The second sign of spring.
As we know the first sign of spring is rising gas prices. The second sign of spring is trying to find someone to blame. If it isn’t the greedy oil companies it is the evil speculators. Of course no one seems to point out that long before we traded futures on gasoline prices and oil prices, there was a tendency to head up in the spring. In fact throughout the history of oil, way back to the times when whale oil was the standard fuel, prices would almost always increase ahead of periods of high demand. I know it is amazing to some of you to find out that prices move whether or not there is a speculator involved. Volatility in the price of gas and oil moved up and down long before we had automobiles.
And as we do every spring we have those out there that want to play on your fears and anger by misleading the public. They make lot of false and misleading allegations with no basis in fact and the sad part is the public believes it. Instead of educating the public to the realities of the global oil market we feed on fear, prejudice, myth and legend. Politicians and political action groups feed on the ignorance of the public because it furthers their political agenda. They either lack knowledge or it is just willful neglect of the facts.
Let me be clear. When you hear that speculators in the futures markets are the only reasons oil and gas prices are going up you are either being lied to or the person telling you that lacks the basic understanding of all of the elements that drive price. Let me say that again. If someone is telling you that speculator’s in the futures markets are the only reason that gas prices are going up, you are either being lied to or the person telling you that lacks the basic understanding of all of the elements that drive price. In other words some are liars and others are just misinformed.
Who are these people that think that they have some type of divine wisdom that makes them think that they know what a fair price for oil or gas should be? Why are they smarter than the global market place? Do these people honestly believe that if we banned futures trading in oil those prices would somehow magically be lower? If you want to take speculation out of the market place you will have to go a lot further than getting rid of their futures markets. You will have to control not only the price but every buyer and seller producer and user across the globe. You would also have to have the power to control the rate of exchange between every country on the globe. And while you’re at it you will have to control the weather and guarantee peace on earth. Then maybe just maybe you can tell me what a fair price for oil should be.
Those that blame the speculator for the increases in oil live in their own little world that is a different place then the real world that we all have to live in. This myth that anytime oil or gas prices do whatever you do not want them to do, that they are somehow being manipulated, is hog wash and a danger to the U.S. economy. This country needs to wake up to the realities of what these higher prices are saying about the economy and the consequences of our actions. The American people have to understand the very real impact of government and the Federal Reserve policies. They have to know that there are no free lunches when it comes to fixing the economy. They have to know that you cannot run astronomical budget deficits and just print more money without it not having an impact on commodities especially the price of oil.
As I said the day after the Federal Reserve went to quantitative easing, the Fed just printed a floor under oil. If you devalue the dollar you find that other countries will seek safe haven in oil. And it would be happening even if there were no oil futures market to hedge with.
A perfect example is the latest news out of China. China that holds huge dollar reserves has been buying commodities like oil as a hedge against a falling dollar. And why wouldn’t they? They own a lot of them. Now when they bought billions and billions of dollars of our debt they were expected to be paid back in dollars they did not expect that our government would be paying them back just by running a printing press. When they bought our debt they did not expect to be paid back in dollars that are not worth as much. Do you think that China would not be diversifying away from the dollar even if the futures markets did not exist? Take this Financial Times story that says that, "Brazil and China will work towards using their own currencies in trade transactions rather than the U.S. dollar", according to Brazil’s central bank and aides to Luiz Inácio Lula da Silva, Brazil’s president. The move follows recent Chinese challenges to the status of the dollar as the world’s leading international currency.” Do you not think that this would be happening if the dollar was strong? Would this happen if we closed down the futures markets? Of course it would.
Oil is going higher because of rising demand expectations. Oil is rising due to seasonal factors. Oil is rising because the dollar is weaker. Oil is rising because of the effect of quantitative easing. Oil is rising as countries and investors are diversifying themselves away from the dollar. Oil is rising because OPEC is cutting production. Oil is rising because rig counts are falling. Oil is rising because of India’s election. Gas rose on a refinery outage! And that is just some of the reasons. So don’t believe the lies, misinformation or the ranting of the uniformed. Look at the big picture
Phil Flynn is vice president of Alaron Trading and a Fox Business Network contributor. He can be reached at (800) 935-6487 or pflynn@alaron.com .
