Rising Gas Prices Due to "Commodity Gamblers"
Posted: Tue Mar 13, 2012 10:06 am
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Here we are again. Gas prices are on the rise and citizens want to know why. They feel in their gut that the system is rigged. And in fact, they are right.
The cost of gas is not going up because of decreased supply. The world oil supply rose by 1.3 million barrels per day in the last quarter of 2011.
The cost of gas is not going up because of increased demand in America. Demand for oil in America is at an 11-year low.
So what is going on? The answer in short is that the futures market for oil is being operated like a casino.
Let me explain.
Some folks use the futures market for oil as intended: to lock down a supply of oil at a specific price. Imagine, for example, that you run an airline, and you want to make sure that you have jet-fuel locked in at a reasonable price. But many folks who have no end use for oil also buy and sell it on the exchange. They are commodity gamblers, hoping to cash in on the upswing. And the resulting speculation bubble drives up the price of gas at the pump.
Indeed, the number of folks who gamble on Commodity Futures Trading Commission oil markets has gone up. In the past, transactions by folks who have no end use for oil accounted for about 30 percent of the market. Today, such gambling constitutes 66 percent of the market.
The solution is simple: Let oil end users use the oil futures market for its intended purpose while getting the gamblers out. That is exactly what Congress sought to do by empowering the CFTC to aggressively restrict participation by non-end use gamblers. The CFTC has utterly failed to effectively utilize this power. Thus, we must collectively compel the CFTC to use its new power to set “position limits” on speculators./b]
The wonders of capitalism.........
Here we are again. Gas prices are on the rise and citizens want to know why. They feel in their gut that the system is rigged. And in fact, they are right.
The cost of gas is not going up because of decreased supply. The world oil supply rose by 1.3 million barrels per day in the last quarter of 2011.
The cost of gas is not going up because of increased demand in America. Demand for oil in America is at an 11-year low.
So what is going on? The answer in short is that the futures market for oil is being operated like a casino.
Let me explain.
Some folks use the futures market for oil as intended: to lock down a supply of oil at a specific price. Imagine, for example, that you run an airline, and you want to make sure that you have jet-fuel locked in at a reasonable price. But many folks who have no end use for oil also buy and sell it on the exchange. They are commodity gamblers, hoping to cash in on the upswing. And the resulting speculation bubble drives up the price of gas at the pump.
Indeed, the number of folks who gamble on Commodity Futures Trading Commission oil markets has gone up. In the past, transactions by folks who have no end use for oil accounted for about 30 percent of the market. Today, such gambling constitutes 66 percent of the market.
The solution is simple: Let oil end users use the oil futures market for its intended purpose while getting the gamblers out. That is exactly what Congress sought to do by empowering the CFTC to aggressively restrict participation by non-end use gamblers. The CFTC has utterly failed to effectively utilize this power. Thus, we must collectively compel the CFTC to use its new power to set “position limits” on speculators./b]
The wonders of capitalism.........