India's Solution for High Oil Prices: Ban Speculative Trading

Discussion in 'Trading' started by ByLoSellHi, Nov 8, 2007.

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    India’s Solution for Oil Prices: Ban Speculation by Banning Trading

    Published: November 8, 2007

    NEW DELHI, Nov. 7 — As oil approaches the $100-a-barrel milestone, M. S. Srinivasan, India’s petroleum secretary, has an unorthodox recommendation for cooling overheated prices: halt trading of crude oil on commodity exchanges.

    There are “no supply constraints right now, and demand has not escalated out of control,” Mr. Srinivasan said in a recent interview in his New Delhi office. Rather, trading on exchanges like the New York Mercantile Exchange, or Nymex, is contributing “enormously” to high prices, he said.

    If crude was eliminated from the commodities traded on Nymex, Mr. Srinivasan predicted, the world would “see a drastic reduction in the price.” The benchmark price of crude touched $98.10 on Nymex on Wednesday, a new record, before retreating to $96.37.

    Mr. Srinivasan’s idea is based on a widely held belief that investors are artificially driving up oil prices. Hedge funds, banks and pension funds have poured capital into oil trading in recent years, betting that demand will increase. Analysts say these bets have become self-fulfilling prophecies, helping to push prices higher.

    What analysts cannot agree on is how much of the increase is attributable to the investors — estimates vary from $10 a barrel to over $30 a barrel — and what, if anything, should be done about it.

    But voices as varied as those of Mohammad Alipour-Jeddi, the head of market analysis for OPEC, and William F. Galvin, the secretary of state in Massachusetts, have blamed speculators for rising prices. “There is enough crude in the markets,” Mr. Alipour-Jeddi said Monday. Bottlenecks in refining and “speculative activities” are forcing prices higher, he said.

    Mr. Galvin, meanwhile, is asking the Securities and Exchange Commission to investigate what role investors have played in higher prices.

    A subcommittee of the United States House headed by Representative Bart Stupak, Democrat of Michigan, is investigating commodities trading, and one bill before Congress proposes giving Nymex’s regulator, the Commodity Futures Trading Commission, more oversight over Nymex’s rival, the Intercontinental Exchange.

    Analysts say the market has gone from a small group of oil users and producers to a full-fledged investment arena in recent years, like stocks or bonds. Prices can move according to intangible factors like fear, just as they do in the equity markets, the analysts say. Investing in oil has also become a hedge against a weak dollar.

    “Looking at oil supply and demand doesn’t help me to understand oil prices” any longer, said Roger Diwan, a partner with PFC Energy, a consulting company in Washington. “I need to look at the dollar, at inflation and at credit squeezes.”

    India is understandably concerned about high prices. The country imports 70 percent of its crude oil and has few strategic reserves and a deeply divided political landscape.

    Buying stakes in overseas oil properties is proving much cheaper for India than purchasing crude on the open market. In some areas where India has purchased stakes in oil fields, it is pulling light crude oil — the kind that sets the benchmark oil price — out of the ground for less than $40 a barrel, Mr. Srinivasan said.

    But Nymex executives dismiss Mr. Srinivasan’s suggestion of halting oil trading. “Nymex is just a central point where buyers and sellers can come to exchange their wares,” Richard Schaeffer, the chairman of Nymex, said in a telephone interview. “We don’t make the prices. We make the prices known.”

    Without Nymex, Mr. Schaeffer said, users could “only imagine a group of countries getting together and saying ‘What do we charge today?’”

    Despite the risks of ever-rising oil prices, analysts say that Mr. Srinivasan’s idea is unlikely to be adopted; the oil market has become too big and too powerful. “There is no way to put the genie back into the bottle,” Mr. Diwan said.
  2. Also futures are valued/settled in USD which has been at a steady decline against major currencies, so if you have the likes of Iran, so they claimed previously, only willing to sell crude in EUR and we all know how EUR is vs USD right now and has been trending for quite some time.
  3. If oil trading is halted this kills supply, not demand. In a commodity like oil there is always a steady pressure from the demand side. More so, without the ability to hedge producers will demand higher premiums due to the increase in risk.
  4. Bush Administration policies are directly responsible for at least 25 to 40% of the increase in oil prices...

    And the oil exchanges have responded in kind...

    The removal of the Bush administration...and if there was only a cash contract of large size...oil prices would be around 40% lower....and possibly in the $45 to $50 calculated also by Mobius at Templeton in relation to the actual increases in actual demand...and normal price responses...

    Mission accomplished by the Bush Oil administration...

    The sooner this administration is gone...the better....what they have done is cause incredible human and financial harm to the world...and especially the developing non oil producing countries...
  5. Which policies exactly? Please explain with some detail. Or are you merely repeating a taking-head's sound bite?

    What "mission" by the administration?

    I'm not defending, but non-stop crying about the administration with no details is very poor, mob-like thinking.

    This is like blaming Clinton for the ChiComs lead-based paint in toys because Clinton pulls money from China and has long ties (Hillary too).

    Some details?
  6. Excellent Commentary All


    There are many examples of the apparent linkages to Bush Policies and Oil Prices.....

    Here is a simple example of recent linkages..


    What is very interesting is to this day...Bush denies that bellicose comments regarding Iran has any influence on oil prices...

    Bush and Cheney....particularly very familiar with the oil that Cheney was the CEO of Halliburton...a significant oil related company...

    In order to view where oil prices would be ...without Bush would want to view oil prices...with the Iraq War...and Iran rhetoric removed from the oil price equation...
    Putting the real increases in demand without the fear of cutoffs in supply in the equation...

    Obviously this relates to an individual decision....Did the Iraq War policies influence prices upward....yes or no...Was Bush/Cheney aware that their policies would dramatically increase the price of oil ...yes or no ?

    If one believes that the Bush/Cheney leadership had no clue that their policies would have an effect on oil prices.....

    Well decide...
  7. Check out crude prices before the Iraq war.

    Cheney/Bush should be shot and killed for what they have done.

    The entire situation is absolutely disgusting. Check out the contracts given to private companies and their links to former goverment officials.
  8. Again, I'm not defending...but are you new to this world? That is politics. What did the Chi Coms get from Bill in 92 and 96? You don't donate vast sums on ideology alone. Oh yeah, they got satelite comms moved from defense department to commerce department...a full sell out. Where's the outrage?

    The analogy of the requested explanation is, as predicted, rhoetoric. There is nothing substantial there at all! More mindless Bush bashing. It does nobody any good at all.

    Should Carter have been shot and killed for the financial mess he created?

    The whining is unbelievable. I would bet most of this whining is from those who have never led. And those who have never been resolute in their decisions. Those who get along for the sake of getting along.

    Pathetic way to wander through life.
  9. Tax the shit out of speculative oil trading. If you don't take delivery of the oil, you get hit with a whallop. India is on the right track in my opinion. That'll help stop this crap.
  10. Should be shot and killed? I bet you're a fucking "compassionate" liberal who is politically correct when you want others to be. I bet you oppose war in any form because you praise "peace". Irony.
    #10     Nov 8, 2007