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Speculators And Manipulators In Oil Markets.

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Annual Average Domestic Crude Oil  Prices
 U.S. Average
(in $/bbl.)
YearNominalInflation Adjusted 2007
1946$1.63 $17.26
1947$2.16 $20.29
1948$2.77 $24.21
1949$2.77 $24.44
1950$2.77 $24.18
1951$2.77 $22.42
1952$2.77 $21.91
1953$2.92 $22.88
1954$2.99 $23.39
1955$2.93 $22.94
1956$2.94 $22.74
1957$3.14 $23.46
1958$3.00 $21.83
1959$3.00 $21.62
1960$2.91 $20.69
1961$2.85 $20.03
1962$2.85 $19.79
1963$2.91 $19.97
1964$3.00 $20.32
1965$3.01 $20.05
1966$3.10 $20.06
1967$3.12 $19.65
1968$3.18 $19.17
1969$3.32 $19.02
1970$3.39 $18.35
1971$3.60 $18.68
1972$3.60 $20.03
1973$4.75 $22.29
1974$9.35 $39.77
1975$12.21 $47.63
1976$13.10 $48.36
1977$14.40 $49.88
1978$14.95 $48.17
1979$25.10 $71.96
1980$37.42 $95.50
1981$35.75 $82.70
1982$31.83 $69.33
1983$29.08 $61.34
1984$28.75 $58.14
1985$26.92 $52.56
1986$14.44 $27.66
1987$17.75 $32.81
1988$14.87 $26.45
1989$18.33 $31.05
1990$23.19 $37.17
1991$20.20 $31.15
1992$19.25 $28.81
1993$16.75 $24.36
1994$15.66 $22.19
1995$16.75 $23.09
1996$20.46 $27.38
1997$18.64 $24.40
1998$11.91 $15.35
1999$16.56 $20.83
2000$27.39 $33.39
2001$23.00 $27.29
2002$22.81 $26.61
2003$27.69 $31.62
2004$37.66 $41.84
2005$50.04 $53.77
2006$58.30 $60.73
2007$64.20 $64.92
Present-2008 $131    
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Above are historical tables of oil and gold prices. I have emphasized the years from 2001-2008 to illustrate the trends since the Bush Administration took office.  The price of oil has risen from $23/B to $131/B, an increase of 500+ percent.  Since January, 2008 the price has doubled.  Gold has increased over 200% during that same period. 
If the market prices of both commodities were based purely on demand, the implicit increases in  consumption of oil and gold since 2001 would be 500+ percent and 200 percent respectively.  The increase in the price of oil for 2008 would indicate a 100 percent increase in consumption.  The actual increase in consumption of both have been nowhere near the dramatic increases in price.  Both oil and gold are natural resources with diminishing reserves.  Oil, however, is more vital to the industrial economy which may be the cause of the more dramatic increase.  But, as is true with all commodities traded in the futures market, speculation and manipulation affects the prices dramatically more than consumption.  We learned that lesson in 2001 and 2002 with the Enron scandal when the price of electricity was manipulated and caused the bankruptcy of the California utility companies.
There is no doubt that OPEC and the oil companies have been manipulating the price of oil in the futures market.  Oil has no other value than its commercial use while gold has a recognized worldwide monetary value whose prices would increase primarily in relationship to the value of the dollar decline.  The case has been clearly made from the above information that instability in the oil rich countries has a direct affect on the futures market.
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The securitization of energy has been the greatest cause of oil increase having little to do with immediate increases in consumption.  It is painfully obvious that the futures market is the place where oil prices are most sensitive.  That is why it is important to take some action that would really reduce the price of oil now.  Futures markets can be dramatically affected by fear on a daily basis.  The increase of oil prices from $64 to $131 in 2008 alone reflects what Alan Greenspan called "irrational exuberance."  In futures market terms it is called "irrational fear."  That is why a long term view of reducing oil reliance will not decrease oil prices.  Neither will asking OPEC to increase production.
The real answer to reducing prices now is to convince the manipulators and speculators in the futures market to fear that all prices will go down dramatically.  That is why a dramatic announcement by Obama about investing hundreds of billions of dollars per year to advance proven alternate energy technology would decrease the price of oil dramatically in the short term.  In financial markets it is a fundamental principle that panic selling reduces prices faster than panic buying increases prices.  That is why the NASDAQ index dropped in 2000 from 5,000 to less than 2,000 in less than 1 year and 8 years later is still less than half of its all time high.
The funding of this project whose urgency is at least as great as the Manhattan Project in 1942 could be paid for by a dramatic increase in the windfall profits taxes.  A 25% incremental tax on Exxon/Mobil would yield $10 Billion dollars per year.With the likelihood of a Democratic victory in 2008, that kind of announcement could create turmoil in the futures market and prices might go tumbling down.  In addition, Obama could announce as Eisenhower did in 1952 when he said that he would go to Korea, that he would go to Iraq to end the war.  This announcement now would also dramatically reduce the price of oil by creating a perception of increasing stability in the Middle East.  I suggest that the policy makers in the Obama campaign seriously look at making this kind of announcement.  That would insure his election in 2008 as it did for Eisenhower in 1952.
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Sheldon Drobny was the co-founder of Nova M radio and Air America Radio. He has supported many philanthropic causes. Mr. Drobny specializes in business and tax matters and is admitted to practice before the U.S. Tax Court as a non-attorney. Less (more...)

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