Magazine article Modern Trader

Wasted Energy

Magazine article Modern Trader

Wasted Energy

Article excerpt

Around this time last year, crude oil futures were just coming off their $147 per barrel highs, companies were scrambling to develop or use alternative fuels, we were headed into a presidential election and oil speculators were being blamed for everything short of global warming. What a difference a year makes. As I write this, oil is hovering around $70 a barrel, alternative fuels are almost an afterthought as companies and governments (i.e. BP, Brazil) find huge new crude oil deposits, and the election is over. But one thing hasn't changed: oil speculators still are serving as the whipping boy for high energy prices and more.

As you'll see in our energy outlook ("Crude correlations and what comes next," by Associate Editor Christine Birkner, page 24), prices probably will be flat to lower for the near term, and potentially into next year. This could change if a global economic recovery kicks in and energy demand grows. Unless, of course, oil speculators wave their magic wands and eliminate the impact that supply and demand has on prices.

Today a wire story noted that several congressmen sent Commodity Futures Trading Commission (CFTC) Chairman Gary Gensler a letter "strongly" urging him to "act quickly to adopt new rules that prevent financial speculators from wreaking havoc on our economy." Specifically, the congressmen support, in their words, "strict aggregate position limits across all energy products and markets for all index traders, swaps dealers and proprietary traders with limited exemptions for legitimate commercial hedgers with physical holdings" and "strong transparency requirements on all 'over-the-counter' (OTC) markets and requiring all OTC contracts to clear through a CFTC-regulated [sic] by invoking the commission's emergency authority to events that prevent 'the market from accurately reflecting the forces of supply and demand. …

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