Jeff  Carter

Yesterday Obama went after the speculators. I swear when he first came to Chicago he must have been ignored and put out by a bunch of traders. Imagine him going to a bar near the CBOT on a sunny Friday afternoon around 4PM. That would have been enough time for a mass of traders to exit the pits and “get their drink on”.

Picture Obama trying to belly up to the bar and be one of the guys. After spending the day with Bill Ayers at the Annenberg Foundation, he’d engage in meaningful debate and teach these hard core capitalists a lesson. However, traders have a really good BS meter. They probably called “BS” and told him to take a hike.

His latest proposal on putting more cops on the street to monitor futures speculation is BS too. If you have a good internal meter like I do, then you ought to be catching the sniff of a mighty ripe wind right about now.

First, speculators cannot control the price of crude oil($CL_F). It’s impossible. Second, speculators don’t get on the phone and collude to drive oil prices higher or lower. Can you imagine? “Hey Farid, today me and Bill here are going to buy thousands of oil futures.” It just doesn’t happen. If speculators were trying to drive energy prices higher, why are they giving natural gas away for next to nothing?

Are there tankers full of oil sitting out on the ocean that were put there by speculators? No. Not the speculators I am talking about. Those tankers are owned by oil companies and other big players in the market that are already heavily regulated. They are waiting to get to refineries. America doesn’t have enough refineries to process the oil that’s produced. That creates whip in the supply chain and increases prices.

The next logical step in the Obama process would be to propose a centralized government agency that imputes a price for crude oil based on some biased average. That didn’t work with Nixon, and it’s not working well with Chinese currency.

Currently, the market is in normal backwardization. The spot price of oil is higher than the current futures price. This benefits the “net longs” because the expected future price is higher than the current future price. That’s a normal condition for a typical futures market.

Jeff Carter

Jeffrey Carter is an independent speculator. He has been trading since 1988. His blog site, Points and Figures was named by Minyanville as one of The 20 Most Influential Blogs in Financial Media.