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NEW OIL WAR WAGED ON WALL AND BROAD STS


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The Founder
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NEW OIL WAR WAGED ON WALL AND BROAD STS

NEW OIL WAR WAGED ON WALL AND BROAD STS

IT may be damn chilly outside but people are getting hot about Wall Street energy traders picking their pockets.

The issue: fuel costs, of course.

The conclusion: financial speculators are driving up the price of home heating oil so they can make a killing when homeowners are chilling.

The latest group to step forward to fight the abuse is the New York Oil Heating Association, which is urging its members to request congressional intervention.

"Keep Wall Street from manipulating your oil heat prices," the association says on its Web site. "Take Action Now. Contact Congress regarding the manipulation of your oil heat prices."

The group is also reaching out to consumers with a string of radio ads.

Readers of this column know where I come down on this issue. For years I've been crusading against speculators driving up the price of crude oil - and with it gasoline and heating oil - for selfish reasons.

Hey, I'd like to make billions, too. But at some point the greater good and things like national security should get some consideration.

There are really two energy markets nowadays - the one for real crude oil and the one for paper barrels of crude. Wall Street controls the paper market, which almost reached $100 a barrel even though there was no real world justification for those levels.

And I think the outrageous price of energy is one of the key reasons many people are having trouble paying their monthly costs - including their mortgages. If you have to spend twice as much filling up your car and heating your house, then the money just isn't going to be there when your bills come due.

Now that good old-fashioned Wall Street greed seems to have the US economy in a pinch the chorus of complainers seems to be growing.

I don't often quote other journalists, but I'm going to make an exception in this case because a Bloomberg story from the other day shows that at least one other writer is paying attention to the injustice.

David Pauly, a columnist for the news service, wrote: "This is heresy: Sometimes markets lie.

"The price of crude oil on the New York futures market reached a [then-] record $92.29 a barrel on Nov. 21, having gained 50 percent in six months

That's supposed to mean that demand for crude to meet the world's energy needs has been soaring. It hasn't. What's driving the market is demand from speculators."

Pauly quoted Fadel Gheit, director of oil and gas research at Oppenheimer & Co as saying "supply and demand haven't changed that much in the last six months. There's nothing to justify a 50 percent price increase."

Actually, that's wrong. A lot has changed - on the demand side.

The US is the world's biggest energy guzzler. And the economy here has been sinking, perhaps rapidly. So unless everyone in China suddenly starts driving SUVs, the world is soon going to need less gasoline.

Add to that the fact that alternatives to oil are being developed and employed worldwide, including the popularity of gas/electric hybrid car engines, and a lot has changed.

Plus, there are new oil deposits being discovered in Africa and South America regularly.

The gasoline markets have already figured out what the speculators are up to. Gasoline, of course, is still ridiculously high. But the price has barely moved up on the last $20 or so increase in the price of these paper barrels of crude that Wall Street likes to trade.

That isn't the case with heating oil, probably because of its seasonal nature. According to John Maniscalco, executive vice president of the New York Oil Heating Association, heating oil is up about 35 percent since last winter.

In fact, the price has risen so quickly - 12 cents in just a week - that Maniscalco says his group's members haven't been able to pass all the extra expense onto the consumer because of "sticker shock."

"The principle of supply and demand no longer applies," Maniscalco told me the other day. "The price of home heating oil is being determined in the trading rooms" on Wall Street.

Maniscalco says his group has aligned with similar organizations along the East Coast to get Congress to increase regulation over the energy markets. The effort is broadly called "Close the Enron Loophole Act" after the infamous company that was secretly allowed to drive natural-gas prices through the roof in California a few years back.

As I've been advocating, another reform that Maniscalco's group favors is an increase in the margin requirements for people speculating in energy contracts.

You'll undoubtedly be seeing many more stories on Wall Street energy speculation in the months ahead. Like cattle, the press moves in one big, dumb herd.

And with the presidential primaries coming up it's very likely that one of the candidates will latch onto the topic of energy speculation.

Many of the folks at Enron went to jail. Let's see who is jail bound this time.

Post Wed 19 Dec, 2007 3:19 pm 
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The Founder
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Single trader behind oil record

Single trader behind oil record
http://news.bbc.co.uk/2/hi/business/7169543.stm

The man behind the record rise in oil prices to $100 a barrel was a lone trader, seeking bragging rights and a minute of fame, market watchers say.

A single trader bid up the price by buying a modest lot and then sold it immediately at a loss, they said.

The New York Mercantile Exchange confirmed that US crude oil futures traded just once in triple figures.

But prices have since remained below that historic level and market analysts questioned the validity of the trade.

Vanity trade

Stephen Schork, a former floor trader on the New York Mercantile Exchange and the editor of an oil market newsletter, said one floor trader bought 1,000 barrels, the smallest amount permitted, and sold it immediately for $99.40 at a $600 loss.

"They absolutely overpaid," he told Radio Four's Today Programme.

"He paid $600 for the right to tell his grandchildren that he was the first in the world to buy $100 oil."

Most trading in energy futures has shifted away from the trading floor and takes place on electronic platforms.

The NYMEX, along with the Chicago Mercantile Exchange is one of the last bastions of "open outcry", where traders use frantic hand signals to trade securities.

In London, open outcry trading still takes place on the London Metal Exchange, where aluminium, copper and zinc are traded.

The supporters of electronic trading claim that it is faster, cheaper, more efficient for users, and less prone to manipulation by market makers.

The dwindling liquidity on the NYMEX trading floor has led to considerable speculation that the exchange will soon shut down the trading floor to cut costs.

Post Thu 03 Jan, 2008 9:28 am 
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