June 24, 2008
Attack on Oil Speculators
I love to start the day with a chuckle. The news reports of the hearing Monday before the House Energy and Commerce Subcommittee on Oversight and Investigations are a hoot. Dingell (D-Mich) and others want to attack "speculators" in the oil futures market as the cause of high gas prices. Desperate divert blame from themselves in Congress (which has retarded oil production in the United States and subsidized a boondoggle in ethanol among other mistakes), they have chosen to make a target out of speculators. But the inevitable happened. The testimony devolved into a hilarious debate over who were speculators and who were not -- members of Congress could not identify the target. All agreed that speculators did not include those who wanted to take delivery of the underlying commodity, oil. But what about hedgers who did not use oil but worry about oil prices (an exporter or importer who hedges in oil futures so as to dampened price effects of transportation costs, borne by others but that effect the price of his product)? They seem harmless. Do we include those who short as well as those who are long? Short sellers bring oil prices down. Do we include those traders that hold "neutral positions", swaps traders, an even mix of long and short positions. Do we include "market makers" who post bids on both sides? Who are the bad one? I guess I am. I hold UNG, an EFT in natural gas. I do not want to take delivery of the gas; I do use some gas in our stove, however. Am I to blame for the price rise in natural gas? So sorry. The holding has not fully offset my loses in GM, however. Who did I get to blame for that? We need hearings.
June 24, 2008 | Permalink
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One disagreement to your comments, and your argument hits it on its head. The price of gas then is no longer dependent on its energy value, but also its "financial" value as a hedge. If more people want to hedge (e.g., mortgage crises is going to ruin the dollar's exchange rate), the hedge value increases and the price rises without regard to energy value. So now at the pump, I'm paying for energy and to complete someone else's hedge bets. So I'm no only screwed by the lower exchange rates but also higher than the energy supply-demand equilibrium gas prices. Enjoy when the prices come tumbling down inside of 4 years.
Posted by: Nick | Jun 25, 2008 6:22:16 AM