OIL SPECULATORS

Published in El Nuevo Herald on April 20, 2012

In the U.S., in 2003, barrels of oil were traded at $ 30, in July 2008 that price was $ 147 and gasoline was supplied, as today, to a national average of about $ 4 a gallon. There can be many causes of the rising cost of fuel is, known, for example, that wars in the Persian Gulf have decreased production in countries such as Iraq, Kuwait and Libya. It is also said that members of the Organization of Petroleum Exporting Countries (OPEC) did not want to over-exploit the oil fields and therefore have limited extraction. Two huge countries like China and India have been increasing their consumption. From a purely economic standpoint, this is a problem of supply and demand: if the supply decreases and demand increases, oil price increases. However, there are examples showing that the presence of speculators in oil negotiations is primarily responsible for the increase in the price of gasoline in the United States.

In a congressional hearing in June 2008, several financial experts testified before the House Energy and Commerce Committee that "eliminating excessive speculation in oil futures market, could reduce the price of gasoline by 50%."

That same month, the House of Representatives passed a bill called the Energy Markets Emergency Act of 2008 whereby the Mercantile Futures Commission "would have the required authority to order the immediate brake to excessive speculation, price distortion, sudden or unreasonable fluctuations in the same or any other illegal activity to cause market disruption, preventing this reflect the true balance between supply and demand. "

On July 25, 2008, the Republicans blocked the bill in the Senate, 60 votes were needed and only obtained 50 with 43 votes against. Republican senators argued then that it should legislate to increase oil output by allowing more drilling off the coast, as well as a full development in the vast territories on the West Coast oil.

Despite the continued reports of excessive speculation in energy markets, Futures Trade Commission (CFTC) refused to take any action, for example, in the quarter July to September 2008, three major investment banks with a presence in Wall Street, obtained a profit of $ 35.000 million on oil futures contracts. With a purely speculative activity like this, you get a brutal gain in three months. The main problem is the vendors and / or operators of funds to future buyers of this market. It may be that sometimes sellers are buyers and vice versa, that is, it's like to charge and be the change yourself. This lends itself to many interpretations.

The activities in the oil futures markets are many and complex. Normally, there are two types of investors: those who really want to make sure that the purchase price does not vary too much (these are mainly refineries), the others are speculators, who typically are banks and stockbrokers.

These hedge funds accepting initial deposit work known as margin. For example, the investor wants to buy $ 20 million in crude and deposits a million in cash. If low, it is deducted from the million. If the price raises, it is added to the million . In other words, the investor freeze the price. Wins when increases, loses if decreases.

For 2009 the oil futures market traded 1000 million barrels a day, but world oil production was only 85 million, which means that over 90% were speculators who renegotiated the barrels.

Since the actual cost of extracting a barrel is on average $ 11, priced at $ 100 or more is a real speculative abuse.

Although in July 2010, it was adopted a new regulation, (The Dodd-Frank Wall Street Reform Act) requiring that all directors in the futures market with at least $ 150 million capital are federally registered, in reality has happened to most of the said directors, they have declared only $ 100 million capital. In this way they will be only under the supervision of that state and not under the federal law.

The solution is to ban the involvement of speculators in futures markets. The other solution is unlikely because we live in a free market economy; that oil is not quoted on any market on U.S. or a single federal agency is responsible for setting the selling price to refineries. Thus, the price of gasoline will represent its real value.

Benjamin F. DeYurre

Economist and Journalist