Why Is Oil So High? Crude: Part II

Former Morgan CEO John Mack and His Love Pump

Greetings all. With oil prices rising and likely topping $100 per barrel in the New Year, I revisited a favorite subject in the Long Island Press this week. This week’s Off The Reservation is an update to a cover story penned two years ago about the oil speculation scandal in 2008 that artificially drove prices through the roof.

Returning to the subject, I found that not much had changed. A couple of the players, perhaps, but the speculation scheme is alive and well. So when you read projections from “industry analysts” who see crude oil prices rising due to a weak dollar and surging demand, you’ll know the real deal. Don’t get me wrong, these are key drivers of crude oil but are far from the entire picture. There are those who believe that pricing for the last several years is anywhere between 60% and 70% as a result of speculation; the remainder is due to market forces.

So when you’re at the pump cursing the Saudi’s, China, Obama, the Fed – whatever your poison – the biggest ass f#$*ing is still coming from Wall Street.

Author: Jed Morey

Jed Morey is the publisher of the Long Island Press, LI's Cultural Arts and Investigative News Journal. The Press has a monthly circulation of 100,000, and www.longislandpress.com, welcomes more than 500,000 unique visitors every month. He serves on the board of the Holocaust Memorial and Tolerance Center in Nassau County, as well as the President's Council of Big Brothers and Big Sisters of Long Island. In addition to the contributions on this blog, Morey authors a column for the Long Island Press titled "Off The Reservation" and is a staunch advocate for Indian rights. The column was voted Best Column in New York by the NY Press Association in 2010 and third overall in the nation among alternative publications by the Association of Alternative Weeklies in 2012. Morey lives in Glen Cove with his wife, Eden White, and their two daughters.

1 thought on “Why Is Oil So High? Crude: Part II”

  1. You might want to ask yourself why major independent refiners have not been complaining about high crude prices. If you know that prices are manipulated, you can bet that refinery buyers (who actually have experience in the subject) know it too. Why do these buyers meekly pay more, given that their careers, bonuses, and salaries probably depend on buying crude more cheaply than the next guy? After all, a high cost of goods sold is not good for any industry that I can think of.

    You might want to ask yourself why those who are hurt by high oil prices (refineries, airlines, governments and the like) don’t simply feed the media with counterclaims, in an attempt to neutralize these few young traders you imagine are calling the shots? If the rogues are planting rumors that lack substance, it should be easy for others to send higher quality signals to the market. But they don’t. Why don’t they?

    You might want to ask yourself why many commodities haven’t gone up sharply in recent years. Natural gas for example is selling for 44% below its 2006 average price. There are other such examples. If they can force prices up and make fortunes with rumors, then why don’t they? You seem to be suggesting that speculators aren’t interested in making money on some commodities, that their greed is selective and arbitrary.

    You might want to ask yourself why it is you believe that speculators can only make money in rising markets. They can also short commodities, can’t they.

    You might want to ask yourself why a number of crude oil traders lost fortunes on crude oil futures, if they can singlehandedly move the market at will.

    You might want to ask yourself why oil has had only one significant spike (2008) since the early 1983, when crude oil futures trading began. If you attribute this to the “Enron loophole” passed in 2000, then why did we not see increasing volatility, and finally a large price spike, until 2008? And if speculators can control 60-70% of the market, why did oil prices fall by 70% or so in late 2008/early 2009?

    You might want to ask yourself why many commodities that aren’t listed in futures exchanges behaved similarly to oil in the 2006-2008 commodity boom (e.g. onions, iron ore pellets).

    You might want to ask yourself why some commodities behaved similarly to oil prior to ICE. For example, aluminum up 206% in 74 weeks beginning January 1987, or lumber up 117% in 17 weeks beginning January 1993.

    And there are a lot of other questions you might want to ask yourself. But in so doing, if you really want answers, you need to be prepared to abandon your ideology. But I doubt that you’re prepared to seek real answers. I assume that you are only looking to support preconceived notions.

    Now, I may be wrong here. I don’t claim to know for certain that speculators haven’t have a dominating influence on markets in recent years. But I have spent a bit more than three months on the topic. My research suggests that there are a lot of counter arguments to the popular speculator theory, and I’ll also note that no influential study I’m aware of has offered convincing proof of the popular kinds of assumptions you make in these articles. However, I’m more than willing to consider such evidence. Are you willing to consider evidence that is inconsistent with your evil speculator idea? There is a lot out there. I would think you owe it to your reading public to pursue and test an alternative view.

    Between 2000 and 2008, OECD crude oil consumption was roughly flat. However, developing nation consumption was up by 33%, or 8.2 million barrels per day. That’s more than any country in the world produces, except for Russia and Saudi Arabia. You might want to ask yourself why that wouldn’t be pretty significant to crude oil traders around the world.

    To suggest that any analyst who is bullish on a commodity is guilty of manipulation shows an astonishing lack of sophistication for a journalist. What do you propose as an alternative, that we pass a law proscribing any analyst from offering an opinion on future share or commodity price movements. What do you make of analysts who publicly predict lower commodity prices, as many have done? Should this also be prohibited? Can we simply conclude that analysts who predict increases are unethical, while those predicting price drops are honest?

    I don’t see how journalists believe they are doing the public a service when they write such material. What are we going to see next, three months of reading on particle physics, followed by an expose on some physics conspiracy?

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