{"id":29693,"date":"2012-05-17T06:46:14","date_gmt":"2012-05-17T10:46:14","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/05\/the-dangers-of-oil-speculation-more-nonsense-from-the-obama-administration\/"},"modified":"2012-05-17T06:46:14","modified_gmt":"2012-05-17T10:46:14","slug":"the-dangers-of-oil-speculation-more-nonsense-from-the-obama-administration","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/05\/17\/the-dangers-of-oil-speculation-more-nonsense-from-the-obama-administration\/","title":{"rendered":"The \u201cDangers\u201d of Oil Speculation & More Nonsense from the Obama Administration"},"content":{"rendered":"

Article by Investment U<\/a> <\/p>\n

\"Obama<\/p>\n

Is oil speculation truly a financial force for destruction, or has the Obama Administration just found a new scapegoat?<\/p>\n<\/div>\n

Every great leader I\u2019ve known had one quality in common: a strong propensity to give credit to others when things go right and take personal responsibility when things go wrong.<\/p>\n

Yet by that standard, Obama is no leader at all.<\/p>\n

Nearly four years into his term, he still blames high unemployment and the state of the economy on his predecessor. He blames his trillion-dollar-plus deficit on the intransigence of his political opponents, even though his own party can\u2019t even propose a budget. He insists that middle class Americans are suffering because \u201cthe one percent\u201d \u2013 the folks who take risks, create jobs and experience economic success \u2013 are somehow denying opportunity to the rest of us. (I\u2019m still waiting to hear how.) But this time he\u2019s really outdone himself, blaming high oil prices on \u201cgreedy\u201d traders and investors like us.<\/p>\n

In a recent White House speech on April 17, Obama said, \u201cWe can\u2019t afford a situation where speculators artificially manipulate the market by buying up oil, creating the perception of a shortage and driving prices higher, only to flip the oil for a quick profit.\u201d<\/p>\n

\u201cQuick profit.\u201d Man, that sounds ugly.<\/p>\n

Of course, if you believe the federal government is hiding an alien space ship in Area 51, you may have stood and cheered his words. The rest of us were less impressed, including Terry Duffy, the Executive Chairman of CME Group, the world\u2019s leading derivatives marketplace.<\/p>\n

\u201cPeople need to study their facts before criticizing speculators,\u201d said Mr. Duffy. He points out that futures traders aren\u2019t just exercising their freedom to take financial risk (and shoulder any resulting losses). They also increase liquidity, reduce spreads and, ironically, help the Treasury Department and American taxpayers save money on the cost of sovereign debt by allowing traders to hedge risk on Treasuries.<\/p>\n

Of course, whenever oil prices<\/a> surge, conspiracy theorists raise their heads again. Even though the facts regularly beat them down like so many whack-a-moles.<\/p>\n

Four years ago, the Commodities Futures Trading Commission (CTFC) created a special task force to study whether speculation was responsible for the run-up in oil prices. It included experts from the Agriculture, Energy and Treasury Departments, the Federal Reserve, the Federal Trade Commission and the SEC.<\/p>\n

Its conclusion? (Try to stifle that yawn.) That oil price increases were due to fundamental supply and demand factors.<\/p>\n

I know it sounds humdrum to conspiracy theorists, but oil demand is what economists call \u201cprice inelastic.\u201d People need to drive cars, heat homes, fly in airplanes and run factories. These things take oil. (Although an increasing shift to natural gas by utilities is already starting to undercut oil prices.)<\/p>\n

The CTFC report found that growth in world oil demand \u2013 especially by China and other developing economies \u2013 was outstripping new production capacity. As a result, the market tightened and prices rose.<\/p>\n

Moreover, the futures market is far less susceptible to bubbles than the stock or bond markets<\/a>. That\u2019s because, by contrast, the futures market is a \u201czero-sum game.\u201d One investor\u2019s gain is exactly equal to another investor\u2019s loss.<\/p>\n

Under the standard futures contract, one investor agrees to buy a commodity (say, 1,000 barrels of oil) at a future date for a given price, and another investor agrees to sell for the same price. If the price is up on the settlement date, the buyer wins. If it goes down, the seller reaps the profit. The loser pays the winner; actual commodities are rarely transferred.<\/p>\n

Obama \u2013 forever in search of a new scapegoat \u2013 must surely know this. Then again, as someone who has never started a business, managed a company, taken a significant financial risk, or even held a job in the private sector, maybe he doesn\u2019t.<\/p>\n

Either way, demonizing speculators solves nothing. If Obama really wanted to help middle-class families by reducing oil prices, he could encourage production, conservation, or alternative fuels like natural gas.<\/p>\n

Of course, that would mean telling the truth and taking responsibility. And those aren\u2019t his strong suits.<\/p>\n

Good Investing,<\/p>\n

Alexander Green<\/p>\n

Editor\u2019s Note:<\/strong> Gas is one sector where Alex sees a contrarian opportunity right now. He recently recommended two gas companies in his premium trading service Insider Alert<\/em>.<\/p>\n

He was kind enough to share one of these recommendations with Investment U Plus<\/em> subscribers in today\u2019s edition. It\u2019s a company with solid fundamentals, recent heavy insider buying and an 8% yield, to boot.<\/p>\n

For more information on receiving this pick along with our experts\u2019 recommendations in each daily issue of Investment U<\/em>, click here<\/a>.<\/p>\n

Disclaimer:<\/em> The views presented in today\u2019s Investment U<\/em> are solely those of the writer and do not necessarily represent the publication or publisher. As stringent supporters of an open marketplace of ideas, we encourage you to contribute your thoughts to the discussion in the comments section below.<\/p>\n

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Article by Investment U<\/a> <\/p>\n","protected":false},"excerpt":{"rendered":"

Article by Investment U Is oil speculation truly a financial force for destruction, or has the Obama Administration just found a new scapegoat? Every great leader I\u2019ve known had one quality in common: a strong propensity to give credit to others when things go right and take personal responsibility when things go wrong. Yet by … <\/p>\n

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