Guess what law goes into effect the same exact year oil is supposed to hit $5 a gallon? OMFG, you guessed it! A law allowing Goldman Sachs to buy 25% of all oil on the market.

pottpott · 1 year

What's written here is very true.

Before Dodd-Frank was passed, I did a bit of research on the oil & agriculture bubble of summer 2008 (found a very nice article that ill try to dig back up). Its more complicated than 2 people but it is basically Wall St. doing what it does for profits and the people get the shaft.

Particularly as the beginning of the crisis was putting more pressure on the banks earnings, im sure they saw the commodities market as a great opportunity to make a few bucks. Especially Goldman Sachs and Morgan Stanley, who are huge in the commodities space. They do this via derivatives (mainly futures contracts) and via indicies. This creates a huge demand that drives prices upwards, but its purely artificial, because most of the participants are speculating on price movements and do not even think of buying the commodity, so the price goes up.

I remember back then it was being explained by saying that India and China are growing so fast that there isnt enough oil to support their growth. Turns out its a bunch of speculators and investors looking for a quick buck with no considerations of the real life repercussions.

The result? Oil prices double from ~70$ to 150 (for no reason) before crashing down, agricultural commodities like wheat and corn go up, and the starving people of the world die.

How is that fair? ... and people still argue about redundant issues like pro-life/pro-choice, pro-gun/anti-gun and all that stuff

ldd- · 1 year

This is basically FUD . . . There are a lot of flaws in this . . . top among them is that OP believes a financial institution can purchase 25% of all oil on the market . . .

This is absolutely not the case . . . the numbers noted here are:

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.

This SOUNDS like a lot, but daily OPEC output is roughly 30 million barrels PER DAY! There is a HUGE difference between the % of oil available for physical delivery against futures contracts and the % of total oil on the market . . .

The reason these actions impacted markets was because of the uncertainty created by these traders . . . the regulation reduces uncertainty and therefore limits the impact the traders can have.

reventropy2003 · 1 year

"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."

I'm a little confused by this. 4.6m barrels is the amount of oil the US consumes in a few hours. How is this significant?

greenterror · 1 year

The world consumes ~85 million barrels of oil per DAY. That's 2500 barrels/month. Could you please tell me how buying 4.6m barrels in january, and 6.3m barrels in march caused oil to hit 147$/bbl?

piercemoore · 1 year

Before I jump on this train, I would really like to hear the other side from a supporter of this. Has anyone done any research on this topic?

opinion_not_fact · 1 year

Hi guys, commodities trader here. While I can say that part of the price rise is attributed to "speculators", the market will always have speculation. That is what buying and selling without receiving an ROI is. If you buy XYZ stock and it does not pay a dividend, you are speculating that the price will rise-- it is NOT an investment, it is a speculation. BUT, any commodities producer who doesn't hedge their production is asking for trouble, if the capability to do so is there, why not let speculators help protect you from price declines?

However, with this said, the substantial move in the price of oil can also be attributed to inflation and easy credit from the fed. Why do you think that ALL prices, not just oil, ran up so much before the collapse occurred? Excess liquidity. There is always going to be some rigging in the market with a few players big enough to trade favors (JP Morgan in bed with the CFTC on silver price manipulation, and in natgas futures nearly a decade ago) with regulators, but to say that the price of oil rose sharply by blaming it on speculators is the same thing Nixon did in '71 when he defaulted on our gold obligations and took us off the gold standard because we'd spent more money than gold we had.

I'm just saying that speculators are often blamed for bad monetary and fiscal policy by the government and Federal Reserve. It's happened dozens of times in America's history. When EVERYTHING is rising in price, it's usually bad policy, exacerbated by speculators-- but that's what speculators do, they make bad policy blatantly obvious through price movements and it's a good thing, as long as people understand it. It's up to everyone to keep the government from lying to us about it.

When the market collapsed in '08, all that liquidity flooded into the treasury market and all risk assets fell (oil, gas, copper, ag, au, agri, etc) in price. When the fed stepped in and tried to prop up the mortgage market by pumping more liquidity into the system, it was risk on again (nov/dec '08 onward), and prices started moving higher..

Thanks.

Edit: Forgot to add that the gas you put in your car is not WTI or Brent. WTI/Brent is oil used to make RBOB (gasoline) or heating oil.

ridger5 · 1 year

Oil is going to hit $5/gal every year, according to the people that are asked about it, who are also paid to sensationalize things like that to cause a rush.

MrDobalina · 1 year

Oil typically isn't priced by the gallon, but by the barrel. Do you mean gas?

big_star · 1 year

This is all true. The genesis of these high gas prices goes back to the Cheney Secret Energy Task Force - a meeting of oil companies and financial advisors who hatched a plan to drive up oil prices dramatically after a decade long oil GLUT.

Of course, we aren't allowed to see the notes from that meeting...

Obama SHOULD have opened the Strategic Reserve and fucked the speculators like Clinton did. The irony is that Obama is getting pressure from "green" energy concerns to keep gas prices high, so that their crappy inefficient alternative energy schemes will actually seem viable (see: oil sands, ethanol).

This is a clusterfuck of epic proportions. the economy will never truly recover until oil prices come down.

frithrar · 1 year

Right now there is no limit because the policy hasn't been decided upon. The CFTC is seeking to impose a limit of 25% in the spot month closest to delivery. Outside the spot month, the caps limit traders to 10 percent of the first 25,000 contracts of open interest and 2.5 percent thereafter.

Where's the problem? Is 2.5% too high or didn't you read that far?

tekdemon · 1 year

What's with shoving Goldman Sachs in the title for no damned reason? It'd let any financial institution do this and as your own post points out it's typically other firms who are this heavily invested in commodities. Why not just put BANK OF AMERICA in the title then for extra nonsensicality?

pookie948 · 1 year

Ok, so worst case scenario, 4 companies buy all of the oil, 25% each. Then they try to sell it, 4 companies selling the same product...Sounds like pure competition...Prices go down to where marginal cost equals marginal revenue, that's essentially at the same price that they bought it at....So this really doesn't affect consumers at all. And btw, the title involving Goldman Sachs, really? It allows any company to do it, not just Goldman. That's like me making an article about abortion being legalized for everyone and titling it "Black people allowed to kill babies".

Witty_Comment · 1 year

America, when it comes to petrol, you don't know how good you've got it... Lots of love, the UK

RyanoRhino · 1 year

4$ a gallon? Bitch please, it's over 2$ in Ireland for one liter!

dadgumit · 1 year

This, I think is ignorance. These guys did this within the crisis, not to cause the crisis ( although they may have wished they could). On my brief glance, I see that article says this activity took place on feb futures, which expire in jan, loooooong before the market was done running up. I realize that some of these things are complex and hard to understand, but you are getting out the pitchforks and torches. Take a deep breath and try to see the world a bit more for what it is and a bit less for how it supports your ideology. Don't get me wrong, I am sure there was dirt going on all over the place, but the oil boom/bust was a product of the same self feeding feedback loop stuff that has perpetuated all bubbles. Feet and greed on a mass scale coupled with irrational views of the future.

bobofatt · 1 year

No, I didn't guess it.

catherder9000 · 1 year

I'm still trying to find anywhere on the planet that I can actually BUY oil by the gallon. Do you instead mean gas? Do you mean heating oil? Do you mean crude oil? If you mean crude oil, or heating oil, that is standardized and is traded in 42 US Gal barrels, or, based on your rhetorical "$5 per gallon" title, $210 per barrel.

What the fuck kind of sensationalized bullshit nonsense title is this anyway? Did $210 sound like too high of a value to make your post eye catching?

h0ncho · 1 year

The idea that the high oil prices are caused by speculation is complete, utter and absolute uninformed hogwash. To explain, let me give you a very basic overview of the world:

OPEC is the organization that controls the larger part of the worlds oil. They control oil through collective agreements to produce less and have spare capacity. Such an agreement gives incentives to cheat, but Saudi Arabia has a big enough stock in the agreement that they frequently cut back on their own production more than was agreed, in order to maintain the low supply and high prices.

Now, here's the thing. What if American investors starts stockpiling oil? What will Saudi Arabia do? What will all the oil producing countries do? Sit back and enjoy the look of Americans skimming the profits?

Of course they won't. They will produce more. So in order for such a scheme to work, it has to keep not all current available oil off market, but also that of all the spare capacity of Saudi Arabia, Iran, Algeria, Venezuela etc etc etc... Many of those, as you can see, are also quite US-hostile and wouldn't exactly cooperate with US investment banks.

Oh, and then there is the typical US-centrism in this post that seems to assume that the US=the world. Guess what buddy, oil prices are global, and they tend to stay roughly the same in all countries, even those with vastly different financial sectors than the US.

Not only that, but stockpiling and buying up "all the oil" is already quite hard because it leaves you with a huge stock you have to keep scarce just in order to keep prices high, and that would be rather expensive in itself... I wont go into the details here though. But to tl;dr; this is a shitty, rabblerousing conspiracy theory, of the kind that was popular with illiterate Russian farmers around the turn of the last century.

cobrakai11 · 1 year

And the same people who wrote this legislation are the same ones who are pressuring Iran and sending the price of oil up anyway. It's a perfect storm of events. One hand helping the other.

_kst_ · 1 year

Oil prices are quoted in dollars per barrel, where a barrel is defined as 42 US gallons. An oil price of $4/gallon would be $168/barrel; $5/gallon would be $210/barrel. Oil prices have never exceeded $140/barrel.

It sounds like you're quoting gasoline prices, not oil prices.

Oh, and you say Republicans voted against it; can you clarify what Republicans favor instead of this bill? Do they want a limit lower than 25%, or do they oppose any limit at all?

It would be helpful if you'd edit your post to clarify these points.

cdx75xmx · 1 year

Ah, Goldman Sachs, the top campaign contributors for both Barrack Obama and Mitt Romney.

TheAngryGoat · 1 year

What, you don't think good old fashioned American Corporations shouldn't be allowed to freely seek profit? God, it's liberal socialist communists like you that make me sick.

nakedapedude · 1 year

The wierdest thing about this story is that US residents think $4 is an outrageous price for petrol when most of the rest of the world would love to pay that price!

pervertedlanguage · 1 year

This is great news, the higher the oil prices, the better chance for alternative energy to become viable.

Hellenomania · 1 year

There some pretty serious problems with this post - this will get lost in the circle jerk but any how here are two issues :

Oil set off on its current trajectory at the same time as the war on Afghanistan and Iraq - that's all there is to it. It is peak oil - and it is incredibly concerning.

http://www.indexmundi.com/commodities/?commodity=crude-oil-brent&months=180

Now HERE is the real elephant in the room I have never seen anyone ever discuss - its like a massive conspiracy of silence, this is a graph of the Saudi Riyal - the worlds main supplier of Oil during the spike - notice what happens in late 2007 just before the huge spike in oil prices

http://www.google.com/finance?q=CURRENCY%3ASAR

Yup - some pretty serious manipulation there - and again in 2010 for another spike some months later.

HouseOfHouse · 1 year

I find Goldman Sachs's influence to be disturbing. Some people may have seen this picture before but I'm going to post it again for those who have not.

http://i.imgur.com/bYmL8.jpg

Jack_Vermicelli · 1 year

a few rouge people

Racist. WHy did you have to bring their color into it?

sblizzack · 1 year

[deleted]

letitring · 1 year

We will continue to have this kind of legislation undermining the competitiveness of the everyday person until we reverse the trend and remove congress's power to enact these kind of bills.

hayden9501 · 1 year

Explain this to me like I'm 5

Heron02 · 1 year

Of course the only other time I heard about this was on NPR. Awesome research OP...

[deleted] · 1 year

To be fair high oil prices are a GOOD thing. Yes, it's bad for the individual, but there is a reason the US is the by far highest oil consumer in the world - low prices.

There is a reason European countries keep stacking tax over tax on oil and gasoline - to decrease consumption and get people to live responsibly rather than buy SUVs to drive in the city or take the car to the five-minute away shop rather than walk.

starlinguk · 1 year

Where I am, petrol (which I assume you mean) has hit $9 a gallon.

sickpharaoh · 1 year

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.

THANK YOU. Reddit desperately needs a wake-up call from the Democratic Party hard-on. They are not on our side any more than the GOP is. Face it.

Hokum_Pamplemousse · 1 year

Ugh. I hate the finance industry...whole damn thing is crooked. I work as a quantitative analyst in a fixed income department for an insurance company. A trader there told me one time: "Hokum, you don't do this job because you love it. You do it for the money."

After the Japan quake last year, a trader asked me "So, what do you think about Japan?" I started talking about the human/social impact of the disaster, and he said "no, no, I mean their markets. How is it going to affect their markets?" WTF. That's the absolute last thing on my mind.

TL;DR: All finance guys really are driven by money and don't give a crap about anything else. I work for them, but am looking for a new job.

zergbros4lyfe · 1 year

By definition, if the speculators are to have any market power at all in the long run, they have to be...you know, right. As in "correct". Speculation only pays off if your forecasts turn out to be reality.

As such, speculators can only ever be a stabilizing force in the market (selling when prices are high, thus reducing prices; buying when prices are long, thus increasing prices), and speculation on average can only be a faster incorporation of information into market prices.

sirbruce · 1 year

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.

While I'm sure some financial institutions do buy contracts purely for speculation to make money, please be away that most of those contracts are not bought for that purpose. Just because the company doesn't take control/delivery of the oil doesn't mean it's not for a legitimate purpose.

The price of oil effects the costs of many large companies, particularly those that rely heavily on shipping, which is increasingly true in our global Internet age. And if I'm a transportation company or an airline, it's not just a minor increase in the cost of my goods, but a daily impact on cashflow. If the price of oil doubles, I can't increase the price of my tickets immediately to compensate; even if I could, I've got bookings months in advance. I don't want to lose money for months due to a temporary spike in oil prices.

So I hedge my bets by buying futures against the price of oil rising. This costs less for a business to do than actually paying for higher oil prices. If the price of oil doesn't rise, I'm out a little money; if the price of oil does rise, I can get oil at a cheaper price... or sell the contracts to someone who does actually want to take delivery on that contract while I use the profits to buy from the open market.

So don't think of these contracts as speculation; think of them as insurance. While people can attempt to corner the market and sometimes succeed, the rest of the time you have a more stable economy not subject to wild price swings caused by fluctuating commodities prices.

FeculentUtopia · 1 year

We need an overhaul of our commodities trading system. People are "investing" in it the way they do the stock market, and it's driving the price of everything (not just oil, but everything we consume) through the roof. I think it'd work to charge a "restocking fee" for any long contract that doesn't result in physical delivery. That would discourage speculators and leave the market to the people it was designed for.

Alternatively, we could do away with the futures market entirely. It was made for a bygone era, when it could be hard to know what commodity supplies would be like a few months from now. With the flow of goods and information as vigorous as it is now, there doesn't seem to be as much need for a futures market as there once was.

[deleted] · 1 year

This is republican GOP bullshit in disguise.

1 year

[deleted]

converts_to_SI_unit · 1 year

1 gallon = 3.78 liter
$5/gallon = $1.32/liter

maxouthi · 1 year

There are a lot of candidates running this election whose top contributor is Goldman Sachs, and then there's one that isn't.

This sucks...

gorgeous_bastard · 1 year

I always hear people talking about the good old days of 99c gas, but that was just as unrealistic as the boom in 2008. When oil was that low no one could afford to invest in new projects, and oil companies were letting tens of thousand of staff go to stay above water.

That decade of almost no investment was a contributing factor in the boom as existing production ran low there wasn't enough new facilities to match the demand of a strong global economy and emerging markets.

Since it takes up to 10 years to develop an oil field the prices spiked as demand increased, yes speculators made it worse but the basic issue was supply and demand.

Oil prices need to be at a sustainable level for the companies to make money and re-invest it in new projects, realistically you're looking at around $70-80 a barrel for this, especially as oil becomes harder and more expensive to produce. That's sub $3 gas prices which i think is a realistic number for consumers as well.

You can't have extremes at either side, the cost needs to be sustainable for producer and consumer because at the end of the day oil is a material product that is found and developed, not like financial services, there are real costs involved in getting it to the pumps and that needs to be reflected in the value.

tommyschoolbruh · 1 year

Surely I'm not the only one who realizes oil is not going to be $5 a gallon, rather it's gas that will be (but only in the United States). Right?

Jskill · 1 year

Never mind the fact that we are on the verge of being pulled into a new war with one of the largest oil suppliers in the world (Iran) and our presidents insistence on cutting all subsidies to oil/gas companies. These do not have any impact to gas prices...... It's all the bank's fault!

Agere_Contra · 1 year

I think a lot of the artificial inflation of the price of crude would go away if the Fed made a rule that in order to purchase oil you must be able to deliver it as well.

hvyhitter · 1 year

So, since I am powerless to stop this. (because let's face it I am) How the hell do I make MONEY on this? I being serious.

[deleted] · 1 year

Tell me why we all aren't buying electric cars again?

Moral_Gutpunch · 1 year

Maybe I won't learn to drive so soon.

maxxtraxx · 1 year

It's already $4/gallon here in Los Angeles, people aren't mad as hell. Your argument is invalid.

shwanky · 1 year

I'm in the oil business. And while the money was nice at the time it was definitely artificial.

Don't be surprised if you see the same thing happen with natural gas in the future.

If you think dodd/frank ended speculation your wrong. Large firms like Sachs have bought into the oil business in a big way and along with the Bushes president Obama is making it harder and harder for those without billions to stay in the business.

If anyone of you is interested in knowing how to invest in the market outside of Wall St. i'll be happy to help. Its a high risk business but the pay off is great! And the more of us that buy into it the more control we have in the market.

[deleted] · 1 year

How the fuck can anyone follow all this complected shit?

tasslehof · 1 year

I would love $5 a gallon.. try 1.40 or roughly $3.00s a LITRE. 4.5 Litres in a gallon thats ROUGHLY (ROUGHLY ffs) $13.5 dollars a gallon.

Suck it up.

rofl764 · 1 year

Sigh...capitalism at its finest.

HIDE_YOUR_CATS · 1 year

Oh $5 a gallon. Please tell me more of your problems...

agnosticnixie · 1 year

Rice can be had down the river.

People in the remoter provinces need their rice.

If we can keep that rice off the market

Rice is bound to get dearer.

Then the men who pull the barges must go short of rice

And I shall get my rice for even less.

By the way, what is rice?

Don't ask me what rice is.

Don't ask me my advice.

I've no idea what rice is:

All I have learned is its price.

Sung to this exact tune.

T0kenitup · 1 year

Upvoted for bringing awareness and your TLDR.

Hristix · 1 year

The rich have more ways of getting richer than do the poor. As an example, I could have gone out and worked for over four weeks to be able to afford my PS3 on launch day. Instead, I put $100 into the stock market a year or two earlier, and when I pulled it out, I had enough for a PS3 and two games. What if that $100 were $100,000 instead? And instead of actually having that $100,000, I promised someone I'd pay them the difference if I sold it for less (margin), and they'd get a cut if I sold it for more. Bam, I sell it for $200,000, give them their $20,000 cut, and now I can afford a house. After about two hours worth of work.

The average person it would take about three years to make that kind of money, eight hours a day.

Oliie · 1 year

Haha, you stupid americans are crying over paying 5$ per gallon. Here in Poland we have to pay almost 6zł per liter, which equals to about 7.50 $ per your gallon.

bbr4nd0n · 1 year

this is an epic post. should be front page... on newsweek, time, ny times, and washington post.

kuba_10 · 1 year

OMFG, someday Americans will be going to Europe to buy cheap gas.

Muter · 1 year

I dont pretend to know a lot about economis, but you are saying these guys are doing it and shitting on the community. Arent stockbrokers doing exactly what the community is asking of them? Buying and selling so they can make a profit, take a cut and return it to the initial investor(businesses that hire you, me, my parents), or even your own pockets?

I mean the price of diamonds, gold etc have constantly gone up and down, but theres no big conspiracy thories there? Whats the difference. We place a value on items at some point where that price is too high we get alternatives or decide said product is not worth it and sales fall. Supply and demand I think its called. We value oil pretty much over everything right now and I see no reason ehy the price shouldnt continue to rise. The sooner it does the more incentive we have to rid our dependance on one thing. All our eggs are In the basket so to speak.

Sorry posted from my phonr if it doesnt make much sense.

patrickpdk · 1 year

I dunno, this sucks, but there is a silver lining here: this helps the environment and green energy. I'm kind of exited...i still see people around DC driving escalades and other uselessly large vehicles. Apparently gas is still to cheap.

cmVkZGl0 · 1 year

GS is a virus and needs to be stopped.

msut77 · 1 year

Is there a way to invest in tar and feather futures?

JustHereForTheBacon · 1 year

I'm not sure how you people can get so distracted by issues like this when we're all staring down the barrel of lesbians marrying. They're picking out centerpieces RIGHT NOW, forchrissakes!

identiphiant · 1 year

Can i ask a few questions please?

this speculation impacts the price around the world or only in usa?
what prevents a company to create more subsidiaries which each seek to own up to 25%?
when does the 5% limit will be replaced by 25%?
ok, price goes up when they buy, but it didn't fall right after when they sell these huge amounts of oil ?

thank you very much

OtherMikeP · 1 year

To be fair gas has been rumored to hit $5/gal since 2008

TheOrangeIguana · 1 year

What a calm and non sensationalist title.

TrinaryBee · 1 year

Who cares? It's still way too cheap.

oiltankerboy · 1 year

I know one of these traders personally and have to say that in this business we are all just in it for the money. We do not give a fuck who we fuck over as long as it isnt us. There are so many people and things going on in the underbelly of the Oil world that 98% of the population have no idea about. If you would like me to elaborate let me know.

edit: I know one of the two traders mentioned in the OP's first link and have close ties to the company they work for.

all2humanuk · 1 year

Hmmm, that sounds like some grade A bullshit there. Almost all of the run up in the price of oil is subsequent to the time frame this report mentions. All that can really be said is that the involvement of these players extended an already booming market. Take a look at Gold 2003-2008 and Oil 2003-2008, a strikingly similar picture. So how did guys trading oil for 3 months in 2008 manage to push up the price of all commodities, Oil, Silver, Copper, Gas, etc for 5 years? Unless they didn't and they simply managed to goose the market.

Looking at the figures the time frame mentioned only really accounts for about $10 to $15 added to the price. In fact the article linked with the words, "TWO guys & one trading firm caused the entire 2008 high oil price fiasco." claims nor suggests anything of the sort. Oil spiked as did all other commodities in 2008 and then crashed along with the rest in the freakin great depression in case you missed that. If you remember coppers also continued to rally until late 2008. When the economy recovered through stimulus like wise the price of commodities rallied too. Gold is almost 50% higher today than it ever got in 2008.

Frankly I think it's highly irresponsible for some one who knows nothing about what they are talking to make ridiculous claims about what one CFTC investigation does or doesn't mean. All you are doing is hiding the true culprit, the real puppet master who is responsible for the high price of commodities... The same government that set up the CFTC and who's monetary inflation has caused commodities to rally the past 10 years.

Yeah speculators are bad when they are driving down the price of bank stocks and evil when they push up the price of oil. No one makes a peep though when they push up the stock market or steady the price of oil.

TLDR - Report concerns price change/distortions from February to March. Change in the price of oil from February to March, $10. So no not responsible for the, "entire 2008 high oil price fiasco."

Zebidee · 1 year

Americans whining about fuel prices is adorable.

Sincerely,

The rest of the World.

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