Oil Fields In Wall Street

What’s driving the price of oil? Is it really supply and demand?

How did the price of oil go from $69 to almost $150 in such a short period? Especially at a time when there were no reports of oil shortages?

If the media had any answers they ignored their responsibility to the public. That is until CBS 60 Minutes disclosed the secret.

Oil is being traded on paper by investors using complex schemes that is virtually obscure to the public. Investors like J.P. Morgan, Morgan Stanley, Goldman Sachs, Barclays, California Pension Funds, and Harvard Endowment are the participants. Commodities are traded at the New York Mercantile Exchange  (NYMEX).

Companies are actually buying oil and holding it in tanks, acting as a wholesaler. They are reselling oil products and controlling the prices themselves, and this is legal.

“Approximately sixty to seventy percent of oil contracts are held by brokers that have nothing to do with oil. They buy and sell, making huge sums of money on the volatility of the market, with no need of consuming oil. Last year, twenty seven barrels of oil were being traded on the market for every one barrel that was being consumed by Americans.”

Ralph Nader explains: “An essential product—petroleum—is set by speculators operating on rumor, greed, and fear of wild predictions.”

Yet even federal regulators cannot prove of wrongdoing because of insufficient data. Why no data?

In the year of 2000, Congress passed a bill that deregulated future contracts. The Commodity Futures Modernization Act of 2000  (Wikipedia) allows investors to trade in secrecy without intervention from government agencies. The bill was never debated by the House or the Senate.

Enron  lobbied Congress to get this bill passed, which enabled them to manipulate the market online. Enron created a loophole to artificially inflate the prices of energy and commodity services that they controlled.

Enron is responsible for the deregulation of utilities and investors are cashing in on this. It is without a doubt that Big Oil companies have benefited from this also.

Sources:
* CBS News With 60 Minutes: Did Speculation Fuel Oil Price Swings?
* Spiegel Online: Up, up, And Away
* Ralph Nader:  What’s Really Driving the High Price of Oil?