Channel 19

Todd Dills

Oil gamble on Wall Street? Speculation back in the headlines

| May 03, 2012

President Obama is hammering on oil speculators again, while Republican opponents such as House Speaker John Boehner and presumptive presidential nominee Mitt Romney are calling the talk about speculation hooey, falling back on the same old “drill, baby, drill”-type rhetoric we’ve heard so much of in recent past. Problem with the latter is, well, we are drilling. Domestic oil production is up. Problem with the former is the very White House task forces on the role of speculation in the price spikes of recent history concluded thusly:

Current oil prices and the increase in oil prices between January 2003 and June 2008 are largely due to fundamental supply and demand factors.

Ditto for recent spikes. Pretty well underwhelming, as Robert J. Samuelson wrote in his Washington Post opinion on the subject May 2. Samuelson believes in the supply-demand dynamic as the central oil price problem, and provides evidence in his column.

But the price spike problem in commodities markets isn’t just limited to oil, as I’ve written about here. And Samuelson’s contrast between the way stock market bubbles work and the way commodities markets work is unsatisfying when you consider the byzantine nature of today’s financial markets.

If you haven’t thought about credit default swaps, collateralized debt obligations and the housing bubble that led directly to the 2008 system-wide crash, I imagine the very mention is enough to raise the specter of a financial hand in the commodities markets, given the extremity of the price spikes of late.

Commodities markets position limits regulations have been passed — last October. No word on whether they will have a marked effect on prices: they haven’t been implemented. If you thought it took a long time to implementation new regs in trucking (witness the hours regs, of course), imagine the opposition to financial regulations, given the money and power behind the financial industry.

Plenty of involved parties clearly do believe excessive speculation is playing a role in commodities price spikes, as I’ve written about here and here and here. And, related, if you haven’t seen any of the recent Frontline documentary episodes about the crash and its now four-year aftermath, the four hour-long portions of the total are available for view online via this link.

In our world, clearly, prices are problematic. If you’re not getting a fuel surcharge and/or adequately compensating for oil prices in your rate structure, they’ll be an even bigger problem. Results thus far for our poll of the top problems facing owner-operators today (fuel prices are ranking high indeed) suggest many operators are in fact not being compensated adequately for the fluctuating price of fuel, whether through their leasing carriers or brokers/shippers. Vote in the poll today if you haven’t as yet, below.

And if one of those operators is you, further, be in touch. I’ll be writing about the top five in the problems poll in the coming months more in depth and would love to hear from you.


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