To fully understand what went on you need a little a short history lesson dating back to the great year of 2008. You remember 2008 right? Oil prices shot up to $4+ gallon. A government agency called the CFTC(Commodity Futures Trading Commission) did an investigation. The CFTC found out that that TWO guys & one trading firm caused the entire 2008 high oil price fiasco.
Here is the important parts of the article:
The CFTC complaint alleges that the traders carried out the scheme in January and March 2008.
By mid-January they had accumulated 4.6m barrels of physical oil, or two-thirds of oil available for delivery against the February WTI futures contract. In March they bought 6.3m barrels, equal to 84 per cent of oil available for delivery against the April contact.
The regulator alleged that Parnon Energy, a US oil trader, together with its Swiss and UK affiliates Arcadia Energy (Suisse) and Arcadia Petroleum, made more than $50m from the scheme in January and March 2008 [...]
The buying created the impression of a shortage and pushed up the price of WTI futures on the New York Mercantile Exchange. Ahead of their move in the physical market, the traders allegedly bought large amounts of futures and other financial instruments that would profit from a price rise.
“They wanted to lull market participants into believing that supply would remain tight,” the CFTC said. “They knew that as long as the market believed that supply was tight and getting even tighter, there would be upward pressure on the prices of WTI for February delivery relative to March delivery, which was their goal.”
The CFTC also found out that overall 81% of all oil contracts was bought/sold by financial institutions and 19% by the companies that actually take control of oil. Back 1990 before financial institutions were allowed to buy/sell oil contracts speculators made up of 30% total of the trading. Back in the good ole days before Enron existed and oil was .99 a gallon.
So there you go. Everyone in the industry knew what happened & admitted that the 2008 oil prices were the cause of a few rouge people. The prices crashed. BUT! The real problem was born that everyone learned a new way to make a ton of money. A new version of 1980s hunts silver shortage scam was born. Even Goldman Sachs was saying speculation was partially responsible for high prices. The prices remain high to this day. Everyone knows how to make good money without getting the public mad as hell. $4 a gallon is when people get mad as hell. They now know this.
Back in 2010. Dodd Frank was passed it included a section that basically ended oil speculation by financial institutions. It left up the final policy to be completed by the CFTC. The financial intuitions would still be able to speculate it was just going to have to be done at a much smaller level. One institution could own a max of around 5% of all the total oil out there. This still left room to make money by the financial institutions & stabilize the market. Some argue that 5% is way too much when you have 81+ different institutions who are involved in trading oil without ever taking delivery of the oil.
History Lesson going back before you were born: The entire purpose that markets were created to speculate on things was to stabilize the market. Back before corn futures were traded the farming industry would go broke every few years. It was an endless cycle. Allowing for speculation can be a great thing to help stabilize a market. So don't think of all speculation as a bad thing.
BUT! There was a problem with the 5%. The biggest problem wasn't that it wasn't 5%. The biggest problem was that the 5% figure wasn't set in stone. Since the american public obviously doesn't read all bills that are signed into law & Most of our politicians completely fail us. We didn't know what exactly was in it. We didn't know what was going on. Some news stories got out. Nobody knew to act on them.
Goldman Sachs knew exactly what was in Dodd Frank. They & the other financial institutions lobbied heavily to get the CFTC to severely weaken the law about to be put into place. Now, the new CFTC proposal states nobody can own more than 25 percent of deliverable supply in the month nearest to delivery. of all the oil about to reach market. You got 81+ financial institutions involved in trading oil. Why the hell are they allowed each to own 25%? This isn't price stabilization. This is pure greed. This hurts us. What is great for these financial institutions. Before they really couldn't do this or they would get into trouble by the CFTC if they were caught. Now its going to be fully legal to do. The real story out there about oil shouldn't be that we might see $5 again this summer. The real story should be that Its very possible we're never going to see $3 a gallon for gas ever again.
This by far is the best fucking quite ever from the CFTC:
“You want speculation or you don’t have any markets,” said Commissioner Bart Chilton in an interview today on Bloomberg TV. “There’s nothing wrong with speculators. It’s when it begins to get excessive. We’ve seen where you can have 30, 35, 40 percent plus in some markets with just one trader holding onto that concentration. That can impact markets.”
Are you serious? They've seen that someone can hold 30% and it can impact markets. So you're going to write a law saying 25% is fine. HAHAHAHAHAHAHAAHAH
Democrats voted for this bill. Republicans voted against it. Now, you know why wall street gives money to both sides in politics. You got democrats wanting the legalization on a smaller scale of what happened in 2008. You got republicans saying that a company like Goldman Sachs should be allowed to own more than 100% of the oil and the government should keep out of it.