Keystone pipeline would have provided cheap transportation costs to Cushing
but more expensive rail and truck transport to Louisiana.
Transcript:
Mr. Markey: $3.93 per gallon national average. 1) use Strategic Reserve, oil dipped
by several dollars when this was suggested 2) Stop Wall Street speculators who have
made commodites a oil casino. Repubs have tried to shrink CFTC budget to investigate
3) End Exploitation of resources, 1 billion barrels of US petroleum and fuel
(gasoline and diesel) sent overseas last year to China, Morocco and Singapore,
this exportation should stop, repubs resisted , wants to stop export of petroleum and
fuels from American lands 4) End subsidies for oil companies
(For a surprising and clear view of the invisible counter-forces at play you
must read Mr. Greenbergers' 3 point plan below the video --- pay particular
attention to point 3.)
Here's the video of the Gas Price - Oil Price hearing.
Professor Michael Greenberger is a long time Washington consultant/lobbyist
in addtion to being a teacher. Most interesting is his earlier career as a
Futures trader for a large financial organization.
(This post almost disappeared again so please excuse the messy text at the
bottom. I just posted "as is" to prevent losing all this work again.)
Transcript
Michael Greenberger, Univ. Of Maryland Law School Prof. there is a quick fix for
his, he has 3. Europe is on its back so is Japan, the US is back. Ever increasing gas
prices will stop this recovery. It “will break the back of this recovery”. Saudi King
will increase oil production 25% to make up for any blockage of the straits of Hormuz. 60
international experts agree that there is equilibrium between oil supply and demand,
there is no shortage. Noriel Roubini, London School… When the national price of
gasoline goes over $4 per gallon this will become a bi-partisan issue. …
Why is the price of oil rising so high (above Mobils’ estimate above) if there is no shortage?
Do not believe those who say there is a supply-demand problem. The problem
is Wall Street speculation on oil. It is similar to the gambling Wall Street did on
its’ sub-prime mortgage bets. Now they are betting on the upward price of oil.
Excessive speculation --- which is another name for gamblers wearing Wall
Street suits. Have taken these markets over and are controlling the price of oil
By gambling you do not increase the amount of oil or create national economic
well being. We have a Las Vegas exponentially on steroids. We were too kind
in Dodd Frank. We delegated the responsibility.
3 recommendations for Congress, this is NOT a supply problem. Supply is plentiful, we are net exporters of oil! Gambling must be stopped!!
1) Investment vehicles called Commodity IndexSwaps and Synthetic Exchange Traded Funds, Like naked credit default swaps earlier (CDS) that led to meltdown that were really bets on MBSs, --- Are a half $trillion of investments that are sending false messages that there are shortages in the oil market. Those false signals are damaging the
the supply mechanisms in the oil markets. That gambling must be stopped, it will NOT have anything to do with production, none of it goes to production, none of it goes to liquidity, it’s all casino gambling and nothing productive.
2) There a manipulations in the market by big financial traders that are conspiring to drive prices up. Obama has asked the Justice Department twice to convene a prosecutorial investigation, he did it first on April 21st 2011, oil was at $110 within 6 months it was at $75. But nothing happened at Justice and now the price is back at $110 again. Now the President has asked for a task force to investigate. All of us have to work
with Justice to explain to them the manipulation in the oil market is not only crippling the
American consumer but it threatens the recovery of the US economy.
If we go back into recession there’s going to be no safety net, no TARP, the American
people don’t have the stomach for bailing out banks. If we don’t have a safety net we’re
going into a Depression. This has got to be the Attorney Generals’ number one investigative process.
Where is the FBI? Where are the interviews of market participants, where are the subpoenas? Focus on this let’s get these guys going. If there is a real investigation just the appearance of it will cause these cockroaches to scatter because the light will be turned
on. They don’t want to go to jail and if they think If they think they are not gong to jail
they will keep damaging the US Economy.
3) The American people must know that the Commodity Trading Futures Commission
is the cop on the beat that can stop this problem. Under leadership of Chairman Gensler** appointed by President Obama, they have done an amazing job but they are completely underfunded.
(Mr. Greenberger failed to mention that Mr. Gensler is a former Goldman-Sachs man that was just recently (several months) placed in the CFTC Chairmans position as the reform process started, think Hank Paulson former CEO of GS just appointed Treasury Secretary who created the $700 billion TARP bailout or ---- think Foxes and Chicken Coops)
