It seems like it’s been forever since I could buy a gallon of gas for $1.65. That might be about as low as it’s going to get, according to Bloomberg.
Oil options contracts indicate that a growing number of investors expect prices to rise from three- year lows, industry consultant Petromatrix GmbH said. The number of outstanding contracts that give traders an option to buy crude oil is nearly the same as the number giving the right to sell for the first time since July 2007…
Hedge funds and other large speculators bet last week that futures will recover, reversing three weeks of bets that prices will fall, according to U.S. Commodity Futures Trading Commission data.
In other words, the speculators are betting that the price of oil will go up.
Back in June, Republicans were claiming oil prices to be on the rise because Democrats were blocking off-shore drilling, but they didn’t talk about the upward effect on prices due to speculation. Although U.S. off-shore drilling would have an almost immediate downward impact on the world price of oil, the effect of speculation on oil prices reaching record levels in 2008 should not be overlooked.
In the following video, Keith Olbermann talks about how john McCain supported what’s come to be known as the Enron loophole, which unleashed the ability of speculators to run up energy prices. Olbermann calls it “a legalized form of insider trading” which “lets speculators overwhelming trading in oil futures.”
By being able to speculate on the future of oil prices, according to Olbermann, the speculators have driven up the price of oil to more than double what it was before the loophole was created, and this speculation has created the potential explosion of a large ‘oil bubble’.
Has the bubble finally burst?
Is deregulated speculation a good thing? Apparently not when employed by self-seeking shysters like Enron, who nearly brought California to its knees by speculating on electricity. Enron cornered the market on energy, and were able to drive up prices dramatically because of it.
The speculators have not just been placing bets on the price of energy, they have been controlling the future prices in an effort to profit from it, according to Michael Greenberger, former chairman of the US Commodity Futures Trading Commission, who testified before a US Senate committee meeting on June 3, 2008. It was estimated that in the last two years, the average family has spent at least $1500 on energy due to collaborative speculation. Speculation, according to George Soros, has allowed banks and other financial institutions to set aside larger reserves of petroleum than we have in our entire U.S. national reserve.
The Enron Loophole was closed on September 30, 2008. Not long thereafter, prices started coming down precipitously. Obviously, other factors, such as declining demand in a weak worldwide economy, have contributed to the downward pressure. However, it’s clear that speculative control of large swaths of the market caused the price to go up. It’s more than coincidental that prices have gone down markedly since the Enron Loophole was closed on September 30th.