Bubble, bubble, oil trading's trouble...

By Number Six

Thursday, May 29, 2008 at 04:35 PM

Well, well and well: Apparently we've got an investigation going: Are oil speculators to blame for current crude prices?

Cat got a climbing gear?

Seems we are 6 months into an investigation as to whether or not these hedge-fund vultures are using oil futures to create an artificially high price, and for what? Why, to make their precious look good, natch:

The Commodity Futures Trading Commission said Thursday it started the probe in December and is taking the unusual step of publicizing it "because of today's unprecedented market conditions."

Unprecedented? Like Memorial Day driving being as bad as it was in 1942? Like "adds to an already crappy economy", like that, sorta?

U.S. Sen. Jeff Bingaman, chairman of Senate Energy and Natural Resources Committee, earlier this week asked the CFTC to provide the committee with more information about its oversight of energy commodity markets.

The New Mexico Democrat said he is concerned about increasing trading activity in U.S. crude oil taking place overseas and in over-the-counter markets. He also questioned the CFTC practice of classifying so-called "swap dealers," including large investment banks, as "commercial" market participants alongside traditional buyers and sellers, such as oil companies and airlines.

"The practice of including investment banks in the commercial participant category calls into question the CFTC's continued assertion that non-commercial participants, or speculators, follow rather than lead oil price movements," Bingaman wrote in a letter Tuesday.

No, don't kid yourself: To make those funds look sexy, they require prices going through the roof. Following? No, more like at the helm, of course, steering oil up and up and up and up.

So says consumer advocate Ralph Nader:

Historically, oil has been afflicted with the control of monopolists. From the late nineteenth century days of John D. Rockefeller, and his Standard Oil monopoly, to the emergence of the “Seven Sisters” oligopoly, made up of Standard Oil, Shell, BP, Texaco, Mobil, Gulf and Socal, to the rise of OPEC representing the major producing countries, the “free market” price of oil has been a mirage. Despite the breakup of the Standard Oil company by the government’s trustbusters about 100 years ago, selling cartels and buying oligopolies kept reasserting themselves.

In an ironic twist, the major price determinant has moved from OPEC (having only 40% of the world production) and the oil companies to the speculators in the commodities markets. What goes on in the essentially unregulated New York Mercantile Exchange (NYMEX)—without Commodity Futures Trading Commission (CFTC) enforced margin requirements, and, unlike your personal purchases, untaxed—is now the place that leads to your skyrocketing gasoline bills. OPEC and the Big Oil companies reap the benefits and say that it’s not their doing, but that of the speculators. Gives new meaning to “passing the buck.”

Deborah Fineman, president of Mitchell Supreme Fuel Co. in Orange, New Jersey, summed up the scene: “Energy markets have been dictated for too long by hedge funds and speculators, who artificially manipulate the numbers for their own benefit. The current market isn’t based on the sound principles of supply and demand but it is being rigged by companies and speculators who are jacking up prices for their own greed.”

In other words, the speculators, buying up oil futures for their various little funds, are getting amazingly rich....at the expense of everyone.

Everyone.

Yet, we are "looking into it". MmmHmm.

Why is this going on? Simple, the hedge kids lost faith in housing and other markets to make moolah, of course:

Today's soaring Nymex crude prices are driven by speculative trading, the experts say. Speculation has grown in all commodities because hedge funds, pension funds and other large investors have moved out of the declining markets such as housing and finance in their search for profitable investments, Novak said.

"The $130 a barrel oil is due to speculation," Novak said. If speculation were eliminated, she estimates the price of crude could plummet to $75 or $80 a barrel.

Meaning, kick the speculators out and the prices will fall. Easier said than done, considering who's in charge of this zoo anymore. Will this happen? Or, like the housing crap, will, this bubble, too, burst?

And when it does, will it even matter anymore?