ICE, ICE, Baby, conclusion – “Too cold, too cold”
Friday, May 23, 2008
Ed Wallace
Special to the Star-Telegram
“What’s been happening since 2004 is very high prices without record-low [oil] stocks. The relationship between U.S. [oil] inventory levels and prices has been shredded and become irrelevant.”
— Jan Stuart, Global Oil Economist, UBS Securities
“What you have on the financial side is a bunch of money being thrown at the energy futures market. It’s just pulling in more and more cash. That’s the side of the market where we have runaway demand, not on the physical side.”
— Tim Evans, Senior Oil Analyst, IFR Energy Services [From testimony: U.S. Senate Permanent Subcommittee on Investigations’ report, "The Role of Market Speculation in Rising Oil and Gas Prices," June 27, 2006]
The Love of Money
Record high prices without record low oil inventories, analysts saying that so much money flows into oil commodities that it gives the impression of shortages, when in fact no shortage exists. That mirrors the situation in the commodities market for food, as Bloomberg pointed out in its April 28 article, “Wall Street Grain Hoarding Brings Farmers, Consumers Near Ruin”: “Commodity investors control more U.S. crops than ever before, competing with governments and consumers for dwindling food supplies.” That’s right; food, oil and gasoline have become an “asset class.” No longer are you fighting a neighbor at the supermarket over the last box of Cheerios®; now you’re fighting the futures traders, who are actually determining what you will pay for that cereal.
We started as a society that worships hard labor and the basic business ethic of building value into the goods you create. How’d we get from there to worshiping Wall Street’s billion-dollar boys — who create nothing, build nothing, own nothing and deliver no goods, and yet can throw so much money into products made by others that they determine what we consumers will pay for those goods?
It wasn’t always this way.
In the past, the Commodities Futures Trading Commission acted as the cop on the beat, ensuring that buyers in the market were not distorting or manipulating prices beyond what supply and demand normally dictate. Certainly, if a hard frost hit Florida and cost growers an orange crop, then bidding up the price of the remaining oranges was both a wise investment and allowed under the trading rules. Right now investors know that if they borrow and invest huge amounts in commodities futures, they can create a shortage on paper – which drives prices up just like an actual shortage of any given product would. What kept traders from cornering the market that way in the past were the government’s anti-manipulation rules.
Lay, DeLay, Gramm, Gramm & Clinton
The late, infamous Enron head, Ken Lay, realized in the eighties that he could make more money bidding up energy in the futures market than by actually creating and selling energy. But, under then-current rules, how much you could make swapping paper was limited. Fortuitously, Lay had excellent Texas political connections; and in November of 1992, the head of the Commodities Futures Trading Commission moved to exempt energy-derivative contracts and related swaps from any government oversight.
A vote was hurriedly put together before the Clinton White House would take over, and so Lay could finally start “dark” – unregulated – futures trading. The head of the CFTC was Wendy Gramm, wife of Texas Senator Phil Gramm; five weeks after she left, she became a board member of Enron in Houston.
Fast-forward to late 2000 and H.R. 5660, the Commodity Futures Modernization Act of 2000, sponsored by Republican Congressman Thomas Ewing of Illinois. That bill went nowhere, even though Tom Delay’s wife Christine was then working for a Washington lobbying firm, Alexander Strategies – which Enron had paid $200,000 to push through legislation for permanent energy deregulation in these “dark” markets.
…
Complete article at:
http://www.star-telegram.com/ed_wallace/story/659081.html
Ed Wallace is a recipient of the Gerald R. Loeb Award for business journalism, given by the Anderson School of Business at UCLA, and is a member of the American Historical Society. He reviews new cars every Friday morning at 7:15 on Fox Four’s Good Day, contributes articles to BusinessWeek Online and hosts the talk show, Wheels, 8:00 to 1:00 Saturdays on 570 KLIF. E-mail: wheels570@sbcglobal.net
Everybody was warned; that’s probably why this deregulation bill was stealthily inserted into that appropriations bill without a floor debate.
==========
Oil Prices
JOAN CLAYBROOK, TYSON SLOCUM, tslocum@citizen.org, http://www.citizen.org
Claybrook is president of Public Citizen. Slocum is director of ublic Citizen’s Energy Program. Claybrook said today: “You are paying ky-high prices at the gas pump because the barons of ‘big oil’ have ushwacked the American people. With the help of major league lobbyists nd the high-ranking politicians receptive to them, oil companies are arning enormous profits through a combination of anti-competitive ractices — including market manipulation — made even easier by the ave of recent oil company mergers and the government’s outrageously eak regulatory oversight.
“Every time you buy gas, you know you are being price-gouged, but did you know that, for every gallon of gas you buy, you are being charged an extra 70 cents — at least — that is related purely to market speculation and not a function of supply-and-demand? The oil barons not only get away with this, they use their considerable influence to prevent the passage of meaningful fuel economy legislation, further squeezing consumers by ensuring automakers will continue to build gas-guzzling cars.”
From: Institute for Public Accuracy
==========
They’re wrong about oil, by George
From The Times
May 22, 2008
Rip up your textbooks, the doubling of oil prices has little to do with China’s appetite
Anatole Kaletsky
Just as the credit crunch seemed to be passing, at least in the US, another and much more ominous financial crisis has broken out. The escalation of oil prices, which this week reached a previously unthinkable $130 a barrel (with predictions of $150 and $200 soon to come), threatens to do far more damage to the world economy than the credit crunch.
Instead of just causing a brief recession, the oil and commodity boom threatens a prolonged period of global “stagflation”, the lethal combination of high inflation and economic stagnation last seen in the world economy in the 1970s and early 1980s. This would be a disaster far more momentous than the repossession of a few million homes or collapse of a couple of banks.
Commodity inflation is far more lethal than a credit crunch for two reasons. It prevents central banks in advanced economies from cutting interest rates to keep their economies growing. Even worse, it encourages the governments of developing countries to turn their backs on global markets, resorting instead to price controls, trade restrictions and currency manipulations to protect their citizens from the rising costs of energy and food. For both these reasons, the boom in oil and commodity prices, if it lasts much longer, could reverse the globalisation process that has delivered 20 years of almost uninterrupted growth to America and Europe and rescued billions of people from extreme poverty in China, India, Brazil and many other countries.
That is the bad news. The good news is that the world is not as impotent as is often suggested in the face of this danger, since soaring commodity prices are not the ineluctable outcome of some fateful conjuncture of global economic forces, but rather the product of a typical financial boom-bust cycle, which could be deflated – especially with some help from sensible political action – as quickly as it built up.
The present commodity and oil boom shows all the classic symptoms of a financial bubble, such as Japan in the 1980s, technology stocks in the 1990s and, most recently, housing and mortgages in the US. But surely, you will say, this commodity boom is different? Surely it is driven by profound and lasting changes in global supply and demand: China’s insatiable appetite for food and energy, geopolitical conflicts in the Middle East, the peaking of global oil reserves, droughts caused by global warming and so on. All these fundamental points are perfectly valid, but they tell us nothing about whether the oil price will soon jump to $200, stay at $130 or fall back to $60 next month.
To see that these “fundamentals” are all irrelevant, we have merely to ask which of them has changed in the past nine months. The answer is none. The oil markets didn’t suddenly discover China’s oil demand nine months ago so this cannot explain the doubling of prices since last August. In fact, China’s “insatiable” demand growth has decelerated. In 2004 it was consuming an extra 0.9 million barrels a day; in 2007 it was consuming just an extra 0.3 mbd. In the same period global demand growth has slowed from 3.6 mbd to 0.7 mbd. As a result, the increase in global demand growth is now well below last year’s increase of 0.8 mbd in non-Opec production, according to Mike Rothman, of ISI, a leading New York consulting group.
Why, then, are commodity prices still rising? The first point to note is that many no longer are. Rice, wheat and pork are 20 to 30 per cent cheaper than they were two months ago, when financial pundits identified Asian and African food riots as the first symptoms of a commodity “super-cycle” that would drive prices much higher. And the price of industrial commodities such as lead, zinc and nickel, supposedly in short supply a year ago, has now dropped by 40 to 60 per cent. In fact, most major commodity indices would already be in a downtrend were it not for the dominance of oil.
But oil is the commodity that really matters and surely the latest jump in prices proves that demand really does exceed supply? Not at all. In the late stages of financial bubbles, it is quite normal for prices to become completely detached from economic fundamentals. House prices in Florida and Spain kept rising even after property developers built far more homes than they could possibly sell. The same thing happened in credit markets: mortgage securities kept rising even while banks created “special purpose vehicles” to acquire vast “inventories” of bonds for which there were no genuine buyers – and dozens of similar examples can be cited from the bubbles in internet stocks and Japan. Similarly, the International Gold Council reported this week that gold demand for commercial uses and investment fell 17 per cent in January, just as the gold price surged through $1,000 for the first time.
…
Complete article at:
http://tinyurl.com/3m4g65 (www.timesonline.co.uk)
==========
Blame Wall Street for $135 Oil on Wrong-Way Betting (Update3)
By Alexander Kwiatkowski and Grant Smith
May 22 (Bloomberg) — Oil’s rally to a record above $135 a barrel came as traders bought crude to cover wrong-way bets that prices would decline, according to data from the New York Mercantile Exchange.
The number of outstanding futures contracts, known as open interest, fell 8.1 percent in a week to 1.36 million at the same time that prices rose 2.6 percent, the data show. Falling open interest and rising prices are signs that traders are buying to exit so-called short positions that would profit if oil fell, and lose money as they rose.
“In a market like today, which is trending higher while open interest is falling, it’s a sign that money is moving out of the market,” said Stephen Schork, president of Schork Group Inc. in Villanova, Pennsylvania. Open interest in Nymex crude futures peaked this year at 1.5 million on March 13.
Crude for July delivery touched a record $135.09 a barrel on the Nymex today. Oil futures later dropped on signs that a 15 percent run-up in prices this month isn’t justified by stockpiles and demand. Oil fell $2.36 to settle at $130.81 a barrel. Prices have more than doubled over the past year.
Open interest has been sliding for months, after the number of outstanding crude futures reached a record 1.58 million on July 16, 2007.
‘Shrinking Market’
“It is not a growing market, it is a shrinking market in terms of open interest,” said Olivier Jakob, managing director of Petromatrix GmbH in Zug, Switzerland. “It is also facilitating the move upward.”
Wall Street banks, hedge funds and other investors have been boosting spending on commodities such as oil for several years. Global investment in commodities rose by more than a fifth in the first quarter to $400 billion, Citigroup Inc. said April 7.
In the last year, non-commercial market participants have raised bets on rising prices, known as long positions, by 37 percent to 263,378 contracts, the Commodity Futures Trading Commission said May 16.
The rush to buy back contracts may be linked to the record number of short positions that had been built up in recent weeks by small-sized speculators, which the CFTC refers to as “non- reportable” traders because their holdings are small. Those investors held 123,194 futures contracts betting oil futures would fall in the week ended May 6, an all-time high, and 47 percent more than the number of bets they’d placed on rising prices.
…
Complete article at:
http://tinyurl.com/4cn79y (www.bloomberg.com)
To contact the reporters on this story: Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net; Grant Smith in London at gsmith52@bloomberg.net .
==========
Oil price mocks fuel realities
By F William Engdahl
As business and consumers consider the implications for them of crude oil selling at US$130-plus per barrel, they should bear in mind that, at a conservative calculation, at least 60% of that price comes from unregulated futures speculation by hedge funds, banks and financial groups using the London ICE Futures and New York Nymex futures exchanges and uncontrolled inter-bank or over-the-counter trading to avoid scrutiny (see Speculators knock OPEC off oil-price perch, Asia Times Online, May 6, 2008). www.atimes.com/atimes/Global_Economy/JE07Dj04.html US margin rules of the government’s Commodity Futures Trading Commission allow speculators to buy a crude oil futures contract on the Nymex by paying only 6% of the value of the contract. At the present price of around $130 per barrel, that means a futures trader only has to put up about $8 for every barrel. He borrows the other $120. This extreme “leverage” of 16 to one helps drive prices to wildly unrealistic levels and offset bank losses in subprime and other disasters at the expense of the overall population.
The hoax of “peak oil” – namely the argument that oil production has hit the point where more than half all reserves have been used and the world is on the downslope of oil at cheap price and abundant quantity – has enabled this costly fraud to continue since the invasion of Iraq in 2003, with the help of key banks, oil traders and big oil majors.
Washington is trying to shift blame, as always, to Arab oil producers and the Organization of Petroleum Exporting Countries (OPEC). The problem is not a lack of crude oil supply. In fact, the world is in over-supply now. Yet the price climbs relentlessly higher. Why? The answer lies in what are clearly deliberate US government policies that permit the unbridled oil price manipulations.
World oil demand flat, prices boom
The chief market strategist for one of the world’s leading oil industry banks, David Kelly, of JP Morgan Funds, recently admitted something telling to the Washington Post: “One of the things I think is very important to realize is that the growth in the world oil consumption is not that strong.”
One of the stories used to support the oil futures speculators is the allegation that China’s demand for imported oil is exploding out of control, driving shortages in the supply-demand equilibrium. Yet the facts do not support the China demand thesis.
The US government’s Energy Information Administration (EIA) concluded in its most recent monthly Short Term Energy Outlook report that US oil demand is expected to decline by 190,000 barrels per day (b/d) this year. That is mainly owing to the deepening economic recession.
…
Complete article at:
http://www.atimes.com/atimes/Global_Economy/JE24Dj02.html
==========
Big Oil defends profits before irate senators –Five oil companies earned $36 billion during the first three months of 2008.
21 May 2008
On a day oil prices leaped to unheard-of highs, senators lined up Big Oil’s biggest executives and pummeled them with complaints that they’re pretending to be “hapless victims” while raking in record profits.
At:
http://apnews.myway.com/article/20080521/D90Q9U601.html
From: CLG News
==========
International Monetary Fund. — Recent inflationary trends in world commodities markets
Noureddine Krichene
[Washington] : International Monetary Fund, May 2008.
(IMF working paper ; WP/08/130)
http://www.imf.org/external/pubs/ft/wp/2008/wp08130.pdf
==========
Savage plays Dead Kennedys song again after asserting he “is now being persecuted for refusing to take the party line” on Sen. Kennedy’s illness
On the May 21 broadcast of his nationally syndicated radio show, Michael Savage stated of Sen. Ted Kennedy, “His poor health does not excuse him from what he has done to our nation, and so, now, the Soros-run media sets on Michael Savage for daring to disclose the truth about Ted Kennedy’s legacy.” Savage added: “Just as in a Soviet show trial, Michael Savage is now being persecuted for refusing to take the party line that the great lion of the left must be praised — all praise, all praise.” On May 20, Savage aired the Dead Kennedys song “California Über Alles” while discussing Kennedy’s recent diagnosis with a malignant brain tumor. Savage again aired the song during his May 21 broadcast.
Read More
http://mediamatters.org/items/200805220011?lid=317020&rid=8518993
==========
Immigration Convictions Surge in February 2008
Thursday, May 22, 2008
Greeting from TRAC.
Federal convictions in February 2008 resulting from immigration matters jumped to the highest point in recent history, according to timely data from the Justice Department. The total of 6,583 such convictions is nearly double what it was in the previous month, up an unprecedented 96 percent.
The highly unusual spurt in the convictions of individuals charged with various immigration crimes appears to be the result of “Operation Streamline.” Under this recently intensified administration policy, according to news reports and interviews with federal public defenders, the government has charged a rapidly growing number of undocumented aliens with various federal criminal charges in selected districts along the Mexican border. “Operation Streamline” began as a pilot project in December 2005 in Del Rio, Texas.
For reports on the latest enforcement trends, go to:
http://trac.syr.edu/tracreports/bulletins/
In addition to providing counts of the immigration prosecutions and convictions that occurred in February, similarly timely information is available for many other categories of enforcement such as terrorism, white collar crime, official corruption, drugs, etc. Free reports are also available for major agencies such as the DEA, FBI, IRS and DHS.
David Burnham and Susan B. Long, co-directors
Transactional Records Access Clearinghouse
Syracuse University
Suite 360, Newhouse II
Syracuse, NY 13244-2100
315-443-3563
trac@syr.edu
http://trac.syr.edu
==========
And now for the important news ….
By Argus Hamilton
Speaker Nancy Pelosi and Senator Larry Craig co-sponsored an amendment letting illegal aliens work on U.S. farms. They have their reasons. She wants to lower food prices and he wants to meet guys who are away from their families and might be lonely.
http://www.JewishWorldReview.com
==========
three thousand words
Paul Fell: farm bill
http://editorialcartoonists.com/cartoons/FellP/2008/FellP20080522_low.jpg
Jim Borgman: we would like to send money, but …
http://img.slate.com/media/27/080522_ed.gif
Ann Telnaes: don’t worry. I’m working on getting you a cheaper rope
