Is Speculation Driving The Cost Of Oil?
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Joined: Aug 2007
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From: Spicewood, TX
2008 GL 320, 2007 Silverado LTZ C3500 Duramax Turbo Diesel
Is Speculation Driving The Cost Of Oil?
I received this letter in an email from United Airlines yesterday. I followed the link and entered my zip code and it pulled up my congressman's and my two senator's names. I filled in the appropriate information and voila, a very professional form letter was sent to my elected officials. Within, a couple hours, I had an auto-reply from one of my senators acknowledging receipt of the letter.
An Open letter to All Airline Customers:
Our country is facing a possible sharp economic downturn because of skyrocketing oil and fuel prices, but by pulling together, we can all do something to help now.
For airlines, ultra-expensive fuel means thousands of lost jobs and severe reductions in air service to both large and small communities. To the broader economy, oil prices mean slower activity and widespread economic pain. This pain can be alleviated, and that is why we are taking the extraordinary step of writing this joint letter to our customers. Since high oil prices are partly a response to normal market forces, the nation needs to focus on increased energy supplies and conservation. However, there is another side to this story because normal market forces are being dangerously amplified by poorly regulated market speculation.
Twenty years ago, 21 percent of oil contracts were purchased by speculators who trade oil on paper with no intention of ever taking delivery. Today, oil speculators purchase 66 percent of all oil futures contracts, and that reflects just the transactions that are known. Speculators buy up large amounts of oil and then sell it to each other again and again. A barrel of oil may trade 20-plus times before it is delivered and used; the price goes up with each trade and consumers pick up the final tab. Some market experts estimate that current prices reflect as much as $30 to $60 per barrel in unnecessary speculative costs.
Over seventy years ago, Congress established regulations to control excessive, largely unchecked market speculation and manipulation. However, over the past two decades, these regulatory limits have been weakened or removed. We believe that restoring and enforcing these limits, along with several other modest measures, will provide more disclosure, transparency and sound market oversight. Together, these reforms will help cool the over-heated oil market and permit the economy to prosper.
The nation needs to pull together to reform the oil markets and solve this growing problem.
We need your help. Get more information and contact Congress by visiting www.StopOilSpeculationNow.com.
Robert Fornaro
Chairman,
President and CEO
AirTran Airways Bill Ayer
Chairman,
President and CEO
Alaska Airlines, Inc.
Gerard J. Arpey
Chairman,
President and CEO
American Airlines, Inc.
Lawrence W. Kellner
Chairman and CEO
Continental Airlines, Inc. Richard Anderson
CEO
Delta Air Lines, Inc. Mark B. Dunkerley
President and CEO
Hawaiian Airlines, Inc.
Dave Barger
CEO
JetBlue Airways
Corporation Timothy E. Hoeksema
Chairman,
President and CEO
Midwest Airlines Douglas M. Steenland
President and CEO
Northwest Airlines, Inc.
Gary Kelly
Chairman and CEO
Southwest Airlines Co. Glenn F. Tilton
Chairman,
President and CEO
United Airlines, Inc. Douglas Parker
Chairman and CEO
US Airways Group, Inc
An Open letter to All Airline Customers:
Our country is facing a possible sharp economic downturn because of skyrocketing oil and fuel prices, but by pulling together, we can all do something to help now.
For airlines, ultra-expensive fuel means thousands of lost jobs and severe reductions in air service to both large and small communities. To the broader economy, oil prices mean slower activity and widespread economic pain. This pain can be alleviated, and that is why we are taking the extraordinary step of writing this joint letter to our customers. Since high oil prices are partly a response to normal market forces, the nation needs to focus on increased energy supplies and conservation. However, there is another side to this story because normal market forces are being dangerously amplified by poorly regulated market speculation.
Twenty years ago, 21 percent of oil contracts were purchased by speculators who trade oil on paper with no intention of ever taking delivery. Today, oil speculators purchase 66 percent of all oil futures contracts, and that reflects just the transactions that are known. Speculators buy up large amounts of oil and then sell it to each other again and again. A barrel of oil may trade 20-plus times before it is delivered and used; the price goes up with each trade and consumers pick up the final tab. Some market experts estimate that current prices reflect as much as $30 to $60 per barrel in unnecessary speculative costs.
Over seventy years ago, Congress established regulations to control excessive, largely unchecked market speculation and manipulation. However, over the past two decades, these regulatory limits have been weakened or removed. We believe that restoring and enforcing these limits, along with several other modest measures, will provide more disclosure, transparency and sound market oversight. Together, these reforms will help cool the over-heated oil market and permit the economy to prosper.
The nation needs to pull together to reform the oil markets and solve this growing problem.
We need your help. Get more information and contact Congress by visiting www.StopOilSpeculationNow.com.
Robert Fornaro
Chairman,
President and CEO
AirTran Airways Bill Ayer
Chairman,
President and CEO
Alaska Airlines, Inc.
Gerard J. Arpey
Chairman,
President and CEO
American Airlines, Inc.
Lawrence W. Kellner
Chairman and CEO
Continental Airlines, Inc. Richard Anderson
CEO
Delta Air Lines, Inc. Mark B. Dunkerley
President and CEO
Hawaiian Airlines, Inc.
Dave Barger
CEO
JetBlue Airways
Corporation Timothy E. Hoeksema
Chairman,
President and CEO
Midwest Airlines Douglas M. Steenland
President and CEO
Northwest Airlines, Inc.
Gary Kelly
Chairman and CEO
Southwest Airlines Co. Glenn F. Tilton
Chairman,
President and CEO
United Airlines, Inc. Douglas Parker
Chairman and CEO
US Airways Group, Inc
Super Member
Joined: Mar 2008
Posts: 903
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From: B.C.
GL 320cdi, Chevrolet Avalanchero, GLE 350 (on order)
What nobody seems to get is that for every buyer of a contract, there is also a seller. Just because the bulls are on the winning side of this trade means nothing as there are an equal number of bears on the put side. If the market goes against the call side, they still have to cover, so all their profits could be wiped out overnight. That's what a market does, determine a fair price. World demand outstrips supply, therefore the price is adjusted accordingly.
Airlines have been buying contracts for years as a hedge, and now you expect me to believe that these guys are calling out the very device that saved their bacon for all those years because they now find themselves on the wrong side of a trade? Gimmie a break.
Airlines have been buying contracts for years as a hedge, and now you expect me to believe that these guys are calling out the very device that saved their bacon for all those years because they now find themselves on the wrong side of a trade? Gimmie a break.
MBWorld Fanatic!
Joined: Apr 2007
Posts: 1,046
Likes: 1
From: Colorado Rocky Mtns.
'06 A6 & '08 GL550
What nobody seems to get is that for every buyer of a contract, there is also a seller. Just because the bulls are on the winning side of this trade means nothing as there are an equal number of bears on the put side. If the market goes against the call side, they still have to cover, so all their profits could be wiped out overnight. That's what a market does, determine a fair price. World demand outstrips supply, therefore the price is adjusted accordingly.
Airlines have been buying contracts for years as a hedge, and now you expect me to believe that these guys are calling out the very device that saved their bacon for all those years because they now find themselves on the wrong side of a trade? Gimmie a break.
Airlines have been buying contracts for years as a hedge, and now you expect me to believe that these guys are calling out the very device that saved their bacon for all those years because they now find themselves on the wrong side of a trade? Gimmie a break.
The open letter that ScottyB shared from the airlines was on our local news last night and I just had to laugh.
You are exactly right Brocktoon, every contract has a buyer and seller. If it was this easy to manipulate prices, then the stock market would be sitting at a 52 week high right now. Accordingly to my portfolio, we're not even close.
If folks think oil is going down, then a gutsy call would be to buy the stock symbol "DUG" which represents the Ultra Short Oil and Gas Proshares. These shares correspond to twice the inverse of the daily performance of the Dow Jones U.S. Oil & Gas index. Just a few short months ago, most of us couldn't believe $100 oil. Now it's sitting at $145. If it goes back down to $100, then you'll record a nice little 30% gain on your trade.
Thread Starter
Super Member
Joined: Aug 2007
Posts: 603
Likes: 0
From: Spicewood, TX
2008 GL 320, 2007 Silverado LTZ C3500 Duramax Turbo Diesel
+1,000!!!
The open letter that ScottyB shared from the airlines was on our local news last night and I just had to laugh.
You are exactly right Brocktoon, every contract has a buyer and seller. If it was this easy to manipulate prices, then the stock market would be sitting at a 52 week high right now. Accordingly to my portfolio, we're not even close.
If folks think oil is going down, then a gutsy call would be to buy the stock symbol "DUG" which represents the Ultra Short Oil and Gas Proshares. These shares correspond to twice the inverse of the daily performance of the Dow Jones U.S. Oil & Gas index. Just a few short months ago, most of us couldn't believe $100 oil. Now it's sitting at $145. If it goes back down to $100, then you'll record a nice little 30% gain on your trade.
The open letter that ScottyB shared from the airlines was on our local news last night and I just had to laugh.
You are exactly right Brocktoon, every contract has a buyer and seller. If it was this easy to manipulate prices, then the stock market would be sitting at a 52 week high right now. Accordingly to my portfolio, we're not even close.
If folks think oil is going down, then a gutsy call would be to buy the stock symbol "DUG" which represents the Ultra Short Oil and Gas Proshares. These shares correspond to twice the inverse of the daily performance of the Dow Jones U.S. Oil & Gas index. Just a few short months ago, most of us couldn't believe $100 oil. Now it's sitting at $145. If it goes back down to $100, then you'll record a nice little 30% gain on your trade.
Super Member
Joined: Mar 2008
Posts: 903
Likes: 23
From: B.C.
GL 320cdi, Chevrolet Avalanchero, GLE 350 (on order)
Price has nothing to do with cost in any true market, and there is no mechanism to make a free market proportional. if there is a 2% shortfall of anything sold in a market, is does not cause a 2% increase in price, it causes a parabolic explosion in price as the market determines what people are willing to pay. That's what's going on.
The market will retreat at some point, and the current heros will be losing their shirts, at which point, all the grumpy people on the front page of that website can have a barbecue or something.
The market will retreat at some point, and the current heros will be losing their shirts, at which point, all the grumpy people on the front page of that website can have a barbecue or something.
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Joined: Jan 2007
Posts: 26
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From: Maryland
The airlines just want fewer competitive bidders for their own futures contracts.
Price controls don't work. If you want to discourage speculation and its effect on prices, do something about supply.
Price controls don't work. If you want to discourage speculation and its effect on prices, do something about supply.
Thread Starter
Super Member
Joined: Aug 2007
Posts: 603
Likes: 0
From: Spicewood, TX
2008 GL 320, 2007 Silverado LTZ C3500 Duramax Turbo Diesel
At this point, I think they just want to survive, and we better hope they do.
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MBWorld Fanatic!
Joined: Apr 2007
Posts: 1,046
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From: Colorado Rocky Mtns.
'06 A6 & '08 GL550
I think you know I appreciate you and your contribution to this forum, so I hope my comments aren't taken personally. But, I agree with Cleek.
As for the airline industry, I have very little sympathy for them and I travel on them quite extensively. If they think that oil is going to remain at this level, then either they will adjust their business models, or the market will dictate if they survive. For them to return to profitability, they need to have some more of their brethren go belly up for good, or merge as far as I'm concerned. And, keep in mind that my preferred airline (Frontier) is in bankruptcy now.
Do I want airlines to go bankrupt? Of course not! It'll only drive up fares, or those insidious incremental charges (baggage, assigned seats, food/drink, etc.) that have become popular recently even more. But, for a return to profitability, they either have to eliminate industry capacity, or raise prices a great deal further. They just don't have a good track record of pricing their product properly when you consider that in the history of the industry it has never earned it's cost of capital.
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Super Member
Joined: Mar 2008
Posts: 903
Likes: 23
From: B.C.
GL 320cdi, Chevrolet Avalanchero, GLE 350 (on order)
Look, Scotty;
Don't be fooled into thinking trading is a ticket to millions, or is in any way easy. Check out this story about a dude that worked in my block:
http://en.wikipedia.org/wiki/Brian_Hunter_%28trader%29
The exact run up that oil is now taking, happened to natural gas a couple of years ago. Easy come,...easy go.
Don't be fooled into thinking trading is a ticket to millions, or is in any way easy. Check out this story about a dude that worked in my block:
http://en.wikipedia.org/wiki/Brian_Hunter_%28trader%29
The exact run up that oil is now taking, happened to natural gas a couple of years ago. Easy come,...easy go.
