Futures Exchange warns: That $100 Oil = $4 a gallon Gasoline

(noon. – promoted by ek hornbeck)

Crude Oil Futures: Crude Oil Tops $100 for 2018 on Threat From BP Spill

Energy Markets

Margot Habiby, Bloomberg – May 5, 2010

Crude oil futures for delivery in 2018 surged above $100 a barrel this week as the BP oil spill in the Gulf of Mexico led the government to consider a halt in future drilling.

The crude oil futures contract dated furthest into the future jumped after President Barack Obama said no new offshore drilling leases should be issued until a “thorough review” of the April 20 rig explosion. […]

Crude oil futures for delivery in December 2018 rose to $100.38 a barrel May 3 on the New York Mercantile Exchange, the highest settlement since Jan. 20. […]

“You may not pay today, but we will pay tomorrow,” Phil Flynn, vice president of research at PFGBest in Chicago, said in a report.

[…]

“That $100 oil equates to pretty close to $4 a gallon gasoline” in the U.S., said Bruce Bullock, director of the Maguire Energy Institute at Southern Methodist University in Dallas. “We know when it hit $3 a gallon two years ago drivers started to get concerned, and at $4 a gallon demand evaporated.”

The price has climbed 11 percent in the past five weeks […]

In other energy markets, Brent for December 2018 delivery settled above $100 for the third straight day, falling $1.90, or 1.9 percent, yesterday to $100.37 a barrel on the London-based ICE Futures Europe Exchange. That’s 93 cents more than the Nymex contract.

same link

Futures, 2018, Nymex, London, Brent, Exchanges ???

Who is buying a Barrel of Oil anyways, for delivery in 2018?

Well would you believe, Goldman Sachs, Morgan Stanley, and your garden variety Billion Dollar Hedge Fund?  Well, Believe It.

Remember $4.50 Gasoline a few years ago — well according to Industry Insiders, legitimate “price hedging against market fluctuations, out in the Future”, had very little to do with that Price Spike — It had a lot more to do with making a Quick Buck.  At OUR Expense.

Did Speculation Fuel Oil Price Swings?

60 Minutes: Speculation Affected Oil Price Swings More Than Supply And Demand

Jan. 11, 2009

To understand what happened to the price of oil, you first have to understand the way it’s traded. For years it has been bought and sold on something called the commodities futures market. At the New York Mercantile Exchange, it’s traded alongside cotton and coffee, copper and steel by brokers who buy and sell contracts to deliver those goods at a certain price at some date in the future.

[…]

When 60 Minutes talked to [Dan Gilligan, president of the Petroleum Marketers Association] last summer, his members were getting blamed for gouging the public, even though their costs had also gone through the roof. He told Kroft the problem was in the commodities markets, which had been invaded by a new breed of investor.

“Approximately 60 to 70 percent of the oil contracts in the futures markets are now held by speculative entities. Not by companies that need oil, not by the airlines, not by the oil companies. But by investors that are looking to make money from their speculative positions,” Gilligan explained.

Gilligan said these investors don’t actually take delivery of the oil. “All they do is buy the paper, and hope that they can sell it for more than they paid for it. Before they have to take delivery.”

[…]

Asked who was buying this “paper oil,” Masters told Kroft, “The California pension fund. Harvard Endowment. Lots of large institutional investors. And, by the way, other investors, hedge funds, Wall Street trading desks were following right behind them, putting money — sovereign wealth funds were putting money in the futures markets as well. So you had all these investors putting money in the futures markets. And that was driving the price up.”

In a five year period, Michael Masters [hedge fund manager] said the amount of money institutional investors, hedge funds, and the big Wall Street banks had placed in the commodities markets went from $13 billion to $300 billion. Last year, 27 barrels of crude were being traded every day on the New York Mercantile Exchange for every one barrel of oil that was actually being consumed in the United States.

So the Price of a Barrel of Oil — doesn’t not necessarily depend on the Supply and Demand of Oil — but rather, on what Futures Traders Speculators — THINK a Barrel of Oil will be worth, far, far into the Future.  Some commodity.  A commodity for whom?

And that’s not the worst of it. These Wall Street types, providing all that Market Liquidity — Don’t want the Barrel, they just want the “Deed” to the Barrel.

So they can “pump up” the Price of that Oil Contract, and then Dump it on Pension funds, etc.

{pg 2 of 4 … }

A recent report out of MIT, analyzing world oil production and consumption, also concluded that the basic fundamentals of supply and demand could not have been responsible for last year’s run-up in oil prices. And Michael Masters says the U.S. Department of Energy’s own statistics show that if the markets had been working properly, the price of oil should have been going down, not up.

[…]

Masters believes the investor demand for commodities and oil futures in particular, was created on Wall Street by hedge funds and the big Wall Street investment banks like Morgan Stanley, Goldman Sachs, Barclays, and J.P. Morgan, who made billions investing hundreds of billions of dollars of their clients’ money.

“The investment banks facilitated it,” Masters said. “You know, they found folks to write papers espousing the benefits of investing in commodities. And then they promoted commodities as a, quote/unquote, ‘asset class.’ Like, you could invest in commodities just like you could in stocks or bonds or anything else, like they were suitable for long-term investment.”

And exactly Who is watching over all that Oil Market Contract Trading — well according to 60 Minutes, that’s another very opaque, secretive mystery.  … kind of sounds LIKE, No One.  Surprise, surprise!

{pg 3 of 4 … }

But according to documents filed with the Securities and Exchange Commission, Morgan Stanley is a significant player in the wholesale market through various entities controlled by the corporation.

[…]

The Wall Street bank Goldman Sachs also has huge stakes in companies that own a refinery in Coffeyville, Kan., and control 43,000 miles of pipeline and more than 150 storage terminals.

And analysts at both investment banks contributed to the oil frenzy that drove prices to record highs: Goldman’s top oil analyst predicted last March that the price of a barrel was going to $200; Morgan Stanley predicted $150 a barrel.

[…]

It’s impossible to tell exactly who was buying and selling all those oil contracts because most of the trading is now conducted in secret, with no public scrutiny or government oversight. Over time, the big Wall Street banks were allowed to buy and sell as many oil contracts as they wanted for their clients, circumventing regulations intended to limit speculation. And in 2000, Congress effectively deregulated the futures market, granting exemptions for complicated derivative investments called oil swaps, as well as electronic trading on private exchanges.

Well there is a “Regulatory Commission”, that is suppose to be watching over “Legit” Futures Contracts, like for Corn, Soy Beans, Sugar and Wheat.  They recently made these BOLD statements on how they would “ensure” Futures Oil Traders are “bona fide”.   Wooooh!  Scary!

CFTC rule to limit oil speculation a tremendous victory

Commodity Futures Trading Commission

By eTN Staff Writer | Jan 14, 2010

The CFTC statutory authority directs it to promote and protect fair and orderly markets and to protect against manipulation and excessive speculation. For trades that occur on regulated exchanges, the CFTC proposed rule will establish the same oil-speculation position limits that currently apply to agricultural commodities while ensuring that bona fide hedge exemptions are not exploited by big banks.

I hope CFTC has a whole army of regulator deputies on hand — because those Oily Futures Exchanges, which today bid up Oil to over a $100, they just haven’t seemed to have received the CFTC’s sternly worded memo’s.

What did Sean Connery say in the “Untouchables” — ‘Son, you don’t bring a knife to a gun fight.’

Financial speculation seen boosting oil price

David Sheppard

LONDON (Reuters) – Financial speculators in oil are costing consumers at least $300 billion a year, according to almost 75 percent of industry players surveyed by Reuters.

[…]

The U.S. Commodity Futures Trading Commission (CFTC) has moved to rein in speculation in energy and commodity trading, especially oil, and has proposed limiting the number of futures contracts financial players can hold at any one time.

The position limit proposal stems from the spike in oil futures prices to a record of almost $150 a barrel in 2008. Even though CFTC economists said the surge was due to supply and demand, just over a quarter of those polled by Reuters share that view.

When there’s $300 Billion of EASY Profits at stake — WHY in the world, would Wall Street, stop and worry about CFTC’s milk-toast proposals.  It probably a “Catch Me if you Can” game to them. They can hire all the Lawyers and Accountants they need to get around those pesky new rules.

And where is our “outraged” Senate on this Touchy Topic, of Energy Commodities, and making the Futures Market transparent ? … Well, at least they have read the Bill.

S.221 on Thomas

S.221 on GovTrack

S. 221: A bill to amend the Commodity Exchange Act to require energy commodities to be traded only on regulated markets, and for other purposes.

Sponsor: Sen. Bill Nelson [D-FL] (no cosponsors)

Last Action: Jan 13, 2009: Read twice and referred to the Committee on Agriculture, Nutrition, and Forestry.

American Public, Take a Number, we’ll get back you someday.

Meanwhile get ready to dig deep — that $100+ a Barrel Habit, doesn’t come cheap.

Someone HAS to Pay the Piper … and that someone is NEVER Wall Street, Nor Big Oil.

Afterall they’re the ones with the Deep Pockets, to go along with those Deep Drilling Wells.  Someone needs to provide the Energy of the Future, don’t they?  you understand America — afterall don’t ya all need to  fill ‘er up?