Investigation of Oil Trades a `Waste of Time'

[competentone]

I thought this was good. From Bloomberg News here:
http://www.bloomberg.com/apps/news?pid=20601087&sid=a1LQTSZONiBU&refer=worldwide

Pickens Says CFTC Investigation of Oil Trades a `Waste of Time'

By Margot Habiby and Edward Klump

June 3 (Bloomberg) -- A U.S. probe into whether speculators manipulated oil prices up to more than $135 a barrel is a ``waste of time,'' billionaire hedge-fund manager Boone Pickens said yesterday.

The Commodity Futures Trading Commission, the watchdog for U.S. commodity transactions, said May 29 that it was investigating how much of the gain in oil prices was caused by manipulation, as opposed to consumer demand. The investigation has been under way since December.

``There's nothing to it to start with,'' Pickens said in interviews at an American Wind Energy Association conference in Houston. ``That's not what's happened. You have 85 million barrels a day of oil available in the global energy market and 86.4 million barrels a day of demand. So the price of oil is going to go up until you can kill demand.''

Crude oil for July delivery fell 46 cents to $127.30 a barrel in after-hours electronic trading on the New York Mercantile Exchange at 11:56 a.m. Singapore time. Oil has risen 92 percent in the past year. It touched a record $135.09 a barrel on May 22. Some market analysts and members of the Organization of Petroleum Exporting Countries blamed speculators for the price.

``You've got to have a commodity market, because a producer has to have an opportunity to hedge when they feel like the risk is becoming too great for them,'' Pickens said. ``For every hedger, you have to have a speculator.''

Pickens, the founder and chairman of Dallas-based BP Capital LLC, manages funds linked to both energy commodities and equities. Yesterday, he reiterated a forecast, first made in April, that oil will reach $150 a barrel this year.

`Scapegoat'

The CFTC said it's looking into the transportation and storage of crude oil as well as the trading of futures contracts.

Hedge-fund managers and speculators reduced bets on higher oil prices by 80 percent since July as crude futures rose to records and U.S. regulators started investigating trading, government data show.

``What you're trying to do is trying to find a scapegoat and place blame for it when what you have is demand that is greater than supply,'' Pickens said.

U.S. fuel consumption averaged 20.5 million barrels a day in the four weeks ended May 23, down 0.7 percent from a year earlier, the Energy Department said last week. Gasoline demand dropped 5.5 percent in the week ended May 23, as prices at the pump reached records, according to MasterCard Inc., the second- biggest credit card company.

``We're using 400,000 barrels of oil less today than we did a year ago, but the Chinese are now using 500,000 barrels greater than they did last year,'' Pickens said. ``So whatever we kill in the way of demand, they pick up in their demand. You're gong to bid for the oil, and the highest bidder's going to get the oil until you finally kill demand with price.''

Pump Price

The national average pump price for regular gasoline rose 8 cents to $3.84 a gallon, up 19.6 percent from a year earlier and the highest in data going back to October 2006, the MasterCard report showed.

Pickens has advocated more investment in wind, solar and natural gas as energy sources. Last month, his Mesa Power LLP said it ordered 667 wind turbines from General Electric Co. to start building a $10 billion wind-farm project in Texas, the nation's largest.

Greater use of wind and other power sources in electricity generation will free up natural gas for use in transportation, reducing the need for gasoline and diesel fuel, which are refined from oil, he said. That could cut oil imports by as much as 38 percent within 10 years and also cut the price of power, he said yesterday.

``You're going to have to get natural gas in competition with gasoline and diesel,'' Pickens said. ``That's the only way out for us in this country.''

To contact the reporters on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net; Edward Klump in Houston at eklump@bloomberg.net.
Last Updated: June 3, 2008 00:01 EDT

[mikester]

For every explanation as to why oil prices are high - there is another explanation as to why they shouldn't be so high.

I would love an unbiased study done that would explain all this without emotion.

The clear reasons I see are these:

Demand - more of the world is mobilized to consume oil than ever before, in the last few decades more 3rd world countries have developed industries that require oil to operate than ever before. Demand is probably at its highest ever.

The weak dollar - no doubt about it, inflation and the weakness of the dollar - can't deny it.

Risk - lots of this oil comes from parts of the world that are simply unstable. Be it the middle east, Africa or even Russia and Venezuela which are re nationalizing their industry and seizing it from private industry.

What we don't see though is how similar this situation appears to the energy crisis in California during the late 90s and early 00s. It does APPEAR similar and I would be willing to make a small wager than we do discover that there has been some unfaithfulness and manipulation of the market in the name of greed.

For a long time during the energy crisis it was explained away for a lot of the reasons we are hearing now about oil today.

California got screwed by the energy crisis and we still have not come close to what I would call recovery but it seems that everyone has already forgotten.

[sammyg2]

LOL, a guy who makes fortunes trading futures says there's no reason to investigate him. Unbiased?
He's a lying POS.

[KaptKaos]

"waste of time" = um... don't look here... please...

[sammyg2]

AP
Soros says speculators contribute to oil 'bubble'
Tuesday June 3, 11:37 am ET
By Dan Caterinicchia, AP Business Writer
Billionaire financier George Soros tells lawmakers speculation leading to oil price 'bubble'

WASHINGTON (AP) -- The growth of funds designed to mimic the price of crude oil and other energy futures is reminiscent of a similar craze that precipitated the stock market crash of 1987, billionaire financier George Soros told lawmakers Tuesday.

The surge in popularity of commodity index funds is "intellectually unsound ... and distinctly harmful in its economic consequences," Soros told a Senate hearing. When speculators enter a market mostly on one side -- in this case, betting on rising oil futures -- it "distorts the otherwise prevailing balance between supply and demand."

He likened it to the rush to invest in portfolio insurance more than 20 years ago. When those investors tried to exit the market at the same time, stock markets around the world crashed.

While acknowledging he was not an expert on oil markets, Soros said he has spent years studying market "bubbles" that begin with a trend based in reality, but are then followed by some misinterpretation of that data. He sees no imminent crash in oil prices, however, and said a decline in consumption will not occur unless the U.S. and other developed nations' economies fall into recession.

"That makes it desirable to discourage commodity index trading while it is still inflating the bubble," Soros said. He has urged regulators to improve market oversight and to place limits on speculative positions.

Crude prices have risen more than 42 percent since early December and were trading near $127 a barrel Tuesday morning. Gasoline prices are nearing a national average of $4 a gallon, up from about $3.16 a year ago.

The U.S. Commodity Futures Trading Commission last week said it was six months into a probe of U.S. oil markets focused on possible price manipulation. The commission said it is investigating potential abuses in the way crude oil is purchased, shipped, stored and traded nationwide.

The CFTC said it would immediately require monthly reports from large institutional investors with a dual goal of quantifying such index trading and ensure it was "not adversely impacting the price discovery process."

But Sen. Maria Cantwell, D-Wash., on Tuesday said the CFTC's latest actions do not go far enough and that the agency must fully regulate all trading of U.S. energy products and close foreign-based trading loopholes.

"It is abundantly clear to me that the CFTC is not doing everything it can to protect American families and businesses from the possible oil price manipulation," Cantwell said, adding that if the commission does not do so on its, she will introduce legislation to force them to do so.

Sen. Byron Dorgan, D-N.D., noted that the CFTC's staff is roughly 10 percent smaller than a few years ago, while commodity trading has exploded.

A CFTC spokesman was not immediately available Tuesday morning.

[mikester]

Move along...nothing to see here...

[legion]

If nothing else, an investigation lets people know that their actions are being monitored.

[Jim Richards]

why all the hate for capitalism?

[legion]

It's not hate. It's actually love.

In order for markets to be efficient, everyone needs to play by the same rules. If someone is circumventing rules for personal gain, that is not capitalism, that's cheating. Cheating discourages people from putting their money into a market, which makes it less efficient.

By letting cheaters or potential cheaters know that their actions are being watched, it hopefully disuades them from cheating. It's the exact same logic behind municipalities that plant fake cop cars on highways.

Now, it's when politicians start prescribing "cures" that I have a problem, but I don't mind them digging around and bringing facts to light--that is assuming they don't have an agenda.

[sammyg2]

Originally Posted by Jim Richards

why all the hate for capitalism?

capitalism is based on supply and demand, free market, everyone playing by the same rules.
When someone cheats, it isn't capitalism any more. Seems pretty obvious to me.

[Jim Richards]

So, you're all in favor of government regulation then, right? Investigations that find something wrong will lead to oversight and regulations, unless Congress has changed its ways. Investigations that find nothing wrong will just waste time for executives trying to run their businesses.

IMO, if the system isn't working the way everyone likes, it's because of the way commodities/futures are bought and sold. Change the mechanics of trading to what everyone agrees on.

I just think this is a witch hunt looking for blame finding and an opportunity to add Congress' light touch to the the industry.

[WolfeMacleod]

Originally Posted by Jim Richards

why all the hate for capitalism?

Jim, I run my own business. I love capitalism.
But not at the expense of families being able to afford to eat, pay thier bills, loosing their homes, just being able to get to work, etc.
Oil company capitalism is driving smaller business out of business.

I know how much money I make. I work at home, so I don't drive much, but fark me, filling up HURTS.

Sure. The rape of America by a single industry is great.

[David]

I have two takes on this and I don't know which is correct and I doubt we'll ever find out:

The fact is costs have gone up with virtually no increase in supply as one would expect with increased prices.

Is this because there's no more supply to be had and prices are reflecting this limited supply OR is this because nobody wants additional oil and prices are just going up because traders want to see how high they can push it without affecting demand?

[WolfeMacleod]

To add a little bit more to what I said above about fuel costs driving businesses out of business...

One of our major local Dary's has just closed it's doors to thier main plant.
Wilcox dairy is gone. If you think it's not about fuel prices and being able to deliver product, you're fooling yourself.

Cheap electronics and other from China will be no more because of shipping costs (not that Chinese goods are good anyways....) Say goodbye to your $1200 giant LCD TV's. Hello, $4000 TV...

Say goodbye to the tourist industry real soon, as families stop travelling.

GM is dropping it's Hummer line. Good thing, IMO.

Public transportation costs are rising fast here in Seattle.

The $12 five pound block of cheese from two years ago is now $20. Food prices have risen dramatically. People I know who could afford to eat fine two or three years ago are now depending on food banks. I know..I take one of them once a week.

Mail costs have risen again. For the first time as a business owner, I am starting to consider charging for shipping. I liked being able to absorb shipping costs, and so did my customers.

This economy is going to crash if this keeps up, and it's going to crash HARD.

Yep. The rape of America. It's great, in'nit?

[sammyg2]

Originally Posted by WolfeMacleod

Jim, I run my own business. I love capitalism.
But not at the expense of families being able to afford to eat, pay thier bills, loosing their homes, just being able to get to work, etc.
Oil company capitalism is driving smaller business out of business.

I know how much money I make. I work at home, so I don't drive much, but fark me, filling up HURTS.

Sure. The rape of America by a single industry is great.

It isn't a single industry, at least not the oil industry. They don't control the prices. They are not responsible for the price at the pumps, wall street is.

[sammyg2]

Originally Posted by 125shifter

I have two takes on this and I don't know which is correct and I doubt we'll ever find out:

The fact is costs have gone up with virtually no increase in supply as one would expect with increased prices.

Is this because there's no more supply to be had and prices are reflecting this limited supply OR is this because nobody wants additional oil and prices are just going up because traders want to see how high they can push it without affecting demand?

It's because there is already enough to go around. They make as much as we need and a little bit more. Oil and gas are readily available. If they made more than they could sell, where would they put it? They only have a limited amount of storage space.
The supply isn't the reason for the increase in price. Actually in the US they made more gas than we need and it kept the price down to the point where they were losing up to 5 cents for every gallon they made in January and into part of February.
It's all about oil, and the fundamentals do not support the current price at all. According to the fundamentals oil shouldn't be much higher than it was last year at this time. But it's doubled. A few wall street brokerage houses started what resembles a pyramid scheme and lots of smaller investors jumped on and it snowballed. I watched the game unfold and jumped in a few times and made about $20k, but I've been out for a few months because it was dirty and out of control and because I thought the bubble was ready to burst.

[Rot 911]

Originally Posted by sammyg2

I watched the game unfold and jumped in a few times and made about $20k, but I've been out for a few months because it was dirty and out of control and because I thought the bubble was ready to burst.

Quite the ethical stance you took there Sammy.

[mikester]

Originally Posted by Jim Richards

So, you're all in favor of government regulation then, right? Investigations that find something wrong will lead to oversight and regulations, unless Congress has changed its ways. Investigations that find nothing wrong will just waste time for executives trying to run their businesses.

IMO, if the system isn't working the way everyone likes, it's because of the way commodities/futures are bought and sold. Change the mechanics of trading to what everyone agrees on.

I just think this is a witch hunt looking for blame finding and an opportunity to add Congress' light touch to the the industry.

Your logic doesn't float man - so if they investigate and find something actually wrong it's okay but if they don't find something actually wrong then they are wasting the Executive's time. Becuase they MIGHT be wasting their time they should just leave it alone while gas goes up another $1.00 as I type this.


An investigation has to be motivated by something so without an 'agenda' there wouldn't be one. The agenda could be as simple as 'what's going on here because it is significant to the economy as a whole.' It doesn't sound to me that you would find that simple 'agenda' to be significant enough to warrant an investigation.

I have always had my reservations about NOT regulating the energy market - the opportunity for foul play is just too great and requires MORE regulation to maintain the 'free' market than it would probably take to regulate energy. Enron produced 'SOX' and if they find something Enron-esque in this current situation then we'll end up with even more.

[sammyg2]

Originally Posted by Kurt V

Quite the ethical stance you took there Sammy.

Twist it how ever you want. I played the game, it didn't feel right, I stopped.
There are other games to play.

(China Natural Gas )

[sammyg2]

It continues, this time from a Morgan Stanley shill. No real basis in fact but he's getting the results he was after:

AP
Oil rises near $132 on price spike prediction
Friday June 6, 10:31 am ET
By Adam Schreck, AP Business Writer
Oil prices near $132 a barrel on weaker dollar and prediction of price spike

NEW YORK (AP) -- Oil prices shot up nearly $7 a barrel Friday, extending big gains from the previous day and racing toward an all-time high after a Morgan Stanley analyst predicted prices could hit $150 by the Fourth of July.

Light, sweet crude for July delivery jumped $6.27 to $134.06 on the New York Mercantile Exchange. Earlier, the contract rose as high as $134.68.

Friday's surge builds on a $5.49 gain Thursday, which was the biggest single-day price increase in the history of the Nymex crude contract. That spike came as the dollar fell in response to comments by the European Central Bank suggesting the bank could raise interest rates.

Prices pushed sharply higher Friday after Morgan Stanley analyst Ole Slorer said he expected strong demand in Asia that could drive prices to $150 by July 4. Shipments from the Middle East are mimicking patterns seen in the third quarter last year, when Morgan Stanley based its "oil price spike" predictions on Atlantic Basin draws, he said.

"We made the same call using the same parameters, but now we are starting from much lower inventory levels," Slorer said Friday.

"Asia is taking an unprecedented share" of Middle East exports to build up stocks, Slorer wrote in his report.

Meanwhile, U.S. gas prices at the pump continued to hover just shy of an average $4 a gallon, easing only 0.3 cent from Thursday's record. Drivers are now paying an average of $3.99 for a gallon of regular gas nationwide, according to AAA and the Oil Price Information Service; in many parts of the country, consumers are already paying well over $4.

Pump prices are bound to rise even further if oil sustains its advance. Retail diesel slipped a penny overnight to $4.76.

The dramatic reversal in what had been a weakening oil market began Thursday after ECB President Jean-Claude Trichet suggested the bank could raise interest rates and the euro climbed against the dollar. When interest rates rise in Europe, or fall in the U.S., the dollar tends to weaken against the euro.

Many investors tend to buy commodities such as oil as a hedge against inflation when the dollar is falling. Also, a weaker dollar makes oil less expensive to investors dealing in other currencies, and analysts believe the dollar's protracted decline has been a major reason why oil prices have nearly doubled in the past year.

The euro strengthened against the greenback Friday.

"Oil fundamentals had recently started to reassert themselves with worries about demand destruction, but Mr. Trichet chased them away and re-invited financials to the party," Olivier Jakob of Petromatrix in Switzerland said in a research note.

Earlier this week, Federal Reserve Chairman Ben Bernanke indicated that more interest rate cuts are unlikely in the U.S., sending the dollar higher and pushing oil prices lower.

Oil's decline from the record $135.09 hit May 22, though, has come largely on concerns about slackening demand, and the factors that slashed the prices by more than $10 are still present, analysts noted. They said they were uncertain whether Thursday's trading could be the start of a new surge higher or just an exception.

"The underlying oil fundamentals are, however, unchanged," Jakob said, pointing to worries about falling global demand.

In other Nymex trading, heating oil futures rose 21.54 cents to $3.8962 a gallon while gasoline prices rose 12.32 cents to $3.4577 a gallon. Natural gas futures rose 24.8 cents to $12.767 per 1,000 cubic feet.

In London, July Brent crude shot up $5.65 to $133.19 a barrel on the ICE Futures exchange.

Associated Press Writers Pablo Gorondi in Budapest, Hungary and Thomas Hogue in Bangkok, Thailand, contributed to this article.