Obama: Anyone who says we can lower gas prices by more drilling (1 Viewer)

[Doug B]

Skipped over the last two pages of the thread to ask:

How come speculators never lose? How is it possible that they have zero risk of a bubble bursting? Is there any actual risk in oil speculation in 2012? Can't see how prices only move in one direction.

Don't hold your breath waiting for a response, it might make the boogeyman go away. Everyone knows that evil speculators only buy, pushing up the price of oil, and every single one of them makes money (even though it's a zero-sum game).

Well? Runaway at-the-pump gas prices cannot possibly be infinitely sustainable in the real world. If they were, why not just make gasoline $1,000/gal across the board tomorrow and call it a day? "People need gas!", right? People will keep buying, right? Of course not.Where's the point where the speculators go over a cliff and eff up their own profits? And why don't speculators ever -- ever -- reach this point?

 

[Leeroy Jenkins]

Isn't one of the main issues our refineries? While we have a lot of capacity, they are inefficient or something?

 

[NCCommish]

Isn't one of the main issues our refineries? While we have a lot of capacity, they are inefficient or something?

Right now is the changeover from winter blend to summer blend so that affects refinery output as they shutdown to make the switch.

 

[Slapdash]

Skipped over the last two pages of the thread to ask:How come speculators never lose? How is it possible that they have zero risk of a bubble bursting? Is there any actual risk in oil speculation in 2012? Can't see how prices only move in one direction.

Speculation is really a dubious term. A lot of futures activity is hedging a natural position that a firm has in regard to gas prices so even losing on that contract won't actually be a big economic loss to them.

 

[StrikeS2k]

Just properly inflate your tires, remember.

 

[Doug B]

Right now is the changeover from winter blend to summer blend so that affects refinery output as they shutdown to make the switch.

Is it an unassailable fact that this changeover is 100% necessary? I'm asking from a position of ignorance, but it truly beggars belief that the same gasoline can't be used year-round. But maybe I'll learn something here.

 

[humpback]

Skipped over the last two pages of the thread to ask:

How come speculators never lose? How is it possible that they have zero risk of a bubble bursting? Is there any actual risk in oil speculation in 2012? Can't see how prices only move in one direction.

Don't hold your breath waiting for a response, it might make the boogeyman go away. Everyone knows that evil speculators only buy, pushing up the price of oil, and every single one of them makes money (even though it's a zero-sum game).

Well? Runaway at-the-pump gas prices cannot possibly be infinitely sustainable in the real world. If they were, why not just make gasoline $1,000/gal across the board tomorrow and call it a day? "People need gas!", right? People will keep buying, right? Of course not.Where's the point where the speculators go over a cliff and eff up their own profits? And why don't speculators ever -- ever -- reach this point?

Actually, then can in a real world with inflation. With no changes to supply/demand, gas would be at $1,000 at some point in the very distant future.I'm not sure if you're serious, but speculators absolutely do reach that point. Did you see the price of oil fall from almost $150 down to below $40 in 2008?

 

[NCCommish]

Right now is the changeover from winter blend to summer blend so that affects refinery output as they shutdown to make the switch.

Is it an unassailable fact that this changeover is 100% necessary? I'm asking from a position of ignorance, but it truly beggars belief that the same gasoline can't be used year-round. But maybe I'll learn something here.

In the winter they can use butane which works at lower temps but in the summer they have to switch to other more expensive additives.

 

[Doug B]

Speculation is really a dubious term. A lot of futures activity is hedging a natural position that a firm has in regard to gas prices so even losing on that contract won't actually be a big economic loss to them.

Admitedly stupid scenario, but maybe a valuable thought experiment:Let's say that going forward, some inscrutable kind of magic fills ALL American's gas tanks each and every morning. No matter how far you drive without stopping, your tank never drops below 1/4 full, and then the next morning you get the magic top-off. In short -- America, everyone together and all at once, stops buying gasoline at the pump. And it's sustained: a year goes by, two years, a decade, 20 years, and so on. Generations of Americans grow up with free-fuel automobiles and have no concept of ever having filled up at a pump.This affects no other petroleum uses -- just gasoline. Cars, lawn mowers, chainsaws, etc. ... all gasoline-powered things are free to run in the United States.During all this, the rest of the world carries on as normal. Europe, China, India, etc. all keep having to run their cars the usual way. Everyone else has to buy gasoline....How big a dent does this make in the speculation market? Can they still make money without American drivers buying in?

 

[Leeroy Jenkins]

Isn't one of the main issues our refineries? While we have a lot of capacity, they are inefficient or something?

Right now is the changeover from winter blend to summer blend so that affects refinery output as they shutdown to make the switch.

And isn't there a difference between what blends are sold in the north east vs what is sold in the southwest etc.? And therefore our refineries are producing a bunch of different kinds of gas, rather than one national standard?

 

[Doug B]

I'm not sure if you're serious, but speculators absolutely do reach that point. Did you see the price of oil fall from almost $150 down to below $40 in 2008?

Saw it ... expected the ebb and flow to keep happening. Late 2008 looks like an abberation now.

 

[Doug B]

Actually, then can in a real world with inflation. With no changes to supply/demand, gas would be at $1,000 at some point in the very distant future.

A gradual rise in step with a healthy inflation rate is not a problem.

 

[Doug B]

In the winter they can use butane which works at lower temps but in the summer they have to switch to other more expensive additives.

I wish I understood this better ... this just doesn't seem necessary. Coming at this cold, this really smacks of "dunno, we've always done it this way".Nevertheless, I recognize my ignorance here, and I am looking for a decent link or two that lays this out in understandable layman's terms.

 

[humpback]

I'm not sure if you're serious, but speculators absolutely do reach that point. Did you see the price of oil fall from almost $150 down to below $40 in 2008?

Saw it ... expected the ebb and flow to keep happening. Late 2008 looks like an abberation now.

You're kind of all over the place here- you act as if they never lose money when they clearly do. Unless you have a crystal ball, we don't know whether those betting on higher prices right now will be correct or not.

 

[GeauxTigers]

Meanwhile natural gas, our most abundant energy, is so cheap that producers are closing down wells.http://www.mywesttexas.com/business/oil/top_stories/article_2350c934-65cc-586a-870e-9e850f82618b.htmlI don't care what my car runs on. Why isn't there viable natural gas cars for consumers yet? Every year oil goes up and people freak out.

I don't think you understand the difference between a car running on oil and natural gas. Don't you think if natural gas could easily replace oil, it would have been done already?

It can be done. The conversion cost for an individual vehicle is relatively minor. The main reason it hasn't been done is that we have a huge infrastructure in place in this country to supply gasoline for vehicles, and the cost of upgrading that infrastructure to be able to supply NG as a fuel is very high. That's why the focus has been on fleet vehicles. The cost of upgrading the infrastructure to support that is much less since they're typically all fueled at the same place.

I'm speaking about NG compared to oil through physics. I disagree that NG can physically have the same effect on an engine as oil. Why does the space shuttle use oil? Why not use NG? Because oil is more efficient when running an engine.

 

[Doug B]

You're kind of all over the place here- you act as if they never lose money when they clearly do. Unless you have a crystal ball, we don't know whether those betting on higher prices right now will be correct or not.

From where I'm sitting, the speculators act as if they never lose money. There seems to be no caution at all ... no concern that the golden goose's neck can only be wrung so hard.It may be that the speculators don't lose money often enough, or severely enough, or both.

 

[NCCommish]

In the winter they can use butane which works at lower temps but in the summer they have to switch to other more expensive additives.

I wish I understood this better ... this just doesn't seem necessary. Coming at this cold, this really smacks of "dunno, we've always done it this way".Nevertheless, I recognize my ignorance here, and I am looking for a decent link or two that lays this out in understandable layman's terms.

“Butane is a cheap ingredient in gasoline that boils at low temperatures. In winter, this isn’t a problem. But in summer, butane evaporates from gas, polluting the air while leaving us with less fuel in the tank than we paid for. As temperatures rise, refineries replace butane with more costly ingredients and draw down winter inventories just as beach season begins. Chemistry, not corporate conspiracy, limits supply.”

That's from Robert Rapier an industry analyst.Here's a more complete explanation:

There are two key (although not the only) specifications that refiners must meet for gasoline. The gasoline needs to have the proper octane, and it needs to have the proper Reid vapor pressure (RVP). While the octane of a particular grade is constant throughout the year, the RVP spec changes with the seasons.

The RVP is based on a test that measures vapor pressure of the gasoline blend at 100 degrees F. Normal atmospheric pressure varies, but is usually around 14.7 lbs per square inch (psi). Atmospheric pressure is caused by the weight of the air over our heads. If a liquid has a vapor pressure of greater than normal atmospheric pressure, that liquid boils. For example, when you heat a pan of water, the vapor pressure increases until it reaches atmospheric pressure. At that point, the water begins to boil.

In the summer, when temperatures can exceed 100 degrees F in many locations, it is important that the RVP of gasoline is well below 14.7. Otherwise, it can pressure up your gas tanks and gas cans, and it can boil in open containers. Gas that is vaporized ends up in the atmosphere, and contributes to air pollution. Therefore, the EPA has declared that summer gasoline blends may not exceed 7.8 psi in some locations, and 9.0 psi in others. The particulars vary, but key considerations are the altitude and motor vehicle density of a specific location.The EIA summarizes the key points:

As gasoline evaporates, volatile organic compounds (VOC’s) enter the atmosphere and contribute to ozone formation. Gasoline’s propensity to evaporate is measured by Reid vapor pressure (RVP). In order to control VOC emissions, the Federal Clean Air Act Amendments of 1990 require that all gasoline be limited to an RVP maximum of 9.0 psi during the summer high ozone season, which the Environmental Protection Agency (EPA) established as running from June 1 to September 15. The Act also authorized the EPA to set more stringent standards for nonattainment areas. As a result, EPA limits areas designated as “high volatility non-attainment” to a maximum RVP of 7.8 psi during the high ozone season. Some States elected to require even more stringent restrictions to achieve local clean air goals, and require 7.2- and 7.0-psi gasolines.

Butane, which has an RVP of 52 psi, can be blended into gasoline in higher proportions in the winter because the vapor pressure allowance is higher. There are two advantages in doing this. First, butane is a cheaper blending component than most of the other ingredients. That makes fall and winter gasoline cheaper to produce. But butane also adds to the total gasoline pool, so that means that gasoline supplies increase in the winter as more butane is thrown into the mix. Not only that, but this all takes place after summer driving season, when demand typically falls off. These factors normally combine each year to reduce gasoline prices in the fall (even in non-election years). The RVP is stepped back down to summer levels starting in the spring, and this usually causes prices to increase.There are some common misconceptions about this seasonal transition. One is that it is the reason that spring and fall maintenance are done. That is not the case. Most, if not all refineries can carry out this transition without shutting down or interrupting production. The reason that maintenance is done in the spring and fall is that it provides a combination of moderate weather (the inside of a vessel can be unbearable in the summer) and off-peak demand. Vessels must be inspected, new equipment must be installed, catalyst change-outs occur, etc. This is similar to tuning up your car to keep it in proper running condition. But the seasonal maintenance is unrelated to the gasoline transition. In fact, for reasons I won't get into here, seasonal maintenance often complicates the transition.

Another misconception that some have is that they can save money by buying cheap gas in the winter and storing it for the summer. Remember that winter gasoline will pressure up as the weather heats up, and the contained butane will start to vaporize out of the mix. You will end up with less gasoline than you paid for, and you will be contributing to the air pollution problem that summer gasoline was designed to avoid. If, on the other hand, you were to buy summer gasoline and try to store it until winter, you might find yourself having problems getting the fuel to ignite, due to the lower vapor pressure. This would be like putting a little bit of diesel in your gasoline – not very good for your car. So buy and use gasoline in the correct season.

The Oil Drum

 

[hook014]

Skipped over the last two pages of the thread to ask:

How come speculators never lose? How is it possible that they have zero risk of a bubble bursting? Is there any actual risk in oil speculation in 2012? Can't see how prices only move in one direction.

Don't hold your breath waiting for a response, it might make the boogeyman go away. Everyone knows that evil speculators only buy, pushing up the price of oil, and every single one of them makes money (even though it's a zero-sum game).

Well? Runaway at-the-pump gas prices cannot possibly be infinitely sustainable in the real world. If they were, why not just make gasoline $1,000/gal across the board tomorrow and call it a day? "People need gas!", right? People will keep buying, right? Of course not.Where's the point where the speculators go over a cliff and eff up their own profits? And why don't speculators ever -- ever -- reach this point?

Just because you can lose money when the market goes down doesn't necessarily wipe out all your gains.

I knew a guy who used to come to the beach often during the real estate run up. He bought ocean front units in pre sale and turned an avg of 60k profit per unit for a couple of years. He typically bought 2 or 3 at a time. It was a futures market just like oil. When the downturn came I asked him how he was doing and he admitted he had lost on his last 2 units. He didnt seem bummed out in the slightest, in fact he was quite chipper. He explained to me that although it cost him some dough to get rid of those units he had made roughly 600k on the process and felt fortunate that he got in on the upswing.

The difference in oil futures is that when the market goes soft you lose on that transaction but can get right on the next upswing. Rinse, repeat. Not that hard to understand.

 

[hxperson]

Speculation is really a dubious term. A lot of futures activity is hedging a natural position that a firm has in regard to gas prices so even losing on that contract won't actually be a big economic loss to them.

Admitedly stupid scenario, but maybe a valuable thought experiment:Let's say that going forward, some inscrutable kind of magic fills ALL American's gas tanks each and every morning. No matter how far you drive without stopping, your tank never drops below 1/4 full, and then the next morning you get the magic top-off. In short -- America, everyone together and all at once, stops buying gasoline at the pump. And it's sustained: a year goes by, two years, a decade, 20 years, and so on. Generations of Americans grow up with free-fuel automobiles and have no concept of ever having filled up at a pump.This affects no other petroleum uses -- just gasoline. Cars, lawn mowers, chainsaws, etc. ... all gasoline-powered things are free to run in the United States.During all this, the rest of the world carries on as normal. Europe, China, India, etc. all keep having to run their cars the usual way. Everyone else has to buy gasoline....How big a dent does this make in the speculation market? Can they still make money without American drivers buying in?

Do you realize "speculators" is an extremetly generic term, and includes people like yourself or your co-workers, who buy oil and gas via ETF's, pension funds, mutual funds, and/or hedge funds? If you have an investment account or a 401K, or work in any kind of union, you are a speculator.

 

[Doug B]

In the winter they can use butane which works at lower temps but in the summer they have to switch to other more expensive additives.

I wish I understood this better ... this just doesn't seem necessary. Coming at this cold, this really smacks of "dunno, we've always done it this way".Nevertheless, I recognize my ignorance here, and I am looking for a decent link or two that lays this out in understandable layman's terms.

Found some useful information, in case this shukes anyone else. The missing piece of the puzzle, for me, was how sensitive gasoline really is temperature. I thought you had to get to Siberian/Antarctic temperatures to have any real troubles with the actual fuel in gasoline-powered engines. Heard of engine warmers and such being used in the colder parts of the U.S., but didn't really realize that the fuel itself needed to be at a certain temperature (as opposed to the engine components).Also didn't know gasoline evaporation was a big concern. Knew it evaporated, but thought it was glacially slow and largely negligible.

 

[NCCommish]

Speculation is really a dubious term. A lot of futures activity is hedging a natural position that a firm has in regard to gas prices so even losing on that contract won't actually be a big economic loss to them.

Admitedly stupid scenario, but maybe a valuable thought experiment:Let's say that going forward, some inscrutable kind of magic fills ALL American's gas tanks each and every morning. No matter how far you drive without stopping, your tank never drops below 1/4 full, and then the next morning you get the magic top-off. In short -- America, everyone together and all at once, stops buying gasoline at the pump. And it's sustained: a year goes by, two years, a decade, 20 years, and so on. Generations of Americans grow up with free-fuel automobiles and have no concept of ever having filled up at a pump.

This affects no other petroleum uses -- just gasoline. Cars, lawn mowers, chainsaws, etc. ... all gasoline-powered things are free to run in the United States.

During all this, the rest of the world carries on as normal. Europe, China, India, etc. all keep having to run their cars the usual way. Everyone else has to buy gasoline.

...

How big a dent does this make in the speculation market? Can they still make money without American drivers buying in?

Do you realize "speculators" is an extremetly generic term, and includes people like yourself or your co-workers, who buy oil and gas via ETF's, pension funds, mutual funds, and/or hedge funds? If you have an investment account or a 401K, or work in any kind of union, you are a speculator.

Actually this is more what we are talking about:

WASHINGTON — A group of financial speculators made $50 million by manipulating the price of oil in 2008, the Commodity Futures Trading Commission charged Tuesday.

The high-profile case underscores how high prices for oil and gasoline increasingly are believed to result significantly from financial speculation rather than solely from conventional market forces of supply and demand.

In a filing with the U.S. District Court for the Southern District of New York, CFTC attorneys alleged that a group made up of oil speculators Parnon Energy Inc., Arcadia Petroleum Ltd. and Arcadia Energy (Suisse) S.A. unlawfully manipulated trading of oil on the New York Mercantile Exchange.

The civil charges are for alleged manipulation during the first four months of 2008, when crude oil was on its way up to the all-time high of $147 a barrel.

The CFTC complaint alleges that the three companies and two executives conspired — during a period of relatively tight oil supplies — to amass big quantities of oil for next-month physical delivery. They were dominating and controlling supply, even though they were not commercial users of oil.

The documents allege that these traders in January 2008 held 66 percent of the 7 million barrels of oil they expected to be in storage at the end of February in Cushing, Okla., where benchmark West Texas Intermediate (WTI) crude is delivered.

The companies allegedly held this large physical position on the final day of trading in the futures market for February delivery — an unusual move since they had no commercial need for the oil.

In holding this deliverable oil off the market, the companies sought to artificially inflate the price of oil futures contracts — sending the signal that supplies would remain tight. Meanwhile, these same companies made large bets in the futures market that the price of oil would plummet in ensuing months.

When they eventually sold their deliverable oil at a loss, that didn't matter to them, because they had switched their bets and were now aggressively betting that oil prices would drop in the futures market, the CFTC alleged.

"The scheme artificially increased the price of crude oil physical, derivatives and other oil products in the United States and elsewhere," the CFTC said in its charging document.

The manipulation involved first pushing up the price of futures contracts, then betting against them — a process called "selling short" in the financial world. An email referenced in the CFTC's charging document has executive James T. Dyer telling other Parnon/Arcadia traders that there is a "(expletive) load of money to be made shorting."

The actions of those firms and two executives — Dyer and Nicholas J. Wildgoose — occurred well before President Barack Obama ordered the April 2011 creation of a Justice Department-led task force to look into energy price manipulation.

However, Tuesday's action raises the stakes for the Justice Department, which will decide whether or not to bring criminal charges. The department has been reluctant to bring cases involving price manipulation because they are hard to prove. The CFTC has historically settled with violators in civil cases by imposing fines that amount to little more than the cost of doing business.

"I certainly think that people like this who do the crime should do the time, and not just pay the fine," said Bart Chilton, a CFTC commissioner, who hoped the Justice Department will bring criminal charges in this and other cases involving alleged oil-price manipulation. "People are outraged that they're paying more for gasoline than they should. They tried to manipulate the market, they should go to jail."

The recent spike in oil prices to $113 a barrel on May 2, amid a period of sluggish U.S. and global economic growth, has refocused attention on the role of speculators in energy markets. A growing number of critics blame excessive speculation for sending oil prices soaring far above what normal market supply and demand forces would justify.

A recent McClatchy investigation documented how end-users of oil historically made up 70 percent of the oil futures market, but today they are only about 30 percent, as financial speculators comprise about 70 percent of the market.

The charges show that speculators who are not end users of oil are nonetheless active in the market for delivery of oil. Big Wall Street financial firms are believed to be involved in the physical oil-delivery market, although there is little transparency to the public — either through regulatory data or Securities and Exchange Commission filings — about how deeply involved they are.

Timothy Carey, an attorney with Dewey & LeBouf in Chicago, is listed as Parnon/Arcadia's counsel. He did not return a call and email requesting comment.

The CFTC said the three companies face up to $150 million in penalties, and if convicted, would have to repay $50 million in allegedly illicit gains.

Parnon Energy is incorporated in Texas but does business out of Rancho Santa Fe, Calif. It's a subsidiary of Parnon Holdings, a wholly owned subsidiary of Cyprus-based Farahead Holdings Ltd.

Britain-based Arcardia Petroleum and Arcadia Energy (Suisse) are also subsidiaries of Farahead, which owns some of the world's largest oil tanker lines.

McClatchy

 

[Doug B]

Do you realize "speculators" is an extremetly generic term, and includes people like yourself or your co-workers, who buy oil and gas via ETF's, pension funds, mutual funds, and/or hedge funds? If you have an investment account or a 401K, or work in any kind of union, you are a speculator.

Not convinced that all such speculators are created equal. Don't some speculators actively work (lobbying, "banging the drum" whenever Ahmenijad rolls over in bed) to raise oil prices, while other speculators are just along for the ride?

 

[humpback]

You're kind of all over the place here- you act as if they never lose money when they clearly do. Unless you have a crystal ball, we don't know whether those betting on higher prices right now will be correct or not.

From where I'm sitting, the speculators act as if they never lose money. There seems to be no caution at all ... no concern that the golden goose's neck can only be wrung so hard.It may be that the speculators don't lose money often enough, or severely enough, or both.

I'm not sure where you're sitting, but again, it's a zero-sum market. When 1 person makes $1, another person loses $1. There were entire firms wiped out during the drop in '08.

 

[Doug B]

NCC, thanks for post #167 ... good info that dovetails on other stuff I've read. Seems that broad temperature gasoline -- something cheap, stable, and usable from -100F to 120F -- must be a huge Holy Grail for the oil-refining industry. Wonder if technology will ever beat this problem?

 

[NCCommish]

NCC, thanks for post #167 ... good info that dovetails on other stuff I've read. Seems that broad temperature gasoline -- something cheap, stable, and usable from -100F to 120F -- must be a huge Holy Grail for the oil-refining industry. Wonder if technology will ever beat this problem?

You're welcome. Not sure on the all temp gas but since the refiners drove the creation of all these regional boutique gasoline blends I am guessing there isn't as much profit for them in all temp blend.

 

[siffoin]

I remember listening to this Planet Money podcast back in the fall. "How Money got Wierd" but goes into some depth about speculation...in particular airlines and oil... some might find it interesting.

http://www.npr.org/blogs/money/2011/09/30/140954343/the-friday-podcast-how-money-got-weird

 

[hook014]

You're kind of all over the place here- you act as if they never lose money when they clearly do. Unless you have a crystal ball, we don't know whether those betting on higher prices right now will be correct or not.

From where I'm sitting, the speculators act as if they never lose money. There seems to be no caution at all ... no concern that the golden goose's neck can only be wrung so hard.It may be that the speculators don't lose money often enough, or severely enough, or both.

I'm not sure where you're sitting, but again, it's a zero-sum market. When 1 person makes $1, another person loses $1. There were entire firms wiped out during the drop in '08.

If the 1 person making the dollar was a speculator and the one person losing the dollar was a citizen pumping gas, how does the speculator lose the money back?

 

[Doug B]

I'm not sure where you're sitting, but again, it's a zero-sum market. When 1 person makes $1, another person loses $1. There were entire firms wiped out during the drop in '08.

Sorry for the employees, but that needs to keep happening. More frequently. Not a once-in-a-decade thing. Speculation should be a cautious exercise .... there should be true, crushing risk that prevents the huge price-per-barrel drive-ups. There seems to be no brake on the train.Will I ever see "cheap" gas at the pump again in my lifetime? Let's not define "cheap" by a price point .... let's define it as such a price that makes me say to myself "Damn, prices have been going down a lot lately".

 

[hxperson]

Do you realize "speculators" is an extremetly generic term, and includes people like yourself or your co-workers, who buy oil and gas via ETF's, pension funds, mutual funds, and/or hedge funds? If you have an investment account or a 401K, or work in any kind of union, you are a speculator.

Actually this is more what we are talking about:

WASHINGTON — A group of financial speculators made $50 million by manipulating the price of oil in 2008, the Commodity Futures Trading Commission charged Tuesday.

The high-profile case underscores how high prices for oil and gasoline increasingly are believed to result significantly from financial speculation rather than solely from conventional market forces of supply and demand.

In a filing with the U.S. District Court for the Southern District of New York, CFTC attorneys alleged that a group made up of oil speculators Parnon Energy Inc., Arcadia Petroleum Ltd. and Arcadia Energy (Suisse) S.A. unlawfully manipulated trading of oil on the New York Mercantile Exchange.

The civil charges are for alleged manipulation during the first four months of 2008, when crude oil was on its way up to the all-time high of $147 a barrel.

The CFTC complaint alleges that the three companies and two executives conspired — during a period of relatively tight oil supplies — to amass big quantities of oil for next-month physical delivery. They were dominating and controlling supply, even though they were not commercial users of oil.

The documents allege that these traders in January 2008 held 66 percent of the 7 million barrels of oil they expected to be in storage at the end of February in Cushing, Okla., where benchmark West Texas Intermediate (WTI) crude is delivered.

The companies allegedly held this large physical position on the final day of trading in the futures market for February delivery — an unusual move since they had no commercial need for the oil.

In holding this deliverable oil off the market, the companies sought to artificially inflate the price of oil futures contracts — sending the signal that supplies would remain tight. Meanwhile, these same companies made large bets in the futures market that the price of oil would plummet in ensuing months.

When they eventually sold their deliverable oil at a loss, that didn't matter to them, because they had switched their bets and were now aggressively betting that oil prices would drop in the futures market, the CFTC alleged.

"The scheme artificially increased the price of crude oil physical, derivatives and other oil products in the United States and elsewhere," the CFTC said in its charging document.

The manipulation involved first pushing up the price of futures contracts, then betting against them — a process called "selling short" in the financial world. An email referenced in the CFTC's charging document has executive James T. Dyer telling other Parnon/Arcadia traders that there is a "(expletive) load of money to be made shorting."

The actions of those firms and two executives — Dyer and Nicholas J. Wildgoose — occurred well before President Barack Obama ordered the April 2011 creation of a Justice Department-led task force to look into energy price manipulation.

However, Tuesday's action raises the stakes for the Justice Department, which will decide whether or not to bring criminal charges. The department has been reluctant to bring cases involving price manipulation because they are hard to prove. The CFTC has historically settled with violators in civil cases by imposing fines that amount to little more than the cost of doing business.

"I certainly think that people like this who do the crime should do the time, and not just pay the fine," said Bart Chilton, a CFTC commissioner, who hoped the Justice Department will bring criminal charges in this and other cases involving alleged oil-price manipulation. "People are outraged that they're paying more for gasoline than they should. They tried to manipulate the market, they should go to jail."

The recent spike in oil prices to $113 a barrel on May 2, amid a period of sluggish U.S. and global economic growth, has refocused attention on the role of speculators in energy markets. A growing number of critics blame excessive speculation for sending oil prices soaring far above what normal market supply and demand forces would justify.

A recent McClatchy investigation documented how end-users of oil historically made up 70 percent of the oil futures market, but today they are only about 30 percent, as financial speculators comprise about 70 percent of the market.

The charges show that speculators who are not end users of oil are nonetheless active in the market for delivery of oil. Big Wall Street financial firms are believed to be involved in the physical oil-delivery market, although there is little transparency to the public — either through regulatory data or Securities and Exchange Commission filings — about how deeply involved they are.

Timothy Carey, an attorney with Dewey & LeBouf in Chicago, is listed as Parnon/Arcadia's counsel. He did not return a call and email requesting comment.

The CFTC said the three companies face up to $150 million in penalties, and if convicted, would have to repay $50 million in allegedly illicit gains.

Parnon Energy is incorporated in Texas but does business out of Rancho Santa Fe, Calif. It's a subsidiary of Parnon Holdings, a wholly owned subsidiary of Cyprus-based Farahead Holdings Ltd.

Britain-based Arcardia Petroleum and Arcadia Energy (Suisse) are also subsidiaries of Farahead, which owns some of the world's largest oil tanker lines.

McClatchy

I know that this kinda of stuff happens. My point is - who do you think backs these hedge funds that make the big bets on the oil markets? Or buys the ETF's with flows that are bidding up oil futures? There isn't a small group of big overseeing puppeteers out there- these hedge funds are funded by pension funds, endowments, fund of funds, and other HNW clients, and the etf's are owned by millions of retail investors like you and I.

 

[hxperson]

I'm not sure where you're sitting, but again, it's a zero-sum market. When 1 person makes $1, another person loses $1. There were entire firms wiped out during the drop in '08.

Sorry for the employees, but that needs to keep happening. More frequently. Not a once-in-a-decade thing. Speculation should be a cautious exercise .... there should be true, crushing risk that prevents the huge price-per-barrel drive-ups. There seems to be no brake on the train.Will I ever see "cheap" gas at the pump again in my lifetime? Let's not define "cheap" by a price point .... let's define it as such a price that makes me say to myself "Damn, prices have been going down a lot lately".

How do you know its not happening frequently? Have you seen charts for spot brent? Like every other risk asset, its been extremely volatile over the last year, and that kind of volitility can wipe out a lot of people. Also, there are 2 sides to every trade - speculation happens both ways. Your ignorance regarding the financial markets is pretty alarming.

 

[guderian]

Skipped over the last two pages of the thread to ask:How come speculators never lose? How is it possible that they have zero risk of a bubble bursting? Is there any actual risk in oil speculation in 2012? Can't see how prices only move in one direction.

Don't hold your breath waiting for a response, it might make the boogeyman go away. Everyone knows that evil speculators only buy, pushing up the price of oil, and every single one of them makes money (even though it's a zero-sum game).

No one is saying they never miss a bet, of course they do. That isn't the point. The point is they are 70% of the futures market and they have no intention of ever taking delivery of a single ounce of oil.

So? That means they'll have to sell to close out their positions. If 'speculators' were artificially inflating prices, then there would be a great chance to short the market and wait for the correction. Also, it's ironic that higher prices are always blamed on "greedy speculators", but lower prices are never credited to an outbreak of altruism...

 

[pittstownkiller]

You're kind of all over the place here- you act as if they never lose money when they clearly do. Unless you have a crystal ball, we don't know whether those betting on higher prices right now will be correct or not.

From where I'm sitting, the speculators act as if they never lose money. There seems to be no caution at all ... no concern that the golden goose's neck can only be wrung so hard.It may be that the speculators don't lose money often enough, or severely enough, or both.

I'm not sure where you're sitting, but again, it's a zero-sum market. When 1 person makes $1, another person loses $1. There were entire firms wiped out during the drop in '08.

If the 1 person making the dollar was a speculator and the one person losing the dollar was a citizen pumping gas, how does the speculator lose the money back?

When you speculate on a commodity you are accepting the product in a set period of time (I think 90 days with oil). Speculators are betting that what they purchased will be worth more when they receive it then when they bought it; when that doesn't happen the person who sold them the notes would of made out better (they sold their notes for more than they would of upon delivery). The person pumping gas into his car is paying full retail and does not figure into the equation.

 

[humpback]

I'm not sure where you're sitting, but again, it's a zero-sum market. When 1 person makes $1, another person loses $1. There were entire firms wiped out during the drop in '08.

Sorry for the employees, but that needs to keep happening. More frequently. Not a once-in-a-decade thing. Speculation should be a cautious exercise .... there should be true, crushing risk that prevents the huge price-per-barrel drive-ups. There seems to be no brake on the train.Will I ever see "cheap" gas at the pump again in my lifetime? Let's not define "cheap" by a price point .... let's define it as such a price that makes me say to myself "Damn, prices have been going down a lot lately".

No idea if we'll ever see "cheap" gas prices again, but it won't be determined by speculators, that's the point. Speculators can only move markets (both ways remember) temporarily. The eventual price will always come back to much more important factors, like supply/demand, costs, inflation, value of the dollar, etc. Speculators are just placing bets based on their opinions of the future of these variables.

 

[NCCommish]

Skipped over the last two pages of the thread to ask:

How come speculators never lose? How is it possible that they have zero risk of a bubble bursting? Is there any actual risk in oil speculation in 2012? Can't see how prices only move in one direction.

Don't hold your breath waiting for a response, it might make the boogeyman go away. Everyone knows that evil speculators only buy, pushing up the price of oil, and every single one of them makes money (even though it's a zero-sum game).

No one is saying they never miss a bet, of course they do. That isn't the point. The point is they are 70% of the futures market and they have no intention of ever taking delivery of a single ounce of oil.

So? That means they'll have to sell to close out their positions. If 'speculators' were artificially inflating prices, then there would be a great chance to short the market and wait for the correction. Also, it's ironic that higher prices are always blamed on "greedy speculators", but lower prices are never credited to an outbreak of altruism...

Yeah as shown above they do both.

 

[Doug B]

How do you know its not happening frequently? Have you seen charts for spot brent? Like every other risk asset, its been extremely volatile over the last year, and that kind of volitility can wipe out a lot of people. Also, there are 2 sides to every trade - speculation happens both ways. Your ignorance regarding the financial markets is pretty alarming.

Sorry, not an investor. All I see is gas prices moving one way over an extended period of time ... would love that to stop. That's all.I thought "prices moving one way for too long" = "bubble that must eventually burst". Wondering when the burst is coming.

 

[Dr. Gobbler]

Didn't I just see Hillary Clinton on the news talking about our new joint venture with Mexico to drill in the Gulf?

Me thinks the speculators are fleecing us again.

 

[IvanKaramazov]

2 days ago Goldman Sachs released a statement warning about rampant oil speculation and questioning whether supply and demand were even a factor.When Goldman starts covering their butt in anticipation of a major price spike you know things are dirty. Holder is a disaster as an AG. No one fears him cause he does nothing. He truly is a potted plant.

70% of the investors in the oil futures market will never take delivery of oil and are only there to make money.

Every single person who buys oil, whether they're taking delivery or not, is there to make money. That's what firms and commodity traders do.

 

[NCCommish]

2 days ago Goldman Sachs released a statement warning about rampant oil speculation and questioning whether supply and demand were even a factor.When Goldman starts covering their butt in anticipation of a major price spike you know things are dirty. Holder is a disaster as an AG. No one fears him cause he does nothing. He truly is a potted plant.

70% of the investors in the oil futures market will never take delivery of oil and are only there to make money.

Every single person who buys oil, whether they're taking delivery or not, is there to make money. That's what firms and commodity traders do.

Of course. But when the numbers were reversed and it was 70% of investors who were going to take delivery you had less speculation driving price against supply and demand considerations.

 

[pittstownkiller]

Didn't I just see Hillary Clinton on the news talking about our new joint venture with Mexico to drill in the Gulf? Me thinks the speculators are fleecing us again.

This is exactly what the Administration needs to do to reign in speculators, make them think that more product is coming into the market (even though it would be a decade before any plan led to actual oil); the fact it is Clinton allows Obama to preserve his environmental ties.

 

[NCCommish]

Didn't I just see Hillary Clinton on the news talking about our new joint venture with Mexico to drill in the Gulf?

Me thinks the speculators are fleecing us again.

This is exactly what the Administration needs to do to reign in speculators, make them think that more product is coming into the market (even though it would be a decade before any plan led to actual oil); the fact it is Clinton allows Obama to preserve his environmental ties.

Demand is already down. Production is already up. This isn't about supply and demand at this point.

 

[pittstownkiller]

How do you know its not happening frequently? Have you seen charts for spot brent? Like every other risk asset, its been extremely volatile over the last year, and that kind of volitility can wipe out a lot of people. Also, there are 2 sides to every trade - speculation happens both ways. Your ignorance regarding the financial markets is pretty alarming.

Sorry, not an investor. All I see is gas prices moving one way over an extended period of time ... would love that to stop. That's all.I thought "prices moving one way for too long" = "bubble that must eventually burst". Wondering when the burst is coming.

The bubble would come when the cost of everything sky-rockets because of fuel surcharges; gasoline companies need to move product, even at a loss, because they are taking in physical product everyday. Somewhere in this thread a post(s) made reference to moving closer to your job, or riding a bike, this is comical; fuel prices will raise the prices of everything from potatoes to plastic pipe, unless of course you live in the fantasy land of having everything you consume being created locally.

 

[IvanKaramazov]

Just so I'm clear about this, when speculators buy and sell oil, how does that influence the price of oil if not through supply and/or demand?

 

[NCCommish]

Just so I'm clear about this, when speculators buy and sell oil, how does that influence the price of oil if not through supply and/or demand?

Did you read the article I posted?

 

[hxperson]

Didn't I just see Hillary Clinton on the news talking about our new joint venture with Mexico to drill in the Gulf?

Me thinks the speculators are fleecing us again.

This is exactly what the Administration needs to do to reign in speculators, make them think that more product is coming into the market (even though it would be a decade before any plan led to actual oil); the fact it is Clinton allows Obama to preserve his environmental ties.

Demand is already down. Production is already up. This isn't about supply and demand at this point.

It's about expected supply and demand. It's about what's happening in Iran. It's about LTRO. It's about the possibility of QE3. Its about a myriad of other things as well.

 

[hxperson]

How do you know its not happening frequently? Have you seen charts for spot brent? Like every other risk asset, its been extremely volatile over the last year, and that kind of volitility can wipe out a lot of people. Also, there are 2 sides to every trade - speculation happens both ways. Your ignorance regarding the financial markets is pretty alarming.

Sorry, not an investor. All I see is gas prices moving one way over an extended period of time ... would love that to stop. That's all.I thought "prices moving one way for too long" = "bubble that must eventually burst". Wondering when the burst is coming.

No worries. I just find it pretty amusing that people can think this way. Full disclosure, I help run a hedge fund. My firm is somewhat well known for being resource and commodity focused. I hear constantly the complete opposite view of what's being expressed here and in the press - mainly, that commodity prices are largely being held DOWN by manipulators, specifically the central banks via their balance sheets and via margin limits on the various commodities exchanges. Many argue commodity prices should be much higher, given money printing going on in the US and other developed markets at the moment.

 

[IvanKaramazov]

Just so I'm clear about this, when speculators buy and sell oil, how does that influence the price of oil if not through supply and/or demand?

Did you read the article I posted?

I just skimmed most of thread -- sorry for the drive-by.

 

[NCCommish]

Didn't I just see Hillary Clinton on the news talking about our new joint venture with Mexico to drill in the Gulf?

Me thinks the speculators are fleecing us again.

This is exactly what the Administration needs to do to reign in speculators, make them think that more product is coming into the market (even though it would be a decade before any plan led to actual oil); the fact it is Clinton allows Obama to preserve his environmental ties.

Demand is already down. Production is already up. This isn't about supply and demand at this point.

It's about expected supply and demand. It's about what's happening in Iran. It's about LTRO. It's about the possibility of QE3. Its about a myriad of other things as well.

Demand is expected to decline based on ongoing economic issues and increasing efficiency in autos. Iran is an excuse. The LTRO is expected to be more of the same no real change or disruption. Unless the economy tanks there will be no QE3 according to the Fed. And the myriad other things it's about is prices all out of whack with expected supply and demand.For those wondering about the acronyms. LTRO is the acronym for the long-term refinancing operation by the European Central Bank. And QE3 refers to a 3rd round of Quantitative Easing by the Fed.

 

[guderian]

Skipped over the last two pages of the thread to ask:

How come speculators never lose? How is it possible that they have zero risk of a bubble bursting? Is there any actual risk in oil speculation in 2012? Can't see how prices only move in one direction.

Don't hold your breath waiting for a response, it might make the boogeyman go away. Everyone knows that evil speculators only buy, pushing up the price of oil, and every single one of them makes money (even though it's a zero-sum game).

No one is saying they never miss a bet, of course they do. That isn't the point. The point is they are 70% of the futures market and they have no intention of ever taking delivery of a single ounce of oil.

So? That means they'll have to sell to close out their positions. If 'speculators' were artificially inflating prices, then there would be a great chance to short the market and wait for the correction. Also, it's ironic that higher prices are always blamed on "greedy speculators", but lower prices are never credited to an outbreak of altruism...

Yeah as shown above they do both.

As shown by your article about a few people who made $50 million in a market that's hundreds of billions large and were subsequently charged??? And didn't your article pretty much prove my assertion that any artificial price inflation would be temporary and there would be an offsetting decline in price??? "Meanwhile, these same companies made large bets in the futures market that the price of oil would plummet in ensuing months."

 

[humpback]

Didn't I just see Hillary Clinton on the news talking about our new joint venture with Mexico to drill in the Gulf?

Me thinks the speculators are fleecing us again.

This is exactly what the Administration needs to do to reign in speculators, make them think that more product is coming into the market (even though it would be a decade before any plan led to actual oil); the fact it is Clinton allows Obama to preserve his environmental ties.

Demand is already down. Production is already up. This isn't about supply and demand at this point.

It's about expected supply and demand. It's about what's happening in Iran. It's about LTRO. It's about the possibility of QE3. Its about a myriad of other things as well.

Demand is expected to decline based on ongoing economic issues and increasing efficiency in autos. Iran is an excuse. The LTRO is expected to be more of the same no real change or disruption. Unless the economy tanks there will be no QE3 according to the Fed. And the myriad other things it's about is prices all out of whack with expected supply and demand.For those wondering about the acronyms. LTRO is the acronym for the long-term refinancing operation by the European Central Bank. And QE3 refers to a 3rd round of Quantitative Easing by the Fed.

No offense, but you're just giving your biased opinion here. You have no idea if demand is going to decline, what is going to happen in Iran, LTRO, QE3, or anything else. Clearly other people are betting that you're wrong. If you're right, then prices will fall back down.

 

[Slapdash]

How do you know its not happening frequently? Have you seen charts for spot brent? Like every other risk asset, its been extremely volatile over the last year, and that kind of volitility can wipe out a lot of people. Also, there are 2 sides to every trade - speculation happens both ways. Your ignorance regarding the financial markets is pretty alarming.

Sorry, not an investor. All I see is gas prices moving one way over an extended period of time ... would love that to stop. That's all.I thought "prices moving one way for too long" = "bubble that must eventually burst". Wondering when the burst is coming.

No worries. I just find it pretty amusing that people can think this way. Full disclosure, I help run a hedge fund. My firm is somewhat well known for being resource and commodity focused. I hear constantly the complete opposite view of what's being expressed here and in the press - mainly, that commodity prices are largely being held DOWN by manipulators, specifically the central banks via their balance sheets and via margin limits on the various commodities exchanges. Many argue commodity prices should be much higher, given money printing going on in the US and other developed markets at the moment.

How are central banks keeping commodity prices down?