Germany in call for ban on oil speculation

By Ambrose Evans-Pritchard

Last Updated: 12:53am BST 27/05/2008

German leaders are to propose a worldwide ban on oil trading by speculators, blaming the latest spike in crude prices on manipulation by hedge funds.
It is the most drastic proposal to date amid escalating calls from Europe, the US and Asia for controls on market forces, underscoring the profound shift in the political climate since the credit crunch began. India has already suspended futures trading of five commodities.
Speculators are split, with some betting that oil will fall


Uwe Beckmeyer, transport chief for Germany's Social Democrats, said his party would call for joint measures by the G8 powers to prohibit leveraged trading on energy contracts. "It's an extreme step but it has to be done," he told the Berlin media.
Mr Beckmeyer said the last 25pc rise in the price of oil to $135 a barrel had nothing to do with underlying supply and demand. “It’s pure speculation,” he said.
George Soros: rocketing oil price is a bubble Oil has doubled in price over the past year and the concerns are echoed on Washington’s Capitol Hill where irate Democrats want rules compelling traders to take delivery of crude oil, a move which would paralyse the market.

There is now broad support in Germany for a clampdown on “locust” funds. President Horst Köhler said modern capitalism had turned into a “monster”, bringing the entire financial system to the brink of collapse this spring.
The Social Democrats form part of Chancellor Angela Merkel’s ruling coalition. Her own Christian Democrat Party shares concerns that funds are causing a fresh bubble in commodities, risking further havoc for the real economy and society.
In the long run, any scheme to ban futures trading would be extremely hard to enforce as the markets would tend to move offshore. Hedge funds are probably not the culprit in any case.


Speculators are split, with some betting that oil will fall. The mass of money coming into the commodity indexes is mostly from pension funds and long-term investors.
Oil markets are likely to shrug off the moves as political posturing, instead focusing on Norway’s suspension of crude output at three platforms, cutting supply by 138,000 barrels a day.
The news comes as Lloyd’s Marine Intelligence reported Opec oil shipments fell by 1m barrels per day in the four weeks to May 4, confirming suspicions that the market has been chronically short of supply.

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Sounds like an excellent idea but sadly there will be few takers.

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Too much money to be made, nobody will accept it. Especially our president since he has interest in several companies that make profit on oil.

Stupid idea, ending speculation. That's simply another definition of price controls and we have seen plenty of evidence through history and around teh world of what that leads to. Having said that, it's their country, let them do as they please.

B

I think there is more to it than just speculation. With all areas of the economy being negatively affected - airlines, tourism, trucking, automotive - the greed card would have been played out a while ago. But then again these hedge funds are known for turning markets upside down. I sure hope it's not another Bear Stearns debacle in the making.

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That would be awesome. My brother has a coworker (power trader) who decided to do a little commodities trading on the side. He bought soybeans and couldn't unload them. He was a day away from having to take delivery of tons of soybeans before he got them sold.
I bet some of those hedge fund guys would s**t their pants if they had to actually risk taking delivery.

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I think Germany is just taking the matter into their own hands and I can't blame them given that our current administration can't be bothered to do something about our dollar whose falling value is the primary driving force behind all this speculation. It would be better for Germany and the rest of EU if they could buy oil in Euros. I wonder if they're trying to do that. I read recently that Iran no longer relies on the US dollar as the sole oil-trading currency.

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Can you recall a time in US history where price controls had the long-term desired effect?

B

Iran is not at the point where they would trade independently from the US currency, but that's where they would like to get to in the future.

Their 'Oil Bourse' just opened earlier this year.

Sure enough they have enough oil to facilitate and maintain their own trading market. Something the US counter parts don't like to see.

Russia stands firmly behind Iran in that matter and China probably too.

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It's not a definition of price controls as you put it in simplified terms in post #4 and it's not a stupid idea either, to slow down intentional speculation.

The more speculation takes places within commodity markets, the more real time economy is being blurred or even saficated.

For matter, you request for recollection of 'price controls' throughout US history , bares substance.

Yes, Germany is the German's country. Something sunk in. I'm glad.

As you may read, there is a desired implementation to bring this up to the G8.

Besides, if US prices controls have failed in the past, doesn't mean a German concept will fail as well.

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Everybody who invests in the market enbages in speculation. I have yet to meet a person who would turn-down a profit from investment.

Speculation provides part of the real price of goods and services.

B

Read this:
http://edition.cnn.com/2008/BUSINESS/04/30/iran.oil.ap/index.html

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Thanks for the link, maybe their new establishment develops faster than expected.

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I agree that to a certain dimension, speculation is a positive driver, esp. for commodity markets and profits are earned, considering the risks involved.

Yet, in these time and age, with triple digit trillions of imaginery moneys being moved in the futures market, these types of speculative investments have become almost a syndrome. It does in fact inflate market prices.

It is like, instead of having 1 middleman, we now have thousands of middlemen, who all want to make a share by passing the deal on through their hands.

It has become a parasitarian system.

As an example, take the structure of a pyramid. Compare the square footage of the base with the one of the capstone.

Now, you tell me, what the capstone is going to do, when the base starts to erode.

I tell you what makes a nation strong.

It's not the nation's standing army, not the politicians or billionaires either.

It's a healthy citizenry, that thrives on healthy and praticable economical rules.

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I'm with Soros and Forbes on the oil bubble theory, when it does pop will the Fed swoop in to save the speculators?