Raising oil margins won't curb speculators -Bodman

[megimoo]

"This is the reason for rising oil prices.All of these huge fund managers adding more shares of oil commodities to their funds and driving the price out of sight ,When everyone buys the price goes up and up !"

WASHINGTON, May 23  Significantly raising margin requirements on oil futures trading at the New York Mercantile Exchange (NMX.N: Quote, Profile, Research) would not rein in speculative investors and bring down crude prices, U.S. Energy Secretary Sam Bodman said on Friday. Many U.S. lawmakers blame hedge funds, pension fund managers and other speculative investors for pushing up prices for crude oil and other commodities to record levels. "I don't think that the margin requirements per se are going to have any impact on it," Bodman said in an interview on CNBC television. Legislation is pending in the U.S. Senate...

http://uk.reuters.com/article/oilRpt/idUKN2328166420080523

[Chris_]

One of our local guys was reading this on the air while I was driving home from work today... it's a long piece.

Oil Speculation

The price of crude oil today is not made according to any traditional relation of supply to demand. It’s controlled by an elaborate financial market system as well as by the four major Anglo-American oil companies. As much as 60% of today’s crude oil price is pure speculation driven by large trader banks and hedge funds. It has nothing to do with the convenient myths of Peak Oil. It has to do with control of oil and its price. How?

First, the role of the international oil exchanges in London and New York is crucial to the game. Nymex in New York and the ICE Futures in London today control global benchmark oil prices which in turn set most of the freely traded oil cargo. They do so via oil futures contracts on two grades of crude oil―West Texas Intermediate and North Sea Brent.

A third rather new oil exchange, the Dubai Mercantile Exchange (DME), trading Dubai crude, is more or less a daughter of Nymex, with Nymex President, James Newsome, sitting on the board of DME and most key personnel British or American citizens.

Brent is used in spot and long-term contracts to value as much of crude oil produced in global oil markets each day. The Brent price is published by a private oil industry publication, Platt’s. Major oil producers including Russia and Nigeria use Brent as a benchmark for pricing the crude they produce. Brent is a key crude blend for the European market and, to some extent, for Asia.

WTI has historically been more of a US crude oil basket. Not only is it used as the basis for US-traded oil futures, but it's also a key benchmark for US production.

[Chris_]

In the most recent sustained run-up in energy prices, large financial institutions, hedge funds, pension funds, and other investors have been pouring billions of dollars into the energy commodities markets to try to take advantage of price changes or hedge against them. Most of this additional investment has not come from producers or consumers of these commodities, but from speculators seeking to take advantage of these price changes. The CFTC defines a speculator as a person who “does not produce or use the commodity, but risks his or her own capital trading futures in that commodity in hopes of making a profit on price changes.”

The large purchases of crude oil futures contracts by speculators have, in effect, created an additional demand for oil, driving up the price of oil for future delivery in the same manner that additional demand for contracts for the delivery of a physical barrel today drives up the price for oil on the spot market. As far as the market is concerned, the demand for a barrel of oil that results from the purchase of a futures contract by a speculator is just as real as the demand for a barrel that results from the purchase of a futures contract by a refiner or other user of petroleum.

In June 2006, oil traded in futures markets at some $60 a barrel and the Senate investigation estimated that some $25 of that was due to pure financial speculation. One analyst estimated in August 2005 that US oil inventory levels suggested WTI crude prices should be around $25 a barrel, and not $60.

[megimoo]

This is where George Soros made his money :the ICE Futures in London .

It is interesting to note here that the ICE Futures in London is owned and controlled by a US company based in Atlanta, Georgia. In January 2006, when the CFTC allowed the ICE Futures, oil prices were trading in the range of $59-60 a barrel.

Today some two years later we see prices tapping $125 plus mark and still trending upwards. And in the meantime, large financial institutions, hedge funds, pension funds, and other investors have also been pouring billions of dollars into the energy commodities markets to try and take advantage of price changes or hedge against them. There are no precise or reliable figures as to the total dollar value of investments in energy commodities, but the estimates are consistently in the range of tens of billions of dollars.

This large purchases of crude oil futures contracts by speculators have, in effect, created an additional demand for oil, driving up the price of oil for future delivery in the same manner that additional demand for contracts for the delivery of a physical barrel today drives up the price for oil on the spot market. Goldman Sachs and Morgan Stanley today are the two leading energy trading firms in the United States. Citigroup and JP Morgan Chase are major players and fund numerous hedge funds as well as the speculators.

In June 2006, oil traded in futures markets at some $60 a barrel and the Senate investigation estimated that some $25 of that was due to pure financial speculation. One analyst estimated in August 2005 that US oil inventory levels suggested WTI crude prices should be around $25 a barrel, and not $60. That would mean today that at least $50 to $60 or more of today’s $135 a barrel price is due to pure hedge fund and financial institution speculation, Engdahl argues.

The increased speculative interest in commodities is also seen in the increasing popularity of commodity index funds, which are funds whose price is tied to the price of a basket of various commodity futures.

Goldman Sachs estimates that pension funds and mutual funds have invested a total of approximately $85 billion in commodity index funds, and that investment in its own index, the Goldman Sachs Commodity Index (GSCI), has tripled over the past few years.

Indeed there is a lot more than what meets the eye

http://www.arabnews.com/services/print/print.asp?artid=110177&d=23&m=5&y=2008&hl=There%20Is%20a%20Lot%20More%20Than%20What%20Meets%20the%20Eye!

[megimoo]

ICE. Global Commodity Markets.

IntercontinentalExchange® (NYSE: ICE) operates global commodity and financial products marketplaces, including the world’s leading electronic energy markets and soft commodity exchange. ICE’s diverse futures and over-the-counter (OTC) markets offer access to contracts based on crude oil and refined products, natural gas, power and emissions, as well as agricultural commodities including cocoa, coffee, cotton, ethanol, orange juice, wood pulp and sugar, in addition to foreign currency and equity index futures and options.

IntercontinentalExchange's first-quarter profits soared as the over-the-counter markets and futures exchange operator's average daily volume topped one million contracts for the first time.

ICE which offers access to contracts for everything from crude oil to coffee, said Friday that new products, robust volume and new participants powered a 62.3% increase in the exchange's transaction revenues, which hit $177.4 million from $109.3 million in 2007's first quarter.

ICE futures exchanges hit record volume in the first quarter, rising 39.0% to 62.5 million contracts. Average daily volume was highest for ICE Futures Europe at 616,150 contracts compared to an average daily volume of 370,372 contracts on the ICE Futures U.S. and under 20,000 contracts on ICE Futures Canada.

Net income rose 66.0% in the first quarter to $92.3 million, or $1.29 a share, from $55.6 million, or 80 cents a share, in the same period last year. Sales rose 63.7% to $207.2 million from $126.6 million a year ago.
http://www.forbes.com/markets/2008/05/02/intercontinental-exchange-earnings-markets-equity-cx_mp_0502markets16.html