Are Oil Prices Rigged? You bet, say Stanford Profs

Nope, and nope.

I'm not sure what the solution is, except some type of "robber baron" laws, similar to those instituted in the 19th century in the US, in an attempt to curb this type of corporate behavior.

Its a real problem, it really happens, it's disastrous to the economy for the short term (and if not handled properly, for the long term as well) - but I don't know of a single, proper solution to it.

The only thing is to embarrass the companies (not likely), or change the tax law in such a way to make them more amenable to being a good corporate citizen. Or put short terms price controls in place (but since the numbers coming from them are suspect - how do you know anything?)

And here's an interesting article from the Times: http://www.nytimes.com/2008/08/27/business/27grid.html?_r=2&oref=slogin&oref=slogin, which helps answer a question about why wind farms are idle much of the time. I always wondered when passing them why so many turbines were idle, and wondered if this was a reason/cause.

An interesting quote from the article: "The dirty secret of clean energy is that while generating it is getting easier, moving it to market is not."

 

The solution is simple, get rid of the 2000 Act which allowed speculators to come into the market. If you want to buy and sell barrels, you must be a company that actually uses or produces them.

http://en.wikipedia.org/wiki/Commodity_Futures_Modernization_Act_of_2000

 

Answer to your question, is yes.

An utterly useless implement, toss your 300 series macroeconomics textbook in the garbage can. Like many of life's necessities, price is no longer determined by effective demand. Like real estate, price of light sweet crude is "rigged."

There is no particular firm, or any one individual who merits power, freedom or control necessary to arbitrarily "RIG" light sweet crude. But, given certain circumstance, small, entrenched, mobile, well-organized agents can effectively collude, to ping pong price (e.g., not prices; price), Enron style.

New breed of Gen-X Ivy League capitalists in their mid-career maturation, when the going gets tough in one market, they just pick up their chips, and migrate their capital elsewhere (e.g., scortched earth IS-LM mentalities).

Reason price of light sweet crude skyrocketed so far beyond effective demand equilibrium price: "flight to quality." Pension funds, money changers and speculators having ping-ponged price of real estate on par with the Guinness Book of Worlds Records for the world's largest hot air balloon, KA-BLAM, the damned thing popped. Pace of financial innovation, "financial assets" (e.g., fake assets, as some argue) outstripping by tenfold "real assets" they lay claim to, migrated their capital away from securitized debt equities, in search of greener pastures. They've discovered the virtue of commodities (e.g., AAA hard-hull wheat; Orange Juice Futures; West Texas Intermediate). And, they are liking it.

More than just a little.

Price you observe has nothing whatsoever to do with Adam Smith's notion of "effective" demand (ie., Inquiry into the Causes of The Wealth of Nations). 75% of the world's supply of petroleum speculated upon, the price you observe is synthetically derived,by speculators.

Were one person responsible for manipulating price, he'd be in jail a long-long-time. Give us a little credit, economics profession is a whole lot better at our jobs than merely that.

Financial innovation (e.g., crony capitalism), as economists we're trained to break all this down, fragmentation of the combination effected, a dichotomy of you and your children, from your wealth, into 16 or 137 imperceptible micro-steps where no one individual can be deemed accountable, no one particular action in the process of stripping you naked can be singled-out and pinpointed, definitively, as the root cause of you having lost everything.

We're pretty good at it, I'll have you know. Not only do we succor you out of your money? We make your head spin.

By mid century, there'll be no more middle class. By the end of the century, 4.7 billion people on planet Earth will have starved to death. Of those who survive, we will once again be a nation of family farmers. Instead of dividing the world, who can do mathematics, and who can't? MLK was wrong. Quality of your character won't matter, not one iota. They'll divvy up fruits of the Earth just like they did before: who owns land, and who doesn't.


Courtesy,
~ Samuel, '04 Prius

 

The CEO of Chevron told Congress they weren't interested in building any more refineries. Why? Because Congress was going to give alternative energies tax incentives like the oil companies get. They think people may understand that carbon-based energy is not the greatest idea for the 21st century.

Somehow I find the idea that Big Oil's lawyers and lobbyists are too frightened of the Sierra Club's lawyers and lobbyists to build a refinery kind of amusing. As we saw yesterday, they aren't afraid to take on the federal government's lawyers on the designation of the polar bear as an endangered species (duh).

One refinery is being expanded right now- by a Canadian company. Another refinery will be under construction in year or so- by a Canadian company. One refinery was expanded and retooled right here in Commerce City just about a year ago- by a Canadian company. I see a trend here.

 

Somebody has the ability to control oil prices--and they are probably Republican--because oil prices have come down before the last two elections--and that has been independently verified.

I believe large American financial companies are responsible for the volatility in oil prices: they are buying up futures in huge amounts to offset their sub-prime losses. And boosting the price of oil in the process. That's why the price depends on world events every--which was not the case in the past when OPEC controlled the price.

My source is the congressional hearings on oil futures held a month or so ago and televised on C-span. That's the conclusion of a variety of oil experts (including oil lobbyists) who testified. The market price of oil right now should be $60-90 per barrel.

The problem right now is the Republicans are stonewalling oil futures legislation in the congress to try to get offshore drilling. And the Democrats are too weak vote-wise to do anything. So the country suffers.

 

That's the cuplrit allright. Bush policy. Remove the regulations. Same deal with the subprime market crisis. The radical Republicans have killed the country the past 8 years removing government regulations.

I'd like to give Gore a kick in the a** for losing that 2000 election--along with that jerk Nader.