Wednesday, June 11, 2008

Fuel Oils, The Next American Disaster

Fuel Oils, The Next American Disaster

With oil spiking above $135 per barrel and gasoline at more than $4.00 per gallon, and home heating oil more than $5.00 per gallon Americans are in considerable pain already and signs indicate it becoming worse in the near future.

There are many markets for fuel oil such as sweet crude and heavy sulfur oil, and oil products such as unleaded gasoline, diesel, home heating oil, and jet fuel.

The Federal government says there is nothing to lower the prices of oil. Some senators saber rattle to tax huge oil companies for their windfall profits. This will get us nowhere.

It appears the "markets" where the oil prices are being speculated are in the oil futures/hedges "market". In less than a year there has been an increase of about 30% more speculators bidding up the price(s) of oil. Right now one does not have to prove they can cover a future sale of oil, either deliver the contract or pay for it. Margin requirements are as low as 7%. They have no interest whether or not they really have a business interest in hedging the cost of oil for their specific business purposes. There is almost no transparency of the individuals or their corporations involved. Secret hedge funds, sovereign funds, pension funds, and others in the oil market for high quick profits are endangering the economy of the world. Profits are the only concern and not the potential pain of society.

The gamblers have come to town to rape society with excessive oil prices. They are only interested in excessive profits. They found ways to manipulate the system and they are doing it.

Free traders think that "the markets will shake out any inefficiencies" and boy can they be wrong. We already suffered with Enron market manipulation, and the secondary mortgage market problems almost ruining America's banking system, and other excessive "free market" or unregulated activities. America cannot let the criminals continue to excessively drive up the price of oil without supervision.

With the bailout of the banks and brokers, America's society owns them. With the future costs of oil heading to $150 and beyond it appears that the American government will have to bail out consumers and others and "own" the oil industry too.

The media and our federal government should force transparency to identify the organizations and individuals playing in the oil futures sandbox and to state what they are doing.

Right now the bets are basically pieces of paper, but they must be backed up with real oil or oil products. The bets should be covered that they can deliver if they are selling oil or can pay for it if they are buying. Margins should be raised from the current 7%. It should be that there are reasons why someone is selling oil contracts and why someone would purchase oil contracts, which means the market should be composed to people in the oil industry. not some pension fund or hedge fund hoping to make a quick buck.

The Fed and the Treasury ignored the mortgage problem and we still have a major mortgage, housing, and credit market problems,...the Federal government must examine the oil markets and influence them towards a better path for society before it is too late.

Write to your elected officials. Ask them if someone can sell uncovered oil contracts? Ask them how low is the margin requirement? Ask them why pension funds are investing in oil contracts.
Ask your representative what he or she is going to do about it?