Fighting oil speculation: Bipartisan bill introduced to de-anonymize traders in the crude oil contracts market.

[yllus]

Sounds like a multi-pronged effort is underway across the world to see if harmful speculation in crude oil can be stopped. This article mentions a bill, co-sponsored by a Democrat and a Republican, that aims to lift the veil of secrecy that exists on players, and to place the Intercontinental Exchange (ICE) under the regulation of the Commodity Futures Trading Commission.

Apologies in advance if there are any factual errors in my summations. This isn't exactly my area of expertise, so I'm trying to piece information together from multiple articles as I read them.

Bill aims to lift speculators' veil

WASHINGTON - The U. S. futures markets regulator would have more authority to regulate overseas trading of crude oil contracts on a U. S.-based electronic exchange under legislation introduced by U. S. lawmakers from both parties yesterday.

The bill, sponsored by Senators Maria Cantwell and Olympia Snowe, is aimed at forcing the Commodity Futures Trading Commission to regulate the overseas trading of the West Texas Intermediate oil contract on electronic platforms.

"It is of critical importance we unmask who is playing in these dark markets," said Ms. Cantwell, a Washington Democrat.

The law would force the Atlanta-based Intercontinental Exchange to register as a designated contract market, making it subject to greater scrutiny by the CFTC.

Electronic trading of WTI contracts on a London exchange operated by ICE is exempt from most CFTC oversight, even though such contracts are linked to the New York Mercantile Exchange's contract, which has a delivery option in Cushing, Okla.

Currently, the CFTC and FSA are in talks to institute the first-ever position limits on WTI contracts on the ICE Futures Europe exchange, a U. S. congressional source told Reuters.

These restrictions by themselves will not be effective, said University of Maryland Law Professor Michael Greenberger at a press conference with the senators. "Even if you have those speculative limits, if you don't know who the speculators are, it doesn't do any good," he said.

This Reuters Factbox article goes into specifics on what the new limits on the crude oil futures might be.

Lastly, I thought this editorial about the "London loophole" to be the best overall view of the crude oil futures situation.

Are positive changes coming our way?

 

[dmcowen674]

Originally posted by: yllus
Sounds like a multi-pronged effort is underway across the world to see if harmful speculation in crude oil can be stopped. This article mentions a bill, co-sponsored by a Democrat and a Republican, that aims to lift the veil of secrecy that exists on players, and to place the Intercontinental Exchange (ICE) under the regulation of the Commodity Futures Trading Commission.

Apologies in advance if there are any factual errors in my summations. This isn't exactly my area of expertise, so I'm trying to piece information together from multiple articles as I read them.

Bill aims to lift speculators' veil

WASHINGTON - The U. S. futures markets regulator would have more authority to regulate overseas trading of crude oil contracts on a U. S.-based electronic exchange under legislation introduced by U. S. lawmakers from both parties yesterday.

The bill, sponsored by Senators Maria Cantwell and Olympia Snowe, is aimed at forcing the Commodity Futures Trading Commission to regulate the overseas trading of the West Texas Intermediate oil contract on electronic platforms.

"It is of critical importance we unmask who is playing in these dark markets," said Ms. Cantwell, a Washington Democrat.

The law would force the Atlanta-based Intercontinental Exchange to register as a designated contract market, making it subject to greater scrutiny by the CFTC.

Electronic trading of WTI contracts on a London exchange operated by ICE is exempt from most CFTC oversight, even though such contracts are linked to the New York Mercantile Exchange's contract, which has a delivery option in Cushing, Okla.

Currently, the CFTC and FSA are in talks to institute the first-ever position limits on WTI contracts on the ICE Futures Europe exchange, a U. S. congressional source told Reuters.

These restrictions by themselves will not be effective, said University of Maryland Law Professor Michael Greenberger at a press conference with the senators. "Even if you have those speculative limits, if you don't know who the speculators are, it doesn't do any good," he said.

This Reuters Factbox article goes into specifics on what the new limits on the crude oil futures might be.

Lastly, I thought this editorial about the "London loophole" to be the best overall view of the crude oil futures situation.

Are positive changes coming our way?

I'm truly shocked. So you agree that this has been wrong?

 

[yllus]

Shut up, McOwen. Go prattle your useless shit elsewhere.

 

[dmcowen674]

Originally posted by: yllus
Shut up, McOwen. Go prattle your useless shit elsewhere.

.

 

[EagleKeeper]

It is still supply and demand.

The list of buyers will be open, however, unless they will step in and force/freeze the lmits on the futures, it will do no good.

Then they will have to look at who is being shelled around.

The big boys are going to have to get burned - forced to unload a large amount of futures before the prices will adjust.

Ex: If they are allowed 100 untis and have 200 units, it is one thing to state that they can not purchase any more units.
If they are force to sell the 100 units within a short time frame, those units will be worth a lot less; possibly becuase there are no b uyes that can purchase them and not go over the 100 unit mark themselves.

It will be a matter on how agressive the oversight becomes - will it be like the FCC or the EPA?

 

[CalvinHobbes]

Can anyone actually quantify the supply and demand? I keep hearing concerns about supply but where are the hard numbers?

 

[EagleKeeper]

The numbers are what is being pumped each day vs the storage capacity.

If the capacity becomes less, then the supply is exceeding the demand.

 

[Queasy]

Originally posted by: Common Courtesy
The big boys are going to have to get burned - forced to unload a large amount of futures before the prices will adjust.

Dump part of the Strategic Oil Reserve on to the market and remove the bans on exploration and drilling along the outer continental shelf on the East Coast, Florida Coast, and West Coast, ANWR, and the Oil Shale development in Colorado, Utah, and Idaho.

 

[yllus]

Originally posted by: CalvinHobbes
Can anyone actually quantify the supply and demand? I keep hearing concerns about supply but where are the hard numbers?

In a roundabout way, government regulators are currently looking into it:

Government investigates oil markets

WASHINGTON (AP) -- Federal regulators are six months into a wide-ranging investigation of U.S. oil markets, with a focus on possible price manipulation.

The commission said it is investigating potential abuses in the way crude oil is purchased, shipped, stored and traded nationwide, but did not reveal details. Also on Thursday the agency announced a handful of other initiatives designed to increase transparency of U.S. and international energy futures markets.

...

A Senate subcommittee investigation last year found that hedge fund Amaranth Advisors LLC, which collapsed in 2006 after losing more than $6 billion in natural-gas trades, had shifted its activities to ICE from the regulated Nymex to avoid trading limits, and that the "excessive speculation" raised homeowners' heating bills.

There's increased demand for the product, of course - surging Third World nations make that much obvious. I guess we'll find out what the deal is in another six months or so.

 

[DealMonkey]

This is Enron all over again, only this time, the big players are managing to screw the entire world via the following tactics:

1.) Holding back supply
2.) Holding back refining capability
3.) A deregulated energy futures market (thanks 2000 era Congressional Republicans!)
4.) Massive, absolutely unregulated or monitored speculation in energy futures
5.) Cornering the market, massive mergers and acquisitions leaving only a few big players in global oil
6.) An administration that cares little and has done absolutely nothing except stir up volatility in the Middle East and just about every region that has significant oil production
7.) Talk a lot about R&D, but do little and invest little
8.) Probable manipulation of the energy markets, price fixing. Let's see what the various investigations reveal, but this is likely

 

[dmcowen674]

Originally posted by: Queasy

Originally posted by: Common Courtesy
The big boys are going to have to get burned - forced to unload a large amount of futures before the prices will adjust.

Dump part of the Strategic Oil Reserve on to the market and remove the bans on exploration and drilling along the outer continental shelf on the East Coast, Florida Coast, and West Coast, ANWR, and the Oil Shale development in Colorado, Utah, and Idaho.

Why? There is no shortage of oil and hasn't been for 9 years.

 

[JS80]

PUMP AND DUMP

 

[Queasy]

Originally posted by: dmcowen674

Originally posted by: Queasy

Originally posted by: Common Courtesy
The big boys are going to have to get burned - forced to unload a large amount of futures before the prices will adjust.

Dump part of the Strategic Oil Reserve on to the market and remove the bans on exploration and drilling along the outer continental shelf on the East Coast, Florida Coast, and West Coast, ANWR, and the Oil Shale development in Colorado, Utah, and Idaho.

Why? There is no shortage of oil and hasn't been for 9 years.

Because it would be a shock to the system to have an increase in supply of oil originating from the world's only super-power instead of some tin-pot 3rd world country.

 

[Rainsford]

Originally posted by: Queasy

Originally posted by: dmcowen674

Originally posted by: Queasy

Originally posted by: Common Courtesy
The big boys are going to have to get burned - forced to unload a large amount of futures before the prices will adjust.

Dump part of the Strategic Oil Reserve on to the market and remove the bans on exploration and drilling along the outer continental shelf on the East Coast, Florida Coast, and West Coast, ANWR, and the Oil Shale development in Colorado, Utah, and Idaho.

Why? There is no shortage of oil and hasn't been for 9 years.

Because it would be a shock to the system to have an increase in supply of oil originating from the world's only super-power instead of some tin-pot 3rd world country.

And Dave's point, which I agree with for once, is that it's not a problem of supply. Unless everyone on Earth discovered an oil well in their backyard tomorrow, the increase in supply we could bring to the table probably wouldn't make a lot of difference. The problem is that speculators are able to manipulate the market quite a bit in the quest for profit, which would be fine if we didn't rely on oil to power our world.

 

[Queasy]

Originally posted by: Rainsford

Originally posted by: Queasy

Originally posted by: dmcowen674

Originally posted by: Queasy

Originally posted by: Common Courtesy
The big boys are going to have to get burned - forced to unload a large amount of futures before the prices will adjust.

Dump part of the Strategic Oil Reserve on to the market and remove the bans on exploration and drilling along the outer continental shelf on the East Coast, Florida Coast, and West Coast, ANWR, and the Oil Shale development in Colorado, Utah, and Idaho.

Why? There is no shortage of oil and hasn't been for 9 years.

Because it would be a shock to the system to have an increase in supply of oil originating from the world's only super-power instead of some tin-pot 3rd world country.

And Dave's point, which I agree with for once, is that it's not a problem of supply. Unless everyone on Earth discovered an oil well in their backyard tomorrow, the increase in supply we could bring to the table probably wouldn't make a lot of difference. The problem is that speculators are able to manipulate the market quite a bit in the quest for profit, which would be fine if we didn't rely on oil to power our world.

Both the demand for oil and the supply of oil have gone up but have maintained the same approximate spread. The spread should have increased in proportion to the overall supply and demand increases. But it didn't.

If you increase the supply even more then those people who are hedging that oil will go higher will lose money when the price drops causing further drops. Throw in the fact that a signal of long-term commitment to increasing the oil supply from the United States instead of depending on unstable places like the Middle East, Africa, and Venezuela will further make the market will react.

We still need to strengthen the dollar and increase our MPGs but there's no reason why we can't exploit our own resources and bring the oil money and jobs to our country instead of outsourcing it to sheiks and nutjobs.

And it isn't just oil but natural gas too that's blocked from exploration and drilling on the Outer Continental Shelf.

 

[Jhhnn]

I think it's a start in the right direction, but not necessarily as effective as some might think. Whe a Luxembourg corporation authorizes its Cayman Islands subsidiary to partner up with a Bahamanian firm doing business as a legal entity in the Netherlands Antilles who is a subsidiary of a Panamanian Bearer corporation, it's more than a little difficult to figure out who's doing what, with what, and to whom...

Meyer Lansky pioneered this kind of structure many years ago, and his methods have been the subject of a lot of innovative improvement over the years...

 

[Thump553]

I don't think any rational person thinks this will completely solve the problem, but it certainly is a step in the right direction-or at the absolute worst, it won't do any harm.

As Jhhnn indicated, the devil is in the details as far as the extent and method of disclosure required.

One thing I wonder-this is apparently a current NY practice:

-NYMEX Clearing Member firms are limited to a risk exposure from customer accounts and its own trading account of no more than 250 percent of the firm's capital. For rule-making purposes, the maximum capital a clearing firm can have is $1 billion.

Reducing the ability to leverage risk to the firm's capital, rather than two and a half times it, would be a huge help.

I don't know even the broad terms of the proposed bill, but I'm impressed that Senator Snow is one of the backers-she's a no B.S./no doctrinaire moderate. She's not the kind of pol who would push such a bill just to gain political capital.

 

[Thump553]

PS: That "London loophole" editorial is interesting, but it apparently comes from a Lydon LaRouche controlled entity which to me makes it a totally unreliable source.

 

[NeoV]

why is there even an oil futures market?

seriously?

Rainsford again sums up my thoughts on this nicely

 

[JS80]

Originally posted by: NeoV
why is there even an oil futures market?

seriously?

Rainsford again sums up my thoughts on this nicely

Liquidity, hedging, price discovery. The problem today is that speculation dominates the market and traders that have no intention of taking delivery are pricing the market, and they are just realizing that because demand is inelastic they can virtually increase the price to a point where it is just under the point of economic havoc. Who knows what that price is.

My fear now is that even if we can ban speculative futures trading OPEC nations realize that the global economy can withstand $130/barrel and they can just collude to create that as a price floor to maximize value of their oil.

 

[Thump553]

Draining the Strategic Oil Reserves would be absolutely the wrong move. This reserve is our piggy bank, designed to handle a short term oil crisis-like an interruption caused by war or hurricanes. Draining it now would only lessen this long term crisis for a while, not solve it-and when the reserve is gone we are in far worse shape than before.

This is one of the few areas where I think GWB was correct when he opposed the recent bill "temporarily" shutting down filling of the reserve. Cutting off the filling was a political stunt designed to have congressional members from both parties have something to show the voters in order to get re-elected.

 

[Linux23]

Originally posted by: DealMonkey
This is Enron all over again, only this time, the big players are managing to screw the entire world via the following tactics:

1.) Holding back supply
2.) Holding back refining capability
3.) A deregulated energy futures market (thanks 2000 era Congressional Republicans!)
4.) Massive, absolutely unregulated or monitored speculation in energy futures
5.) Cornering the market, massive mergers and acquisitions leaving only a few big players in global oil
6.) An administration that cares little and has done absolutely nothing except stir up volatility in the Middle East and just about every region that has significant oil production
7.) Talk a lot about R&D, but do little and invest little
8.) Probable manipulation of the energy markets, price fixing. Let's see what the various investigations reveal, but this is likely

:thumbsup:

 

[newmachineoverlord]

The problem is not high oil prices, the problem is oil dependency. The US voters decided in favor of the current price increases during the 1980 election cycle when they ousted the president who had a plan to end US dependency on foreign oil. These price spikes were foreseen decades ago, and could easily have been prevented with a small oil import tariff to encourage the R&D and usage of alternatives to oil as well as increased efficiency (as per the 1986 CBO recommendations that went unheeded.) In the absence of government intervention (which could have provided a much smoother and less painful transition to renewable fuels) high oil prices are the only cure for oil dependency. The SPR should be enlarged further, but it won't be because people have not yet come to accept that the current price increases are no problem at all compared to the shortages the world will face in the next 2-15 years, and politicians never do what is needed with regards to energy anyways.

To the extent that speculators are increasing oil prices, we should be grateful that they are encouraging the development of alternatives in advance of the actual shortages that won't start for at least 14 months, and possibly not for several years.

 

[JS80]

Originally posted by: Thump553
Draining the Strategic Oil Reserves would be absolutely the wrong move. This reserve is our piggy bank, designed to handle a short term oil crisis-like an interruption caused by war or hurricanes. Draining it now would only lessen this long term crisis for a while, not solve it-and when the reserve is gone we are in far worse shape than before.

This is one of the few areas where I think GWB was correct when he opposed the recent bill "temporarily" shutting down filling of the reserve. Cutting off the filling was a political stunt designed to have congressional members from both parties have something to show the voters in order to get re-elected.

I agree with this. However, I think they can get around it by pretending like they are releasing some SPR supply. Just make statements "we intend to ease prices by selling inventory from the SPR to realize gains blah blah" or just outright lie "we sold a million barrels yesterday for $20 under market." If OPEC gets to play that game we should too.