Matt Taibbi Blows The Lid Off Oil/Gas Speculation By Goldman Sachs
Most people don’t realize that the insane gas prices last year had nothing to do with increased demand and had everything to do with market speculation and hoarding encouraged by the top investment banks.
And what caused the huge spike in oil prices? Take a wild guess. Obviously Goldman had help — there were other players in the physical-commodities market — but the root cause had almost everything to do with the behavior of a few powerful actors determined to turn the once-solid market into a speculative casino. Goldman did it by persuading pension funds and other large institutional investors to invest in oil futures — agreeing to buy oil at a certain price on a fixed date. The push transformed oil from a physical commodity, rigidly subject to supply and demand, into something to bet on, like a stock. Between 2003 and 2008, the amount of speculative money in commodities grew from $13 billion to $317 billion, an increase of 2,300 percent. By 2008, a barrel of oil was traded 27 times, on average, before it was actually delivered and consumed.
Listen, it’s not just Taibbi who thinks that the market was gamed. Dem Senators tried unsuccessfully to close this loophole last year…
Many politicians and energy industry analysts blame oil speculators for cashing in on the fuel cost crisis and, in the process, boosting the price of oil. Hedge funds, trusts, and independent investors have also poured funds into crude oil as a hedge against the weakened dollar.
“A major contributor [to high oil prices] is the rise in speculation,” said Sen. Carl Levin, D-Mich, who estimated that speculation has added about $35 to a barrel of oil. “This is not a supply and demand issue.”
Levin said the solution can be found in closing the loopholes that allow electronic traders to buy oil outside of the United States. Levin noted that the “Enron loophole” will be ended if President Bush signs legislation that Congress passed as part of the proposed Farm Bill.
And Goldman Sachs’ involvement is clear in all of this…
Crude prices hit a record $123.90 a barrel Thursday, after a Goldman Sachs analyst predicted earlier this week that oil could rise as high as $200 over the next six months to two years.
That was May of last year. Want to know why oil prices finally dropped? Because Americans started driving less and forced the speculators to sell off their hoards or face financial ruin. But there’s literally no reason why oil prices should rise much above $2 a gallon given current market forces. The demand is being artificially created by speculators and it has been that way for quite some time.
Just take a look at this graph if you don’t believe me…
Does that look like a realistic demand curve?
Of course not. The market is being driven by folks who want to make an easy buck, and right now they can because nobody realizes what’s going on and there’s not enough political pressure to stop them. That could change if Americans simply wise up and look at the facts, but right now we believe the supply/demand lie we’ve been sold for the past few decades. Hopefully that’ll change, but that’s where we are right now.
Long story short, commodities speculation is a shameful practice that needs to stop immediately…and I’m not even getting into how Goldman gamed the mortgage markets.
I’ll give Taibbi the last word…
Goldman has its alumni pushing its views from the pulpit of the U.S. Treasury, the NYSE, the World Bank, and numerous other important posts; it also has former players fronting major TV shows. They have the ear of the president if they want it. Given all of this, I personally think it’s absurd to talk about the need for “balance” in every single magazine and news article. I understand that some people feel differently, but that’s my take on things.