Is the economics of a free market working in terms of oil? I say this in view of the fact that hedge funds have been heavily speculating in future oil prices and thus have been driving up prices against the reality of what's happening in the market place. If this is the case shouldn't the US government be stepping in to sort this abuse out that is affecting us all for the financial benefit of a few ultra-rich billionaires?
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Today's oil prices are really determined is done by a process so opaque only a handful of major oil trading banks such as Goldman Sachs or Morgan Stanley have any idea who is buying and who selling oil futures or derivative contracts that set physical oil prices in this strange new world of “paper oil.”
With the development of unregulated international derivatives trading in oil futures over the past decade or more, the way has opened for the present speculative bubble in oil prices.
Since the advent of oil futures trading and the two major London and New York oil futures contracts, control of oil prices has left OPEC and gone to Wall Street. It is a classic case of the “tail that wags the dog.”
A June 2006 US Senate Permanent Subcommittee on Investigations report on “The Role of Market Speculation in rising oil and gas prices,” noted, “… there is substantial evidence supporting the conclusion that the large amount of speculation in the current market has significantly increased prices.”
What the Senate committee staff documented in the report was a gaping loophole in US Government regulation of oil derivatives trading so huge a herd of elephants could walk through it. That seems precisely what they have been doing in ramping oil prices through the roof in recent months.
The Senate report was ignored in the media and in the Congress.
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Perhaps 60% of today's Crude Oil Price is Pure Speculation :: The Market Oracle :: Financial Markets Analysis & Forecasting Free Website