By Institute for Energy Research ——Bio and Archives--May 17, 2011
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"Speculators help keep prices stable. When they foresee a future oil shortage--that is, when prices are lower than anticipated in the future--speculators buy lots of it, store it and then sell it when the shortage hits. They know they can charge more when there's relatively little oil on the market. But their selling during the shortage brings prices down from what they would have been had speculators not acted."To reinforce the point that speculation is a legitimate economic function and that federal intervention would ultimately prove to be worse than the status quo, Stossel cites the 1958 Congressional action to ban speculation on onion prices. That's right, Congress passed a law, amid mass public outcry, to ban speculative activity on the price of onions. The end result? Onion prices are actually some of the most volatile of all goods, and a study by the Financial Times found that the ban actually did the opposite of the intended effect. Instead of trying to meddle with the market, Washington should focus on removing the roadblocks to domestic energy exploration to give America more leverage in the oil game. When President Bush finally lifted the U.S. embargo on its own offshore oil in July 2008, the price of oil dropped $9.26 per barrel while he was giving the speech. Crude oil traders and speculators believed that oil supplies would increase in the future, reducing prices. However, it is interesting to note that the market had a fairly apathetic response to President Obama's recent proposals to increase domestic production. The only marginal decrease in oil prices since the President's announcement is indicative that players in the market do not anticipate that the proposals--which are simply reversals of policies implemented during the Obama Administration--will significantly increase the supply of oil. To impact oil prices on the scale of what happened when the Outer Continental Shelf (OCS) moratorium was lifted in 2008, the Administration will need to adopt an energy policy that includes exploration in ANWR, more of the OCS, and more than the current 3 percent of onshore federal lands that are available for leasing. Until the Administration takes these major steps to produce more oil at home, its recriminations against speculators and shadowy market manipulators hold little water.
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The Institute for Energy Research (IER) is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets. IER maintains that freely-functioning energy markets provide the most efficient and effective solutions to today’s global energy and environmental challenges and, as such, are critical to the well-being of individuals and society.