-- but not as full explainer -- is the price rise in relation to the housing burst. big players DID "switch" to the next "opportunity"

also we ARE taking this harder than other places who didn't monkey with their money as a DIY refinancing scheme

Jon,

Call me a contrarian, but I find myself looking at energy trends and being frustrated that no one notes the obvious.  Historic fundamentals that used to predict energy prices no longer hold.  Where they have broken down, the universal trend is towards higher prices.

Why isn't this a speculative bubble?  It certainly was when dot coms were being traded based on multiples of revenue rather than earnings, since the latter were negative.  It certainly was when housing prices got way out of whack with annual salaries.  Why shouldn't it also hold when you can no longer predict natural gas prices from demand/reserve ratios, nor rely on the historic linkages between natural gas and #6 oil?

Don't get me wrong - I agree with the long-term fundamental drivers, and that we need to break our addiction.  But the idea that markets suddenly awoke to peak oil in the last 5 years strikes me as wishful thinking.  A far more coherent explanation (and one that people who ought to know better seem to miss - witness much of the recent writing on speculation in The Economist, of all places) is simply one of liquidity.

When the dot-com bubble popped, there was  brief run up in fuel cell stocks, as all that liquidity was running out of pets.com and needed a place to land.  Plug Power, Fuel Cell Energy, Ballard... all briefly became darlings of the investment community, out of all proportion to their intrinsic value.  That settled down once liquidity found a more responsible home.

In the last 5 years, we've seen a basically flat Dow, a collapse in the mortgage-backed securities market and a booming market in commodities of all flavors, from soybeans to natural gas.  Why shouldn't we assume that at least some the run of liquidity away from equities and CDOs has been towards these commodities, contributing to their inflation beyond fundamentally-justifiable levels?

Again, I'm not arguing that we diminish externalities, nor that a morally-righteous person might define "fundamental" in way that goes beyond reserve ratios.  Indeed, I think the days of $3 gas, $20 oil and 6 cent electricity are all well behind us.  But I find it very hard to believe that the current price spikes are not in part due to speculative considerations that will eventually come at least part way back to earth.  Let's be careful not to ascribe too much of this to things we really want to be true (like peak oil or limits to growth), lest we discredit those ideas that do have core intellectual merit.

With volatility.

the war itself was a pre-emptive strike in a peaking world. it's easy to say all the market volatility since then is an anxious/tight future brought into the present by force.

That's a theory.  Admittedly, so is mine.  My point is that in a world without peak oil, Iraq wars or climate policy but with a similar set of external financial circumstances - namely, the outrush of liquidity from other markets looking for a home - we would see something like the behavior we've seen today.

Does that prove my theory is right?  Of course not.  But it ought to at least give us pause before we start stipulating that the run up must be because of environmental issues, peak oil or anything else that  comports with things we would like to be true.

To be fair, you could argue that I'm simply replacing one "if A then B" causality for another.  But bear in mind that broadly speaking, all commodity markets are out of whack - not just oil, and indeed, not just energy.  Copper, wheat... you name it, they are all through the roof.  That broad definition of "B" as inclusive of a wide commodity run up is the one I'm looking at - and really not explained if this is only about peak oil, Iraq, limits to growth or some other purely energy-focused cause.

Sean -- I'm not familiar with the whole panoply of commodities economics, but the run up in commodities seems, at least from a very general view, to make a certain amount of sense.  One way of looking at it is this -- our nonrenewable global economy barely worked for less than 1 billion people, it's running off the rails with more than 2 billion.

Considering the stupidity of the speculation in dot com and housing bubbles, perhaps it would be naive to think that people investing in commodities would do any better, but there may be a certain amount of insight into at least some of the buying going on.  

In particular, you might look at this from a different perspective -- maybe the commodity and oil prices have been undervalued for a long time, but everyone has been so busy sticking their heads in the sand that it went on for so long that the "catch-up" to a more rational pricing scheme has been rather fast.  For a number of years, since I have been reading a lot of peak oil material, it has seemed that the oil traders were out of their minds to not think that there would be a huge price runup.  Well, maybe they just finally caught hold of reality.

I also wonder how much liquidity there really is -- I thought that the entire financial system is having liquidity problems.  Now, because of the lopsided nature of the global division of wealth, there is a stratum of people (and nations) who are so rich  that they "don't know what to do with their money", and so they are pumping it into commodities.  They have also been busy buying the US.

As Krugman keeps pointing out, if speculation was that big of a problem, people would be keeping the commodities off of the market, which they don't seem to be doing.  As George pointed out above, financial types tend to look for financial explanations for everything.  If we truly are in a period of tightening supply, then financial insight is not going to be very helpful.  In fact, most economists won't be very helpful either, since they operate under the assumption, as Robert Solow once said, that "resources don't matter", because you can always substitute...something.

I would trust people like Lester Brown more than most economists, because for years he has tried to understand the material basis of the civilization, how much there is that can support how many people.  That's more ecosystems thinking, it seems to me.

Now, should the Enron loophole be closed?  absolutely.  Should they reregulate oil trading?  Fine.  But I don't think that oil at $140 a barrel is off the mark.  I don't know what the normal demand/supply models would say, but when you have rising demand and no rise in supply, I assume that you get all kinds of strange things going on, like out-of-control price volatility.

So, at the very least, if you've got the speculation theory in your head, it's important, I think, to have the limits to growth theory as a constant source of comparison.

Upthread you ask: "Why isn't this a speculative bubble?  It certainly was when dot coms were being traded based on multiples of revenue rather than earnings, since the latter were negative.  It certainly was when housing prices got way out of whack with annual salaries.  Why shouldn't it also hold when you can no longer predict natural gas prices from demand/reserve ratios, nor rely on the historic linkages between natural gas and #6 oil?"

There is nothing to say that those historic linkages were ever a sound heuristic for valuing various commodities. We may be shifting to a regime where, say, we "value" resources relative to the "lifetime" scarcity of their "stocks", rather than the metrics that focus on the dynamics of their current "flows".

Something else to note. In most historic financial bubbles, part of the "solution" was bringing on more actual supply - railroads, houses, pets.com, etc., until the supply can actually sop up most demand, pricking the speculative aspect of the bubble and sending prices lower. In the case of certain exhaustible resources, we won't be able to get this type of response. Even in past commodity bubbles, we were able to do some of that (boost supply) in the interim - and always assumed that "limits" were well into the future. If the current reality is that any supply boosts are simply temporary "fixes" to an increasingly-recognized long-term supply crunch, then we may not see the same resolution to the price rises.

Of course, one should never over/underestimate the madness-of-crowds phenomenon, but I think this is going to be a little more tricky than pointing to "everything must be out of whack because historically whenever the XYZ indicator got to level Q, we've had a pullback in the price of commodity A." It might be that various indicators XYZ are now as relevant as the number of horses is to present-day US economic output.

as a tax-paying and rate-paying resident of california since before 2000 i can speak from experience that the enron loophole sucks fat lemons. our state budget is still on the rebound from that. i believe we can best explore its power over commodities by shutting it down.

My point is that in a world without peak oil, Iraq wars or climate policy but with a similar set of external financial circumstances - namely, the outrush of liquidity from other markets looking for a home - we would see something like the behavior we've seen today.

that's a tough scenario. without bubble-based financial policy, would we have driven ourselves to the brink? would our tippy-top people in charge have wanted war? was saddam's crime the non-existent weapons threat or the real euro-pricing threat?

how many times in the last months have i had to read some MBA-on-acid drooling about how economic growth will eliminate the cost of mitigating global warming by year X?

running all the needles into the red to get double-double-digit profits. trying to prove to people we were still the shiznit.

this is inseparable material.

an electranet, electrification, efficiency, and renewable supply IS A CLASSIC SUBSTITUTION. just a lit-tle big-ger.

Frankly, I think Krugman and many others (including the Economist) get a core issue wrong.  One can buy and sell commodities without taking ownership of them, just as one can buy and sell stock options without ever owning the stock.  And if there is a flood of transaction volume in that space, it will have the effect of bidding up (or down) the price regardless of whether the fundamental long term value of owning the commodity is up or down.  Warren Buffet and many other "contrarians" have made a lot of money by consistently following an investment thesis that goes against conventional wisdom.  If everyone says that X is really valuable, it's bound to be overvalued.  If everyone says X is really worthless, it's probably a good buying opportunity.  At core, that's why we have bubbles, and it simply comes down to human nature.   Watch a roulette wheel come up red 5 times in a row and it's tempting to start betting red.  Watch Pets.com go from $1 to $50/share and it's tempting to want to get on that bandwagon as well, no matter how much your logical brain keeps screaming "regression to the mean".

Eventually of course, these chickens come home to roost.  The guy who buys a future contract on oil at $80/bbl and flips it a week later for $90 makes money.  And if there is speculative pressure on oil, it will encourage more of those "greater fool" buys.  This is exactly what happened in the dot com bubble, or in the recent property bubble.  If you get in & get out early enough you make a lot of money.  But if you hold past the peak, you lose.  

Again, I'm not suggesting we should behave as if resources are constrained.  I'm simply saying that we shouldn't draw too firm a linkage between long term drivers in energy supply and pricing driven by short-term trading.

Maybe they are, maybe they aren't.  And we should clarify that when I use the word "fundamentals" I'm talking about metrics that - while perhaps not perfect from a long-term environmental sense - do make a lot of sense from a short term economic perspective.  And like it or not, spot prices ought to be based on those short-term economic perspectives.

An example: the natural gas pricing has historically indexed fairly closely to the demand/reserve ratio.  If demand is low relative to reserves, price falls for simple supply/demand reasons.  If it's high, the reverse.  As you look back historically, that's been a very good predictor of gas price, for the simple reason that as soon as you deviate from those ratios, someone's got an economic incentive on the margin to sell or hold back to wait for higher prices.  Without getting into any discussion of what the long-term supply of natural gas is, one has to wonder why someone sitting in Lousiana right now with excess supply in an underground salt dome wouldn't be sending it out to market if demand is high & the price is up.  And when this happens, it tends to drive prices down.  These are the fundamentals that are out of whack.

Lifetime issues, stock scarcity, etc. are all valid - but they don't explain why that dude in Louisiana isn't behaving in his narrow economic rational interests.  Unless, that is, the clearing price is being bid up by a lot of future swaps before the gas ever comes to market.

I don't mean to be overly argumentative here, because I really don't have data to fully support my theory.  But I don't have any to refute it either, and I get nervous whenever we start connecting dots on tenuous logical threads.  As I've said many times, economics is a wonderful tool to explain what happened, and a lousy one to predict what will.  When the dust settles on current commodity volatility, we'll figure out exactly what happened.  But until then, let's not get too dogmatic about what we think to be true - especially when that dogma fits so comfortably into our personal worldviews.  The human tendency towards confirmation bias is always tempting, and rarely useful.

Let's look at the dot com example.  Prior to the Netscape IPO, there was no overpricing of internet shares - just a lot of folks working on nifty technologies.  Then the Netscape IPO came out and was - in hindsight - deeply underpriced.

(An aside: when a company goes public, the money they get is the number of shares times the initial share price.  Any future movement in the price of the stock affects the future cost of equity, but doesn't create any more money for the founders.  So when a stock goes out and the next day is trading much higher it implicitly means that the initial pricing put together by the bank was way out of kilter, giving money to bankers and traders that rightfully belonged to the founders who created that value.)

Back to my example: so Netscape was way underpriced.  Within a week, it was through the roof.  Suddenly, huge amounts of liquidity came into the market looking for the next Netscape, creating massive over-valuations from the madness of the crowd.

Was the dot-com bubble possible without Netscape's IPO?  Maybe, maybe not.  But the fundamental driver of the dotcom bubble is more appropriately laid at the doorstep of speculative frenzy, rather than Netscape's investment bankers.

That's my point about Iraq.  Maybe the run up happens without it.  But once a speculative frenzy starts, it takes on a life of it's own that is largely separated from the initial triggering event.

Caused by all these manipulated commodity markets is not helping the environment.  It is enriching and empowering the very darth cheney like figures who seek eco-destruction to benefit their bottomline.

And it is starving millions with soaring food prices.

http://amazngdrx.blogharbor.com/blog

...who is holding on to oil?  Where? I have to admit that I do not follow the whole arcane world of inventories, but doesn't it mean something that they are down?  When a stock price goes up, there are a finite number of shares, and people want more.  Seems to be the same with oil.  

Perhaps the Chinese finally started lifting subsidies on oil because they realize that their demand is a big part of the problem -- but definitely not the long-run problem, which is supply (so no, I do not blame the Chinese for everything, just as I don't blame the Arabs for everything -- there's another article on Counterpunch which is actually more nuanced than Whitney's, but blames the rise in oil price partly on racism).

And we're also not addressing another issue -- is $140/barrel really so high?  Considering how long oil was cheap -- considering how the dollar should be tanking -- considering that world production of oil has basically been flat for about three years, and exports are peaking.  Remember, it's not the total world production of oil that's important, it's the total exports that are sold on world markets that's important.  The price may really be reasonable.  In fact, I think if I had extra money (I don't) I'd consider a contract for $140 for a few years from now to be a bargain.  So it's even possible that oil right now is too cheap.

Now as Amazin' points out, this is clobbering most people, and maybe that's why I wanted to specifically target progressives in this post (McCain and company also blame speculation, by the way).  Because progressives need to step up, be straight that oil is never going to be cheap again, and push hard for trains, EV's, what have you, walkable communities, etc.  Don't get stuck on the speculation.  Sure, try to find out how to increase margin requiremtnets, etc. but keep your eyes on the prize -- an oil-free society.

That was an interesting article because of the lessons of the impacts of oil prices on the economy, but the analysis was not very deep as to whether speculation is affecting the price to a large degree.  As you say, I'm no expert on these things, but if the US is paying $1 trillion per year on $135/barrel, as the article states, then $1 billion a month going into futures doesn't sound like it's going to radically change the picture -- unless 1/1000th of the spending in a market on futures doubles prices normally, which I find hard to believe.  The question is, not whether or not there is speculation, but whether or not that is making up more than 10% of the price, say.  So please do elaborate.

A (hopefully) illustrative question and an example.

First the question:  

Oil is going up quickly.  How much would you pay to lock in the current price?  If I offered you a contract that provided you with all your oil needs for the next 10 years at $120/bbl, would you take it?

That at core is the speculator's dilemma - not whether or not I can buy a barrel today and sell it for more tomorrow, but whether I'm willing to bet on a longer-term price horizon.  This may sound awfully financially sophisticated, but it shows up in simpler ways as well: suppose I wanted to sell you a more efficient water heater, but wanted to get paid based on the MMBtu savings under a long-term contract locked into todays $13/MMBtu rates.  Would you take that?  

From where I sit, the answer to both questions is no, because I find it hard to believe that the current prices will stay this high.  And I don't think I'm exceptional (at least in that regard!)  So are industrials yet going to make long-term capital bets based on the energy savings of today's fuel prices?  I'm not sure - but it's not a slam dunk by any means.

Now the example:

Let's say I buy a barrel of oil on a futures market today for October delivery.  I don't have the oil - I just have a contract for October delivery.  For the sake of argument, let's say I've paid $100 for that barrel.  That looks pretty valuable, no?  After all, oil prices keep going up, north of $140, and I'm sitting on a contract for $100.  So I go back to the futures market and sell it to someone else for $145.  She thinks she got a great deal because she thinks that given today's prices and the price trajectory, that's going to be cheaper than the value of oil come October.  Meanwhile, I made $45.  But we've also incrementally put additional upward pressure on the price of oil by adding a $145 price that averaged into yesterday's $140 number.  

Add a couple more cycles on that path and you've got a bubble that is fully disconnected from any actual stocks or delivery - but whoever ends up holding that contract come October now will take delivery at whatever the price is at that time.  And the person who wants to own that contract in October is likely to be someone who actually uses oil, rather than someone who's simply trying to flip a contract.  The upshot being that they are paying a price that has been bid up for reasons that are largely divorced from fundamentals.

To be sure, this can go the other way as well, and I don't mean to suggest that speculation = rampant price rises.  Indeed, this trading of futures contracts generally helps damp out volatility - but it can periodically get out of hand.

Hopefully this answers your question?

"...who is holding on to oil?"

Gina Sanchez states the the demand created by speculation is almost equal to the demand created by China.  The idea with futures trading is that it serves as insurance against price shocks.

It allows entities like hedge funds to take on risk, thus hedging the risk to society as a whole, and make a fair profit for assuming that risk.

What would be a fair price for consumers top pay in extra gas and other commodity prices, in return for this "insurance"?  10%?  certainly not double the price of the underlying commodities.

Re-regulation and moderation of this thievery must take place.  let's getr these markets back in line, honest, fair, and fairly free again.  This insider manipulation has gone way too far.

http://amazngdrx.blogharbor.com/blog

Bear in mind that in physical markets (e.g., the ones where you pay me for a thing, and in exchange I give you a thing) supply/demand and price are linked by the math you suggest.  But in paper markets (e.g., the ones where you pay me for the future right to have a thing and in exchange I give you my right to that thing, but not the thing itself), you can see big swings in pricing with modest volumes.  Up until the final trade in a futures market when there is a physical asset transfer, the price is set by those paper markets.  And to the extent that there is a bubble underway, the physical sale price can end up being affected by small volumes.

Consider: Suppose the US was going to take delivery on January 1 for $1 trillion worth of oil provided they can buy at $100/bbl.  Now suppose that on 12/31 there is a single transaction for 1 barrel at $105/bbl.  We wake up the next morning and all of a sudden find that our price is up by 5%, costing us $50 billion based on one lousy $105 deal.

This is a silly, and far too simplified example.  But the point is that the price is a function of trading volumes that include both physical deliveries and paper trades, the latter of which can see price swings even at modest volumes.  

Careful pointing the finger at insider trading.  For every speculator that sold a barrel at $145, there's another one who bought a barrel at $145.  They aren't manipulating markets so much as placing bets on the directionality of that market that can exaggerate volatility but in so doing expose them to massive risks as well.  Witness Amaranth, and the massive losses they took when the price of gas moved against their bet.  Witness Long Term Capital Management and the massive loss they took when foreign currency markets moved against their bet.

In other words, if this is being driven by speculation, it's not a call for regulatory oversight - some speculator is going end losing a massive amount of money.  They always do.

You are arguing with a lot of market experts.  Almost no one believes these futures markets are fair and free and accurately reflect economic reality.

Sen Cantwell, gina Sanchez, the market experts who testified in fron of the congressional commitee, and many other market observors are a hard group to beat back with explanations of idealized free market trading.

What they are claiming is that these markets are being manipulated by the entities that own and control them.  Traders who have total information of what everyone in the market is doing are trading.

It was like enron traders shuttibng down a power plant and causing a brownout to boost electricy prices 1000%, then take advantage of that event.  If one can cause an event that raises or lowers prices and  know that before hand, would that be a  fair or a free market?  no way.

that is what the enron loophole created in electronic markets.  And now every commodity trades that way.  inflation is the result.  Economy killing inflation.

What I'm saying is God bless free and fair markets.  So let's re-regulate and get those markets back.

http://amazngdrx.blogharbor.com/blog

Gina Sanchez states the the demand created by speculation is almost equal to the demand created by China.

keeping in mind that chinese "sovereign wealth" aka "dollar reserves" aka "the balance of trade with the USA" is a participant in the speculation. so "demand created by china" is in both realms of energy and ROI.

@sean:

In other words, if this is being driven by speculation, it's not a call for regulatory oversight - some speculator is going end losing a massive amount of money.  They always do.

always comes to this, right? always presenting markets as level fields for all participants, when the people with good information get bailed out with tax money and so take the risk anyway, and the small investors with limited info and no safety net get arthur andersen's and moody's solemn vow that these are good, solid investments, kick the tires for yourself if you don't believe me, think about what you'll be missing if you don't buy now, hallelujah.

and nobody ever leverages anything. it's always cash on the barrel.

real people, real businesses, are getting smoked on this. i'm pleased that the airlines are having trouble -- karma for lobbying fast rail to death -- but for the rest, i lost money -- not betting money, ordinary money -- to enron. my mother lost money to the S&Ls: savings. not a bet. several friends are "under water."

you walk into a bank that's secretly engaged in junk trading and what the hell responsibility do you hold for that, as a customer? we're all speculators now, though. just some of us have tougher bankruptcy outcomes.

Calls and puts, hehey.

Anyway, yeah I saw the Krugster on Olbermann last night.  I usually agree with him, but I wonder if he even saw or read about the congressional testimony on the effect of the enron loophole?  I doubt it.

Olbermann did not broach the topic with him, he however volunteered the explanation that (manipulated) markets weren't to blame.

Implying, as I have seen other environmentalists contend, that futures trading is accy=urately reflecting the reality of supply and demand, in oil, and by extension all other soaring, inflation driving commodity prices.

http://amazngdrx.blogharbor.com/blog

Don't make too much of Senate testimony.  Trust me - I've testified before Congress myself.  The decision is made before the testimony.  The testimony is just the theater.  Are there interesting things that come up there?  Yeah, sometimes - but they're of the theatrical variety.  Not a place to study economic theory necessarily.

What, praytell are these events that market actors are creating to drive up oil prices?

Mostly good points, but I'd take issue with your suggestion that most of the rise in oil price is due to collapsing US exchange rates.  Oil is up from $20  bbl to $140.  The US dollar has definitely collapsed against alot of currencies - but not by 80%.

Wolverine - this subject has everything to do with the natural environment.  There aren't many human constructs visible from space, but the Alberta Tar Sands is reported to be one.  And the question of off-shore drilling in the future in a supposed ice-free Arctic Ocean is becoming more and more weighted in favour pro rather than in favour anti.

Another point -- remember, when we're talking about "oil" we're not just talking "gasoline" but every bit of plastic in our lives, an invaluable, cheap (heretofore) base product in almost everything, including vehicles like cars, trucks, and SUVs.

I respect Sean Casten's opinions.  Except his seeming defense of the status quo in relation to the stock market.  A simple regulation that mandates any purchaser to retain "ownership" of purchased stock, current or future, for a set period of time, three months (the usual 'quarter' term for reportage) or six months, or whatever, as a minimum, would result in a slowdown of the volatility of the marketplace, a volatility that is the basis for the gambling that is the hallmark of the practice now.  And it would re-assert the supremacy of the individual over the cold rule of the Marketplace.

Des Emery

Do you remember the enron electricity trading scam Sean?  Ever heard about insider information?

Martha Stewart ring any bells?  Hmm, maybe not.

http://amazngdrx.blogharbor.com/blog

I sense desperation forming up around this enron loophole.  Is it similar to the black hole effect?  

The information will persist on the rim, long after this whole rotten hedge fund corruption has been flushed.  Hehey.

History is repeating itself, trading corruption crisis after crisis.  Those who learn from history are doomed to watch others repeat it.

We are getting tired of this broken record.

http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin

...and raise margin requirements for futures trades in oil, and then when the price of oil doesn't come down, people will pay more attention to the fact that less and less oil will be available for export, as explained by jerome a paris from my comment above

...a small point, I wish when Oil Drum posted oil graphs they would show some vertical lines so I can figure out when they're talking about peak -- looks like de Sousa's peaks at 2005 or 2006.

Notice how even Krugman (and certainly Kunstler), and others, use theoildrum.com as their source of data?  Amazing example of the power of the web.

"...raise margin requirements for futures trades in oil, and then when the price of oil doesn't come down,"

Establish free and fair markets through not only national regulation, but international treaty.  If gas is sold for 25 cents per gallon in a country and that gives them a trade advantage, find a way to account for that in terms of international markets.  

Negotiate trade agreements that foster free and fair markets where people buy and sell their resources, products, and labor in return for a decent standard of living.

Do business without war.

Regulate markets so that insiders cannot manipulate them to their own advantage at the expense of the people who actually own everything that is being traded.  Then if the price doesn't come down, fine.  Maybe it will stabilize.

Now repeat this across all markets.  Free and fair markets, it's a good start to a much better world.

http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin

Since global monopoly gaming is completely unregulated now, we are forced to let US traders do that too, or these very benevolent and patriotic free trading hedge funds will not be able to help us.

That's clear.  In fact re-regulating US trading will actually push oil and other commodity prices up further as totally unregulated trading offshore takes over the markets.  The US, the largest consumer of commodities like oil, has no power to effect world markets. The NYMEX will close if re-regulation is attempted.

Hedge funds weren't responsible for the mortgage crisis and since electricity markets in California were re-regulated California has had more frequent blackouts and electricity is 50 cents per kwh.  Their economy was destroyed by re-regulation.  Mobs of enraged consumers roam the streets.  

And of course, unless one takes physical ownership of a commodity there is no way to corner futures markets in that commodity.

Great analysis, you really know a lot more about this than the Senator and the traders who testified at that congressional hearing.  We are all certainly willing to take your expert opinion on this matter, and let unregulated insider market manipulation continue as usual.

Thanks for this clarificatiopn, that sets my mind at ease.  Wheeew.

http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin

(er...can I call you John now, or do you prefer Amazin'?), well, Amazin', it should be clear by now that there is plenty of rational reason to doubt the speculator theory.  One set of senate testimony a theory does not make, and the bit about speculators accounting for as much as China -- well, I don't think that futures contracts are as important as actually burning the stuff, as China is doing, but even if China got smart and decided to ban automobiles (oops, I mean, not encourage automobiles), there would still be a huge problem.  Even if speculation was somehow magically put to an end (a small global Tobin tax on financial transactions would help), maybe we would delay the crisis for a few years, but geology is geology and nothing will bring back the good ol' days of cheap oil.  Which brings me to

Jack, thanks for the info, however, I have to disagree with you about shale and even the tar sands.  Both have very low Energy Returned on Energy Invested, which means you're using so much natural gas, or even coal, to get the oil out that it's basically a wash, energy-wise.  On top of which, the carbon emissions are near double for shale, tar sands, and coal to liquids.  Tar sands are alleged to have 100's of billions of barrels, but that's like saying the I have a cup of coffee even though I just dumped it into the sand.  Even if the respective environments of Canada and the Western US were destroyed to get the stuff -- and considering the amount of water needed for both processes, in a time of worries about water, the technical feasability of getting the oil is not clear -- the resulting gasoline would be much more expensive than it is now.  I suggest perusing theoildrum.com for articles on these subjects.

Just don't call me late for this energy revolution.  

When all that capital soaked up by futures trading is returned to investment in renewable/conservation manufacturing and installation, I want to sell my shares to those  frenzied with greed.  Just before the bubble bursts.  Hehey.

Re-regulation in some form is inevitable, but will it be serious and seriously enforced, and negotiated in global markets?  

Is divestment of holdings in oil futures trading hedge funds already underway in anticipation of re-regulation?  That would be an indicator that insiders are getting the word from friends in DC.  We'll see.

http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin

"The speculation explanation blurs the issues involved in our present energy crisis."

That may be, but the blurrinness is in the eye of the beholder.

I am able to separate the images.  Oil, along with other fossil fuels, is helping to kill our climate.  

It isn't speculation that is spiking commodity prices like oil, corn, fertilizer, and so forth.  It is manipulated markets, using trading tricks like the enron loophole.  Speculation, futures trading, stock shorting, options trading are all fine, if markets are properly regulated.  

the only blurriness here is equating speculative trading with market manipulation.  One is good, the other very bad.  Insider manipulation negates the protective "hedging" effect of futures trading in commodities.  It hands outsize profits to inside players and robs from consumers and honest traders alike.

Retore free and fair speculation, re-regulate national and international markets.  Close the enron loophole, that would be a good start.

http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin

JMG -- Indeed! Here is a sample:The speculation explanation simply delays the arrival of the moment when we will begin, as a nation, to address the reality of our energy crisis. No market solutions will address the geologic and cultural roots of the problem. Enforcing apathy through uncertainty will only buy time for the status quo to profit from the collapse and temporarily deflect the political wrath of the proletariat. The hope for a return to normalcy afforded by the contention that today's price shocks resulted from criminal behavior also postpones the tipping point of the national consciousness necessary to demand reality-based energy policy. It won't be long until disruptions and disasters that are the face of the energy crisis make it impossible to keep the accoutrements of the American Way of Life up and running.
But I wonder how many doubters will be swayed? I suppose the point of the piece wasn't to persuade people that peak oil is real, and perhaps it may encourage a few do to the independent research necessary to satisfy curiosity. But it is healthy to be skeptical of broad sweeping claims and the article didn't provide much in the way of data and evidence.

Another point. The author makes much of how words like "oil speculation" define a "frame". Rightly so. But what kind of frame does the author offer for a response to peak oil? One of "collapse" (see last sentence above, for instance). That could happen. But the system could respond in unforeseen ways. Peak oil could be a blessing in many ways, both socially and ecologically. Maybe we can come up with healthier ways of living for ourselves and the planet? Or maybe I'm just an optimist? Faced with the prospect of a descent into barbarism, people could respond with an increase in civilized behavior. We just don't know, which is why I'm wary of the catastrophe framing of peak oil

Makes me think some rational strains are creeping into the discussion, but he left out one point: the messenger may get killed, or at least, the electorate might get pretty angry at any politician that tells his/her constituency that the end of the era of cheap oil is here.  Even Barney Frank can't do it, and although Bernie Sanders is stressing public transit more, even he doesn't seem to think he can go there.  Perhaps the public will learn about tit, probably through the internet, and come to some kind of rational conclusion.

However, I must say that I (nor anyone else, I don't think) didn't think that speculation would be the first line of defense against confronting the awful truth, and we don't know what the next psychological barrier will be.

You're also right that he doesn't really offer a different frame -- he gets a little Kunstler-ish there, not that that's a bad thing necessarily, it just gets a little misanthropic (been watching a little too much Carlin).  It's easy to ping-pong into catastrophe frames, as we well know.  Also, that's a pitfall of being snarky, even if it makes the reading a more interesting experience.

I see.  It's ok, your eyes will clear eventually.

Market manipulation.  Speculative trading.  Fighting GHG climate change.  Separate things.

Market manipulation that creates soaring commodity prices, is not a necessary and sufficent condition for energy revolution.

In fact the inflation that results is robbing us of the capirtal and economic vigor to address climate change effectively.

Would you buy a new, high mileage car if your job was at risk?  or keep your old car?

Would you invest in solar panels, knowing you migfht have to sell your house and move to get another job if yours dissapears?

Will banks lend money for solar and geo heat exchange in a recession?

And if voters think we are applauding high oil prices for eco reasons to such an extent that we ignore market corruption, will that win their votes?  No, it will be seen as  part of that "eco-gloating" phenomenon.

http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin

far from gloating, what I've been arguing is that we have a much worse problem than just speculation.  The Right is still going to blame environmentalists no matter what happens, but except for somebody here and there, I don't see anyone gloating.

As for the problem of getting capital, exactly.  It's even worse in a way, because the dollar is actually much higher than it would be if oil was not traded for dollars, and if the Chinese, etc. were not propping it up in a bizarre attempt to maintain the status quo.  then our dollars wouldn't buy the machinery we need from abroad to rebuild the economy, unless, of course, god forbid, we actually built it ourselves, although our capacity to do that has been steadily declining for decades.

So if we need capital, we should 1) shift from cars, planes and trucks as fast as possible, 2) get capital out of the military budget, 3) out of higher corporate taxes, 4) out of higher marginal tax rates (pre-Reagan) and 5) cut subsidies.  Then I think we'd have plenty of capital.

Conserve capital!  I agree Jon.  We need to pay the neighbor with a solar panel or the farmer down the road with a wind farm or manure biogas plant for our electric "gas", and keep that capital in the community.  66 cent per gallon equivalent renewable electricity would fight inflation at the source.

Sending capital offshore to buy oil is a dead end.

I just saw that the average gas price has risen $1.10 in the past year.  Nearly 10 cents per month.  How long can this keep going before the economy grinds to a halt, or near halt, depression?

Inflation is deadly, stagflation is even worse.  Especially with the fed foolishly lowering to 2% to bail out investment "banks".  They have no where to go but back up.  The emergency economic insurance policy of fed lowering is exhausted.

We have no where to go except into renewable/conservation energy policy.  I think we can scare up the capital to do it.  Literally scare it up.  

10 cents per month gas price rise, going exponential?  Electricity, natural gas, fertilizer, food all following along into exponential price rise because of underlying energy inflation?  Very frightening.   For every economic entity from the family unit to the pension fund.

Can we beat this disaster back?  Yes we can!  We need Obama now, like we needed Teddy Roosevelt (who regulated oil monopolies) and FDR (who kept spirits up during the great depression).

The science will convince him of the right course.  We finally have studies that expose fuel farming, clean coal, and nuclear power as dead ends.  

The "disinformation voters" (foxnews, limboob fans), along with the low information voters, haven't realized what is happening to us or why it is happening yet.  They must be won over to energy/ag policy reform with gentle reason.  Elite lecturing will drive them back to the no-nothing McBush strategery.

http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin