Next time you have to buy diesel fuel, home heating oil or $4 plus gasoline. Ask yourself this question: Are crude oil, heating oil and gasoline necessities, or just ordinary speculative commodities? If they're the former, how can they be the latter?
How can anyone buy into supply and demand setting oil prices when the markets are overwhelmed by everyone from small speculators, to institutional investors, to commodity index funds and large hedge funds and to Wall Street banks buying massive amounts of oil contracts?
We also have the b.s. of “geo-political” concerns and government disseminated bogus “inventory” numbers. More on them later.
There is so much conflicting b.s. being sold to Americans by the 24-hour “newsertainment” industry masquerading as legitimate “news” that it is impossible to tell the real truth behind the unconscionable run-up in oil prices. There are some very basic questions that need to be answered in order to get to the truth
The first and most basic question of all as mentioned above: Are crude oil, heating oil and gasoline necessities, or just ordinary speculative commodities? If they're the former, how can they be the latter?
Secondly, I heard on CNBC that speculators, commodity index funds, large hedge funds, institutions and Wall Street banks who are not users of crude, were buying oil to “buy and hold” in anticipation of a huge run-up in oil. WOW, what a shock! My question is, how does this practice differ from hoarding? Considering the tenuous nature of the energy markets, isn’t this practice not in the best interest of the United States? This situation has to be addressed only as what is good for the country as a whole. After all Congress and the President have apparently decided that Wall Street should be protected even if the outrageous energy prices, especially heating oil and diesel, mean that in this upcoming winter the elderly poor freeze to death and food becomes too expensive for the poor and lower middle class in general. Hey, let’s face it, millions in backward, underdeveloped countries survive on a lot less than we do, so let the poor shoulder their share of the burden in keeping Wall Street “financiers” happy.
Third, crude oil is the world's most actively traded commodity. Why? It seems that the standard contract trades in units of 1,000 barrels. What the hell is anyone going to do with 1,000 barrels of crude oil – except speculate about making a killing in the market? Margins for a single contract are under $10,000. Speculator’s paradise!
Conflicted Regulator? That may be the biggest question of all! Our arrogant and condescending Treasury Secretary Henry M. Paulson has repeatedly and publically stated that investors are not to blame for the staggering increases in the energy markets. “Investors”, does he really mean “speculators” and hoarders?
But keep this in mind. Before coming to Treasury, Paulson was Chairman and Chief Executive Officer of Goldman Sachs, a major Wall Street institution. This is the same guy who graciously slapped the average American homeowner across the face when he stated that housing prices were bound to collapse because we've had unsustainable growth for some period of time! He conveniently ignored the fact that major Wall Street traders had critically shorted the mortgage backed securities markets in 2007 bringing on the collapse of two huge Bear Stearns hedge funds beginning in July 2007. For more on this, visit www.useconomycrisis.com.
Maybe Paulson is right and the situation is just being clouded by all this extraneous talk about speculation and hoarding. There’s an easy way to find out.
To finish off the unjustified buying of oil and energy futures by speculators, who have no intention of ever taking delivery on a contract, you just can’t shut down the exchanges like Nymex. There are legitimate users of necessary oil products that need to establish future costs for either manufacturing or transportation purposes, among others. Other than that, there is no need for anyone else to buy futures.
The solution to eliminating this obfuscating factor in the energy markets really lies in a simple change to the Federal Tax Code.
Legitimate Users of energy products: Define a user as one who actually takes delivery on contracts and uses them for legitimate internal business use, such as diesel for truckers and farmers, refined oil products for manufacturing. No change in the Federal Tax Code needed here.
Hoarders a/k/a “buy and hold” speculators. Treat them like we are under wartime conditions. Simply seize their holdings and sell them at auction. Disallow any losses for tax purposes and impose fines as would be appropriate in we were in a war.
Speculators: Loosely defined as anyone who buys and sells futures and who doesn’t take delivery for legitimate self-use. Tax their profits at 80% and tack on an additional 25% surcharge to help support the search for alternative energy sources. Any losses realized in trading energy would not be recognized for Federal Income Tax purposes.
Those three proposals should eliminate all speculation as a consideration in determining whether or not supply and demand are controlling oil prices etc.
“Geo-political” b.s. effects on oil prices: Does anyone remember the intense threatening public rhetoric of the Cold War? According to the media, it seemed that the Soviet Union and the United States were close to war several times, on several fronts and only diplomacy could prevent the impending Armageddon. We heard this story over and over again and what made it plausible was the fact that we were real enemies. But in fact, most of this public animosity was for the benefit of our respective populations. Keep focusing on the enemy! Buy war bonds (or the equivalent)! Join up – defend your country! And on, and on, and on!
But the real purpose of the Cold War was to prevent a “hot war” and it was to this aim that the backdoor channels, so to speak, were where the real diplomacy took place. I can imagine the Soviet representative saying to the American; we’ll publically threaten Israel and you can publically threaten East Germany. Now, let’s work out our public responses so nothing goes wrong! Fiction, yes, but you get the point.
If we allowed this current immoral and unethical speculation in energy back then, we’d be paying $500.00 a barrel!
The point here is this current geo-political crap being used as an excuse for an oil run-up is nothing more than a fabrication by speculators. Does anyone really believe, for example, that Iran would nuke Israel knowing that such a move would mean its complete destruction? Iran’s public rhetoric is for internal consumption, not a blueprint for war.
The other geo-political “news” like a camel taking a dump in the middle of a Saudi highway is not a threat to oil supplies as the speculators and hoarders would like the markets to believe.
Oil inventories: Crude oil is a raw material. It must be refined to be used, for example, as either fuel or in the petrochemical industries.
Correct me if I’m wrong, but the location of the real crude oil inventories is in the ground, not in some downstream oil tanker, or tank farm, or a refinery’s storage capacity.
Does anyone know of a single incident in the entire world where an actual shortage of crude oil, or any refined product has lead to a disruption in supply? Anyone in the United States seen an “out of gas” sign? Anyone unable to get heating oil? Any manufacturing shut down for lack of petrochemical materials?
But, in an AP story on Wednesday, June 11th it was reported “the Energy Department's Energy Information Administration created new supply worries when it said oil inventories fell by 4.6 million barrels last week. Analysts surveyed by energy research firm Platts expected a much smaller decline of about 1.4 million barrels; any sign that oil supplies are falling has tended to send oil climbing.”
Where were these so-called “fallen oil inventories” located?
Concluding thoughts: The world may truly be facing an eventual shortage of crude oil and all its products. But until we rid this market of unscrupulous greed and speculation, we will not be able to stabilize the true price and value of a barrel of oil. Our “enlightened” government, the Administration and Congress want Americans to conserve as part of a program to achieve energy independence. To benefit who? Their friends in the Wall Street investment banks?
What should we Americans do? What is needed is a nationwide telephone, fax and email campaign directed at every member of Congress calling from them to PLEASE act IMMEDIATELY and end speculation in the energy markets. This effort must be overwhelming, consistent, and continuous, and not stop until Congress acts. American’s need their help before our elderly freeze to death and the poor face real malnutrition if not starvation. For now, ask politely and firmly.
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