The current high price of oil (and related products) contains an element of speculation and manipulation. It is difficult to measure the exact amount.
The price of other commodities such as food, iron and precious metals contains an even higher component of speculation and manipulation. Many of these markets are easy to manipulate with a small amount of money. There is no better example than the 30% daily jump in oil prices without any change in the oil market.
The poorest half of the world does not “play” in the commodities speculation game, but they are severely affected by it. We are on the brink of civil war in many 3 world countries. Oil prices are already killing many people around the world. Millions could die in the coming years as result of the high price of oil and natural gas.
The cost of energy is affected not just by oil. For example: The cost of building a wind farm or a nuclear power station has risen significantly due to price of metal, cement, etc.
Most commodities markets, including oil, have some trade mechanisms to control trading. Most of these mechanisms are old and do not fit today’s global environment. The cost of the manipulation of commodity prices to the world is simply too high. These mechanisms were put in place originally to prevent speculation. However, they we designed in a completely different era and are currently obsolete.
We need to tighten the trading rules to reduce the level of manipulation in the market. The result should be lower prices. Example of such rules:
- Oil options cannot be traded quickly — for example, they must be held for at least three months. This will allow real players (like airlines) to use the market.
- An investor must take delivery of at least X% of the contracts he enters. This will limit the players in the market to those actually needing it.
- Higher margin requirements.
- Separation of ETFs and investment arms of active interested parties from the part of their business that is involved commercially with the commodity. To prevent conflict of interest and use of inside information.
When designing the exact measures, the market experts should be consulted, but their opinions and recommendations should be weighed against their conflict of interest. For example, the parties running the commodities markets benefit from the expanded volume and are not interested in solutions that will reduce their earnings.
On June 23 the Obama Administration announced that the U.S. will join 27 other nations in releasing a total of 60 million barrels of oil from strategic petroleum reserves. The… Read more »
I think it was a good move but a little late. I would have done it shortly after we started bombing in Libya. It has always amazed me that we… Read more »
Symbolic gesture which I believe is meant to send a message to specs… more politics.
The tapping of Oil Reserves generated the desired response of accelerating the drop in crude price and gas for cars. Since I was on a small vacation travel the effect… Read more »
Melanie makes good points. The SPR is reminiscent of the adage about generals fighting the last war. However, I suspect that whoever occupies the White House will continue to like… Read more »
Bad policy!! It does not solve anything in the future but it may keep the current administration in power for a little while longer. This is the general problem of… Read more »
Why is it bad policy to use a resource that exists? If oil prices stay down for 10 days at $5/barrel below the pre-release price, it’s $1 billion into the… Read more »
It’s about time they released some of the oil in reserve. We have other countries drilling for oil 20 miles off shore of Florida so they resell it back to… Read more »
The rationale to tap the Strategic Petroleum Reserve is not for it’s original purpose, but rather focusing on the impacts of higher fuel prices on the US economy. The Reserve… Read more »
The original purpose of the SPR characterized by Mr. Sklar is incorrect. The law has always included an authority to “exchange oil to acquire oil.” Familiarity with the organic statute… Read more »
I thought this was an actual draw-down and not an exchange (and no I have not done my research on the issue–but that’s really what this is regardless of what… Read more »
The piece I am trying to understand is what the status of Saudi excess available production really is. The pronouncement that the Kingdom would increase output irrespective of OPEC consensus… Read more »
Scott Sklar is correct. The SPR was established to support our military and vital strategic interests in the event of another oil cutoff, such as the US experienced twice in… Read more »
Mr. Sklar is not completely correct although I consider him colleague and respect his work. There is a specific authority in law that allows the exchange of SPR oil to… Read more »
The US economy is built on the notion of free market. Price is determined based on supply and demand. In a true free market there is no need for regulation… Read more »
A great job by Dr. Kenneth Medlock and Amy Mayers Jaffe describing the changing nature of the players in the commodity market and how, just like in the housing market,… Read more »