Wells Fargo Senior Economist Mark Vitner says, “It’s really nothing. Nothing substantive is going to come of this.”
Obviously, not everyone buys President Barack Obama’s crackdown on oil speculation.
Here’s the idea.
Vitner explains, “We’re going to try to curb speculation or apparent speculation in the oil market by threatening legal sanctions against people who participate in such activities.”
But the proposal may be more about politics than policies.
Vitner says, “The president doesn’t have a lot of power, the government doesn’t have a lot of power to contain oil prices. They’re set in the world market place. It’s an election year, so let’s pass a rule, let’s pass a law.”
When most people look at the oil markets – they see dollar signs and question marks. So are there really nefarious speculators hiding among them?
Basically, markets focus less on today, more on tomorrow. If traders expect prices to go up in the future – they buy now – pushing the price up immediately.
However, once they catch wind of a downturn in the market they sell – lowering the price.
The president asserts at its most extreme, this trading constitutes speculating, making oil and gas more expensive, even if there is plenty to go around.
Here’s the bottom line. It’s hard to separate speculating from trading. it only becomes obvious when traders have enough money to alter prices by themselves.
And that’s already illegal.
“Manipulating the market, where somehow you cornered the market, that’s clearly illegal. It’s always been illegal, so I don’t know what more you would need to do on that,” says Vitner.
Whether or not you support the president’s plan, don’t get your hopes up about relief at the pump.