Oil Speculators: The Damage Is Real
I think a decline in gas prices is unsurprising for a number of reasons:
Once the trend has become bearish, that's where the speculative engines are likely to lurch into reverse, accelerating gas prices downward just as they have encouraged the upward spiral. That will be good. But the roller-coaster effect of speculation on oil prices is not, and needs to be stopped.
In a study prepared for the Twelfth International Energy Forums a couple of years ago, Prof. Michael Greenberger of the University of Maryland pointed out that "financial investments in the crude oil market have substantially moved from capital raising equity and debt investments for production to betting on price direction." (his italics). Gambling enterprises, in other words. The result has been a ratcheting up of volatility in the oil market.
The solution, he argued, is the establishment of position limits. Although critics of position limits maintain that there is insufficient data upon which to base them, making them an "inexact science," they are definitely needed. "The damage price volatility causes the economy by needlessly inflating energy and food prices worldwide," Greenberger maintained, "far outweighs the concerns about the precise application of what for over 70 years has been the historic regulatory technique for controlling excessive speculation in risk-shifting derivative markets."The Commodity Futures Trading Commission has established position limits on oil and other commodities, but they have not been implemented because of oil industry resistance. There is a push in Congress to get them implemented, at least on an emergency basis. I'd say the time for them has long passed. If the Republicans in Congress are serious about cutting oil prices, they should get beyond the effort to force the CFTC to enact position limits. They should join the Senate Democrats, spearheaded by Bernie Sanders of Vermont, who have been pushing that bill. GOP, the ball is in your court.
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