FUTURES MARKETS HAVE LEFT US WITH LITTLE

When one looks objectively at the price of petroleum these days, once you get past the exorbitant taxes levied by governments, one has no choice but to look to the oil futures commodities traders as the culprits for our current situation. Let's put these traders in perspective, these are not huge petrochemical firms, or refineries. It is estimated that of these traders, only 1 to 4% of them actually has the capacity, or capability to take delivery of the product. They are paper pushers hell bent on capitalizing on our addiction, which can garner the wise investor untold millions in profits.

While oil has gained more than 40 percent this year, more and more people now shift their focus onto the role of speculators in the price hike. But is it all because of speculation?

Many believe so. A report the U.S. Congress released Monday showed that, in January 2000, 37 percent of the NYMEX crude futures contracts were held by speculative traders; but in April 2008, the number has soared to 71 percent. Meanwhile, the proportion of contracts held by commercial traders greatly declined.

The U.S. Commodity Futures Trading Committee (CFTC) revealed in May that it began investigating potential price manipulations in the oil trading market in December 2007. The early findings show that since the sub-prime mortgage crisis large amount of speculation fund has turned to buy commodities like crude as a hedge against inflation. Speculation theory was also echoed by the Wall Street. Hedge fund manager Michael Master testified on May 20 that his pals in the Wall Street are pushing up world oil prices through speculative investment in futures market. Moreover, he pointed out at the hearing held by CFTC acting Chairman Walter Lukken on Monday that with greater regulation oil prices could drop to the level of 60 dollars a barrel within about 30 days.

Three days later, just after the oil prices surpassed 140 dollars point, the U.S. Congress approved a bill with a 402:19 vote that directs the CFTC to use its authority to curb speculation in the energy futures market.

But, is this the only factor in the sky rocketing price of unrefined crude? No. The market is simply operating on an assumption, and in the hopes, quite frankly that supply will never be able to satisfy the deepening demand, especially in light of the increased usage by China, India and many emerging nations in the world. Based on a Department of Energy report, the global demand for energy in 2030 will increase by 50 percent compared with the level in 2005.

Based on most estimates, the global safety cushion -- the amount of readily available oil that could be pumped in a moment of crisis-- is now less than two million barrels a day, a big slump from five million barrels a day in 2002. And nearly all of the safety cushion is in one country, Saudi Arabia, which makes the world even more vulnerable to political or other shocks. Nigeria, for example, is producing one million barrels a day less than its production capacity because of disruptions caused by attacks in the oil-rich Niger Delta. Production has stagnated in countries like Russia and Venezuela and is even plunging in places like Mexico. All these factors have left the global oil industry with little capacity to boost supplies, and the United States can do little if anything, to control it.

Senator Chuck Schumer, in an interview, said he could see no easy answers to high oil prices. “Everyone would like to believe that there is a silver bullet — like a bubble or speculation — that can solve our oil problem,” he said. Instead, he said, it would be better for the nation to focus on conserving energy and reducing its oil consumption. Which is government speak for "we're screwed."