CFTC: Speculators caused 2008 oil price crisis
Published: July 28, 2009
Updated 7 months ago
In a major U-turn from its claims during the Bush administration, the Commodity Futures Trading Commission is now set to admit that speculation in oil markets — and not the forces of supply and demand — are behind last year’s massive oil price spike.
In the summer of 2008, oil prices on the open market reached an unprecedented $147 per barrel. Many economists argue the spike helped push the US into an economic free-fall last autumn.
At the time, the CFTC — which is tasked with regulating commodity and financial futures — said that the huge price spike was a result of supply and demand. That explanation was met with ridicule from many market-watchers, who said it was impossible that demand for oil increased by such a huge margin even as the North American, European and Japanese economies were slowing down.
Now, according to a scoop in the Wall Street Journal, the CFTC is about to reverse its Bush-era position, and admit that market speculators — investors who bought oil futures on the expectation they would rise in value — “played a significant role” in the oil spike.
Bart Chilton, a CFTC commissioner, told the WSJ that the original assessment was based on “flawed data.” He told the newspaper that the CFTC’s report, which will be released next month, will acknowledge the role of speculators in oil markets.
The CFTC’s admission highlights the often dangerous role that Wall Street speculators play in Main Street’s economic health. Many policymakers are now beginning to wake up to the reality that speculation in commodities markets can cause massive damage to the pocketbooks of ordinary citizens.
The Columbia Journalism Review reminds readers that, in his Rolling Stone article “The Great American Bubble Machine,” Matt Taibbi describes how major Wall Street players gamed the oil market:
With the public reluctant to put money in anything that felt like a paper investment, the Street quietly moved the casino to the physical-commodities market — stuff you could touch: corn, coffee, cocoa, wheat and, above all, energy commodities, especially oil.
Oil futures in particular skyrocketed, as the price of a single barrel went from around $60 in the middle of 2007 to a high of $147 in the summer of 2008…
But it was all a lie. While the global supply of oil will eventually dry up, the shortterm flow has actually been increasing. In the six months before prices spiked, according to the U.S. Energy Information Administration, the world oil supply rose from 85.24 million barrels a day to 85.72 million. Over the same period, world oil demand dropped from 86.82 million barrels a day to 86.07 million. Not only was the shortterm supply of oil rising, the demand for it was falling — which, in classic economic terms, should have brought prices at the pump down…
So what caused the huge spike in oil prices? Take a wild guess.
The CJR writes: “Note that Taibbi’s hardly the first person to say that the money from the housing bubble moved to form the commodities bubble, which remember, not only sent gas prices skyrocketing but helped cause dangerous food disruptions around the world.”
The CFTC’s turnaround comes after many other major oil-market regulators already came to similar conclusions. Last month, the European Union and OPEC agreed at a meeting that regulation of oil markets would be necessary to prevent future oil bubbles.
“The 2008 bubble could be repeated if adequate regulatory reforms, including greater transparency, (are) not made as part of an overall reshaping of the global financial sector,” Reuters quoted EU officials as saying in a statement.
The CFTC now seems to agree with this view, but the WSJ points out that there is no consensus on this issue. Wall Street speculators may fight hard to keep their ability to profit off of commodity bubbles — potentially setting the stage for an international political showdown over financial market regulation.
“These decision makers don’t present a united front,” the WSJ reported. “The U.K.’s Financial Services Authority has found no evidence that speculators are behind big oil-price swings, people familiar with the matter said.”
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Christ, any moron could’ve figgered that out…except the peakers…lol
“In a major U-turn from its claims…”
U-turn? Speculation is a huge part of supply and demand. It’s a bet on futures.
The problem is not simply speculation. Aside from the flow of capital into the commodities market, what factors were present that made people think oil would continue to go up??
I think Bush admin played a major role. They were talking shit to Iran and being generally belligerent toward the area. The strait of hormuz, which would be controlled by Iran in a skirmish, sees 30% of the worlds oil flowing through. When Bush and Iran have words and talk of war, both parties benefit from the increased revenues associated with speculation that the strait of Hormuz will become too dangerous for navigation.
It’s not rocket science, and regulation will not stop a warmongering motor mouth from affecting global crude prices. Notice how most of the vilified “evil dictators” are in oil countries? It’s a game and oil price is the prize.
No, really? Gee, the morons at the CFTC have a keen sense of the obvious …
Interesting that we caused a global crisis in the pursuit of profits in the hands of the few..
I wonder how long before everyone wakes up and understands that the drive for profits is a BAD thing.
“Speculation is a huge part of supply and demand. It’s a bet on futures.”
Either it’s based in the physical world (supply and demand), or it’s based on hope and faith (thoughts, not the physical world).. can’t be both.
Speculation is about getting rich from guessing where supply and demand might head.. one is not the other, so speculation is not “part” of supply and demand, it’s merely tangentially related.
this is about people wanting a free lunch (playing with someone elses money while not actually doing anything substantial for the world in the process.. just leeching money into their own pockets).. and those same people tend to be right-wing douche bags who then say no one should help anyone else out.. all the while, they are being helped out by their corrupted and bought off politicians.
Believe it or not, I agree with you that the speculation creates problems and went rampant as a lot of money flowed into commodities, but your free lunch concept is a bit simplistic. If you lull yourself into thinking it’s the fault of the speculators, you miss the real controlling factors.
Commodities aren’t exactly imaginary and their price based on projected supply/demand is a natural occurrence, you can’t stop it even if you try.
The point of my post was how politics affects the projected price. I think it’s important to realize that what our politicians say has an effect on commodities futures. If Bush had shut the f$%^ up about invading Iran and Venezuela, oil might not have jumped quite like it did.
check this out:
monitor oil price(and gas at the pumps which goes up INSTANTLY) and the next time you hear some politician spouting off about invading Iraq or Venezuela, check the oil price. If the speculators think it’s for real or could happen they shoot oil price up quick.
By contrast, go back and look at oil prices around the 2006 elections. The Democrats were consistently saying ” end war ” and “start conservation” and “reduce dependency” and when they swept into offices, oil went down.
There’s a relationship between talk of war in the middle east and oil prices. It sometimes seems like the defense industry, so entrenched there is motivation to keep it going. Same thing with oil and mid east war. Keep the rhetoric up and prices stay up.
just saying.
“Commodities aren’t exactly imaginary and their price based on projected supply/demand is a natural occurrence, you can’t stop it even if you try.”
Again, there’s some conflating. Yes, the price is mostly related to supply and demand, in the “normal” context of how things are bought and sold.. That falls into the realm of physical.. But when people like the Shrub spout off at the mouth and put “fear” into the deals, when people start hoarding because they “fear something MIGHT affect supply”, that’s “speculation”, and has _nothing_ to do with _real_ supply.
And, don’t forget, these guys were BUYING oil that wasn’t coming out of the ground yet, they were buying oil 3 and 4 months out.. And, these “speculators” started buying (or leasing) dozens of multi-million gallon tankers and putting their oil in them and FLOATING THEM until the price went UP more.. Hoarding and artificially restricting supply..
Luckily for us, the earth is a much better holding tank and the overall effect of these people effectively blocking oil shipments didn’t do much to the global economy at large, but all these people shifting numbers around on paper allowed them to make a lot more profit.. _artificially_..
“There’s a relationship between talk of war in the middle east and oil prices”
and it is in the _absense_ of change in supply.. the relationship exists because of “speculation”, hence, the ’speculators’ drive up the price, not supply and demand. And KNOWING how “words alone drive up price”, it should become fairly obvious to anyone listening that the OIL BARONS the Bush Family, made a lot of money by having one of their own with a finger on the nuke looking out over the table at the world and saying “I’ll do it! I’ll nuke Iran!” (which, to this topic means “i’ll destroy a huge portion of the oil supply if I can’t have my way”).. So, the oil guys made threats and drove up the price. All that talk/speculation, if I recall the venture interests of the Shrub’s family, made BushCo a LOT of money.
But, then, when you look at the makeup of that Admin, they all made lots of money from things they did on public office. So did all their friends that worked with them… and the public paid the bill. Which, again, is what this article is talking about.. lack of regulation allowed an oil family man to get in office, run off at the mouth, and artificially drive up prices which made him a lot of money.
If you can manipulate markets legally, these speculators are just the pigs to do it. No one goes to jail, no prosecutions, no accountability. Sounds like a winner for greed again!
All the fucks that are just now coming out of the compost piles to tell us about all the shit that went down that “we” already know about, cheney,cheney, bush,madoff,enron,etc,etc, where the fuck were you when it HAPPENED? I guess you get “ass-face” time on tv and sell your books that are basically like buying old newspapers.
CFTC: CORPORATIST MALFEASANCE CREATED OIL BOOM/BUST/CRISIS
– CFTC: Corporatist Malfeasance Created Dot Com Boom/Bust/Crisis —
– CFTC: Corporatist Malfeasance Created Housing Boom/Bust/Crisis —
– CFTC: Corporatist Malfeasance Created Wall Street Boom/Bust/Crisis –
Duh!
Oh hell, I was making this accusation when the price hit $2.50 gal.
Why won’t someone tell us who was behind all the “put options” leading up to 9/11? That might grab my attention.
And this is a story, why? Anybody with more than two brain cells knew that.
WHEN are we going to wake up an realize that the entire Bush Administration was about rewarding Bush’s energy industry buddies.
The Iraq War was ABOUT OIL !
WMD’s didn’t exist But The OIL Did
and Bush and Cheney
got over 34,000 US Soldiers Killed & Maimed
for it.
Now we find out that wasn’t the end of it. Bush’s oil buddies were jacking up the price of oil worldwide and Bush and Cheney were helping them with their Warlike Statements, especially to Iran.
We the people have to bring these creeps to justice or this will happen even when the Democrats are in power (perhaps especially, remember President Johnson?).
Start with the Torture Crimes… a slam dunk, then go after everything else.
If House Judiciary Chairman John Conyers does not soon start hearings in his Committee
on the crimes of the Bush Administration
WE Must Call For His Resignation.
SIGN THE PETITIONS
Demanding
both a Commission of Inquiry
and a Special Prosecutor
For All Their Crimes
at ANGRYVOTERS.ORG
http://ANGRYVOTERS.ORG
We must hang in there…
or our children or grandchildren may
be tortured and imprisoned without cause because of our failure.
.
The chosen, the superior of Wall Street insiders ~
Future of a Nation that can not trust the Government & Propaganda Media?
How many times has the Government & Propaganda Media lied to you?
Chronic lying as career path or intellectual prostitution for paycheck?
Gravel Kucinich Paul Nader McKinney Ventura Sheehan Kaptur.
Fool me once shame on you, fool me twice shame on me.
Poodles, Puppets, Sham debates, Scam elections.
9/11 liars, AIPAC liars, Federal Reserve liars.
Speak no evil, hear no evil, see no evil?
Greed & corruption or conscience?
Leaks from Whistleblowers.
perotcharts.com
Wow, this guy is a rocket scientist.
Newsflash: America, land of the constantly suckered.
Wow! What shocking news!
I’ll have to file this one in my folder labeled, “No Shit, Sherlock!”
…and this doesn’t make the headlines. This is one of the biggest heists in modern day and they want to focus on Obama’s answer that the Cambridge police acted stupidly.
I thought the media was Liberal with all capitals.
The real problem that goes unmentioned in this article is that supposedly independent agencies like the CFTC are corrupted by politics. Chilton of the CFTC stated on national TV the other day that the CFTC spun the data in last year’s report. But he promises that it won’t the case with this year’s report. Yeah, right. He now has no credibility. Anyone who’s been paying attention knows that the data is the same, it’s just being spun to tell a different story. The only thing that has changed is the objective of the politicians pressuring the agency.