May 29, 2008

BACK TO $40:

Probe of Crude Oil Trading Disclosed: Agency Has Been Examining Market For Past 6 Months (Steven Mufson, 5/30/08, Washington Post)

During continued volatility in oil prices, federal regulators said yesterday that they had been investigating crude oil trading, storage and transportation for the past six months with a focus on possible "futures market manipulation."

The Commodity Futures Trading Commission, which normally keeps investigations confidential, said in a statement that it was "taking the extraordinary step of disclosing this investigation because of today's unprecedented market conditions."

Those conditions have sent oil prices to record heights, adding to the U.S. trade deficit, hurting consumers and companies, and weighing heavily on the nation's economy.

Gregory Mocek, director of enforcement at the CFTC, said five senior trial lawyers, "some of the most experienced prosecutors that we have," and other investigators were engaged in the inquiry. "The scope is quite broad," Mocek said, adding that the commission was looking at the "national crude market," including trades on regulated exchanges, cash trades, storage, pipeline operations and shipping.

Posted by Orrin Judd at May 29, 2008 10:24 PM

You left off a zero.

Oil futures are traded in several places around the world. Traders prefer Chicago because the systems are in place and the regulatory environment is predictable and not especially burdensome.

If that's now about to change, the action will move elsewhere, and US interests will lose all influence, let alone control. The Congressapes think what they're doing is "pressure". The proper name for it is "suicide".


Posted by: Ric Locke at May 30, 2008 7:43 AM

Ric, it should be noted that even though the price of a barrel of oil has grown six-fold since 2002, the actual demand for gasoline has only started showing measurable declines this year. That's about as inelastic as one can get with a commodity. And you're trying to tell me that oil futures trading is so elastic that one mere investigation can set off a hedge-fund rush to Dubai or Bermuda?

This is but the first attempt in pricking a bubble that seriously needs popping. Not only that, but the current "elastic" attitudes toward taxation/regulation/prosecution need a serious overhaul.

Posted by: Brad S at May 30, 2008 8:48 AM

Read between the lines, OJ.

It's up to $200, with trail lawyers getting a new gusher of cash from lawsuits.

The fix is in. 7 years of companies raping the consumer, and 7 years of trial lawyers raping them.

You were right about one thing, a steep tax replacing another tax would have been much better policy.

Too bad Bush decided to enable the speculators. Now the trial lawyers will get their bite.

Posted by: Bruno at May 30, 2008 10:37 AM

The proper name for killing off the income source of dictatorships is murder.

Posted by: oj at May 30, 2008 11:05 AM

That's what trial lawyers are for, is to punish criminal corporate behavior.

Posted by: oj at May 30, 2008 11:35 AM

Brad, there's a word for that, and the word is "balls".

If the CFTC "investigation" -- which is really better characterized as "hassling", if not worse -- were the only thing going on, you might have a point. It's not. We have a full-court press from Congress and the mediasphere. SOMEBODY IS TAKING ADVANTAGE OF US AND WE'RE GONNA ATTACK THEM! Apparently you buy into that.

Commodity traders, oil or otherwise, bid up the price when they have to deliver the merchandise (to keep you fed, warm, and able to get to work, in this case) and think they might have trouble getting it. If suppliers and traders are being attacked for doing their jobs -- and making money doing their jobs, quelle horreur -- that counts as "trouble" and raises the price.

99% of the high price for oil can be laid directly on the stupidity, profligacy, and egocentricity of the United States Congress, which has said over and over again that providing the oil which keeps us working is basically a criminal enterprise in which no American should be allowed to involve himself. That being the case, why should anybody sell us oil at any price? Suppose the lawsuit succeeds, and OPEC is declared in violation of U.S. antitrust laws. What's the simplest thing for them to do? -- pay the fine and leave the market. Oh, and laugh their asses off. If the Saudis simply stop filling tankers bound for the U.S., where will the price go when we have to beg Chavez or the Iranians for the stuff?

This is what we get for demanding oil but refusing to put up with the inconvenience of producing it. Oil production is dirty, smelly, and noisy, and Reduces Property Values™. If you're gonna make the Arabs, Venezuelans, Chinese, etc. put up with that while keeping your own neighborhood(s) immaculate, sooner or later they were going to start charging for it -- and they have. Hell, if it weren't for the Interstate Commerce clause and a modicum of residual fellow-feeling, Texans and Louisianans would be adding a surcharge for the insults we regularly get for our trouble in refining and shipping the stuff, and the fellow-feeling is starting to wear off.


Posted by: Ric Locke at May 30, 2008 11:59 AM

Exactly, the point is to force innovation by making oil so prohibitively expensive to use that people stop.

Posted by: oj at May 30, 2008 3:19 PM

no...the point is to make oil so expensive that we finally give in and start digging up oil in CO, Alaska and Florida. Orrin, your dream of a world without cars, or cities, for that matter, is where you lose a lot of us. We need the oil, let's just start using our own resources already. What are we waiting for?

Posted by: neil at May 30, 2008 6:08 PM

What do cars have to do with oil?

Posted by: oj at May 30, 2008 8:52 PM

What do trains have to do with diesel?

Posted by: ratbert at May 30, 2008 9:44 PM

80% of oil usage is with cars. you want people to stop using oil because it's prohibitively expensive. so we got your point.

Posted by: neil at May 31, 2008 7:39 AM

Yes, but the eclipse of gas won't have any effect on driving.

Posted by: oj at May 31, 2008 10:56 AM

Bingo! Nothing.

Posted by: oj at May 31, 2008 11:17 AM