A Discussion of The Current Oil Scam

I haven’t listened to the whole thing yet, but didn’t congress close the Enron loophole this year as part of the farm bill? I’m Canadian so I’m up to date on US stuff.

BTW, if you want something to think about in the next election: Phil Gramm and Tom Delay were the duo behind this loophole and put it into a rider on a budget bill back in 2000. In the last 8 years it wasn’t closed and was killed twice by Republican filibusters.

Fascinating talk, thanks. I’ve been out of the commodities business since 1998 (mainly gas, oil, and forex) but I was lucky enough to work on big marketing and trading floors and the pits in Chicago. I wasn’t a trader or marketer but I wrote a lot of software which managed portfolios, hedged risk, reported, and authorized trading.

I had read about the Enron Loophole but hadn’t known about the London Loophole. In the 90’s there were things done by traders which involved intrabook manipulation – Enron just being the biggest example of this. However, one thing I do know is that electronic trading was a much smaller percentage of the commodities business than it is now.

I’m going to read more about this but it seems obvious that the principle of “open outcry” has been lost. Open outcry is an old term meaning that you have to publicly call out your price for buys and sells so everyone knows who is trading what amounts and for what price – this is why trading pits used to exist. A transparent mechanism like that should be key part of any commodity exchange, whether electronic or not.

What’s obviously happening is that all liquidity has left the securities business (due to the financial meltdown) and has gone into the commodities business as a reaction to the subprime fiasco. The massive upsurge in electronic trading in commodities has only made this easier and less transparent. Too many speculators, not enough “real hedgers” or market makers.

I’ve looked quickly at coal, corn, steel and various other commodities and the same thing is happening there. I think that a part of that may be linked to fuel futures since all of them are correlated to fuel to some extent.

Thanks again for this.

I decided the guy was a con artist or a nincompop and turned it off when the claim was made that a law passed by congress could control international oil prices. Right.

#1 ArianeB said: “By the way, just because there are no lines for gas here in America (where we seen willing to pay $140 a barrel), but the lines are huge in other countries: Thailand, Western Australia, Argentina, Honduras, Pakistan, etc.”

Like Nimby, I’m in one of those places, Western Australia specifically. There are no queues for petrol here, and we’re paying $1.51/L, well, I paid that on Saturday. Sure, it’s more expensive than it used to be, what isn’t? It’s cheap by world standards, and I’m lucky I in that I live a 30 minute bicycle ride from work, so driving is optional for me in good weather and there is plenty of that

Now gas, gas we are definitely currently short of, as a major installation went bang a month ago and took out 30% of our states supply, possibly for the rest of the year. Gas in Australia is literally a gas, for use in a kitchen stove, a factory (newer electric power stations run on gas here but we are now restarting some recently closed old coal fired ones…) or heating. It’s not gasoline, we call that fuel “petrol” in this country. We have gas pipelines running thousands of kilometres, and one isn’t working now. Unfortunately there is no spare capacity to use to replace it.

And even with a shortage of gas, turning off lights, reducing heating (put on some warm clothes, it’s winter down here and cold today, 18ºC was the max, brrr! and reducing electricity demand by turning off lights has meant only some businesses are suffering (commercial laundries being one of them). So far…

All that aside, it would be nice to have cheaper fuel, from whatever origin, fossil or bio. Fingers crossed something will improve and soon.

#4 Right on the money!

BTW anybody watching UBS’ fall?

ArianeB, you seem to have missed the point. The trading is black..nobody knows if there is this balance you speak of. It’s fixed. The transparency is not there. HELLO! Are you claiming it is not possible?

The missing logic stems from the supply and demand reality. Demand is down. In the process the price doubled from $65 a barrel to $140. Yeah, that makes sense. And as demand falls further we are told to expect $200 oil. It’s a farce.

Meanwhile, most people do not understand the way commodities work and love to fall back on simplicities such as “peak oil” or other green mantras.

As for the farm bill closing the enron loophole, it only closed the natural gas side not the crude oil side of the loophole.

My prediction is that oil prices will collapse after the summer holidays since the traders and the system will not be able to hold back the oil from the consumption system (aka refineries, gas pumps) much into the fall. When it falls, it will fall fast.

And, yeah, where is that douchebag Tom Delay?

Uncle Dave said: “As for the farm bill closing the enron loophole, it only closed the natural gas side not the crude oil side of the loophole.”

I didn’t know this until listening to this show. This is especially bad since a large number of commodities have some positive correlation with WTI crude. Not just coal, natural gas, and jet fuel but things like wheat, corn, and orange juice. Very nasty indeed.

“And, yeah, where is that douchebag Tom Delay?”

Phil Gramm, the other mastermind behind this, is John McCain’s chief economic adviser.