12 Airlines ask Congress to do something about oil speculation (about fucking time).

argatoga

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Finally someone is talking about the actual reason why gas is expensive.

http://money.cnn.com/2008/07/09/news/companies/airlines_speculation_letter/?postversion=2008070918

NEW YORK (CNNMoney.com) -- Hundreds of grounded planes. Thousands of lost jobs. Nearly two dozen price hikes. Record oil prices have battered the airline industry, and Wednesday the airlines called on Congress to act.

In an open letter to all airline customers, CEOs from 12 of the nation's airlines said lawmakers must curb excessive speculation to scale back record fuel costs.

"Normal market forces are being dangerously amplified by poorly regulated market speculation," the letter said. "The nation needs to pull together to reform the oil markets and solve this growing problem."

The airline industry said that Congress' previously established regulations to control excessive market speculation have largely been weakened or removed in the past two decades.

"We believe that restoring and enforcing these limits, along with several other modest measures, will provide more disclosure, transparency and sound market oversight," the letter said. "Together, these reforms will help cool the overheated oil market and permit the economy to prosper."

A dozen or so bills have been introduced in the House and Senate on the subject of oil speculators. Democratic leaders in the House have promised to address the issue by tackling "excessive" speculation, but so far they have little to show for it. Policy analysts believe a bill is coming, but it may be September before a law can get passed through both chambers.

Meanwhile, airlines say record fuel prices are burdening their business and customers alike. Analysts expect the airlines will cut capacity by 9% in 2008 while continuing to hike fees and cut staff.

"For airlines, ultra-expensive fuel means thousands of lost jobs and severe reductions in air service to both large and small communities," the letter said.

Plea for support
American Airlines hopes its customers will help to urge Congress to sign a meaningful bill on speculation in futures markets.

"We are urging our customers and employees to ask Congress to act quickly to curb speculation in the commodities markets," said American Airlines in a statement. "Some experts estimate that this speculation adds $20 to $60 to the price of a barrel of oil - and it is consumers and companies like American Airlines, who actually use the oil for a productive purpose, who pick up the tab."

Even Southwest Airlines signed the letter. Though most airlines weren't as lucky, Southwest hedged 70% of its fuel costs at $51 a barrel. As a result of its smart bets in futures markets, the discount airline is paying only about $2 a gallon for its jet fuel.

"We mainly signed the letter as a show of support to the industry and to raise awareness for our customers," said a Southwest spokesman. "But even with the hedge, we're 30% vulnerable to current market prices."

The CEOs of AirTran Airways Inc. (AAI), American Airlines' parent company AMR (AMR, Fortune 500), Delta Air Lines Inc. (DAL, Fortune 500), JetBlue Airways Corp. (JBLU), Northwest Airlines Inc. (NWA, Fortune 500), United Airlines Inc. (UAUA, Fortune 500), Alaska Airlines Inc., Continental Airlines Inc. (CAL, Fortune 500), Hawaiian Airlines Inc., Midwest Airlines, Southwest Airlines Co. (LUV, Fortune 500) and US Airways Group Inc. (LCC, Fortune 500) all signed the letter.
 
For once I actually side with the massive airline companies. Gas prices don't just hurt the everyday taxpayer, they also take their toll on the transportation sector, and as a result the price of everything goes up.
 
When you look at the oil situation like the airlines are presenting it things are eerily similar to conditions right before the Great Depression when banks were interacting with almost no federal regulation. If the transportation system came to a halt the rest of the country would follow very soon.
 
Investors are, with few exceptions, the most myopic and self-destructive people out there. The problem is that when they self-destruct they bring down everyone else with them.
 
I actually have mutual funds in Oil and Energy (had them before 9/11), I'm starting to wonder if i should take the money out since it seems in a small way like I'm apart of the problem. hmm.
 
^That's not the same thing is it? They are talking about the commodities market and oil being traded on there, as opposed to shares of oil companies which is what your mutual fund probably owns.
 
Finally, we have some heavyweights on our side with some influence (translation: "money"). Maybe we'll actually see some results now.
 
When a product is in demand, the price of the product goes up.
When a product is not in demand, the price goes down.

Lately, there has been...(wait for it) HIGH DEMAND from countries who are rapidly developing, like China and India. Because of this HIGH DEMAND, the prices have gone up. The Governments of China and India subsidize the price of gas; therefore because it is cheap, there has been HIGH DEMAND for it. When both China and India stop subsidize this commodity, the price will go up in both countries, therefore there will be a LOWER DEMAND.

Answer me this; whenever there is a problem with high prices, why do people always look toward our government? I therefore want you to tell me, in paragraph form, how politicians, who have no idea how economics work, can fix an economic problem. I constantly read on this forum people bitching about how poorly our government works, tell me how this situation will be ANY different, and I beg you to inform I and readers of this thread how the US government will NOT bungle this up, if they put a cap on speculation.
 
Technically, you of course are right, Jayhawk. Yet, market specialists have said that even with the current high demand and oil slowly running out, prices should be nowhere near as high as they are. The big chunk of the current oil prices actually is due to speculation on the financial markets. Brokers have discovered oil as a speculative good, and during that process, they try to push up the price to make a profit. So yes, the government actually is to be addressed in this case, as there is no need for oil to be traded on the markets whatsoever.
 
When a product is in demand, the price of the product goes up.
When a product is not in demand, the price goes down.

Lately, there has been...(wait for it) HIGH DEMAND from countries who are rapidly developing, like China and India.

I can accept this as a reason, and it will continue to embiggen as a reason.

However, point me to a graph saying that demand for oil and the price of it are in proportion to each other.

edit : stat time!

From 1994 to 2006, demand for oil rose by 1.76% on average each year. Over roughly the same period (1996 to 2008), oil prices have risen by more than 700% over that time (below $20 a barrel in 96 and $141.71 on June the 27th this year). Source
 
edit : stat time!

From 1994 to 2006, demand for oil rose by 1.76% on average each year. Over roughly the same period (1996 to 2008), oil prices have risen by more than 700% over that time (below $20 a barrel in 96 and $141.71 on June the 27th this year). Source

And I will reason that speculators drove the price down to artificial lows. That is how the market works! Speaking of that, because SouthWest Airlines speculated on how much fuel was going to cost, they bought a lot of it at cut rate prices! And because of that, the consumer who chooses that airline, will reap the benefits!

My point is this: the less the government is involved in trading and economics, the better. Keep in mind, this is the same government who is OK with spending $800 for a toilet seat on an aircraft.

It is like I want to scream in your ear that the more you give a government control, the more you become its servant.

STOP
RELYING
ON THE
FUCKING
GOVERNMENT
FOR YOUR PROBLEMS!! Work harder! Spend wisely!
 
I think you're seeing this the wrong way around. I don't understand this matter as people or companies waiting for the government to do something. This is a case where a government actually should stand up to before the crowd raises its voice. For the good of their people and the economy, they should forbid oil being used as a speculative good, simply because there are people involved in this that have no interest in the actual oil other than driving up the price artificially.
 
So how should it be traded, then? Oil, like natural gas, beef, corn and soybeans are commodities. Commodity prices are dictated by speculation. I found this to better stregthen my argument:

A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often used as inputs in the production of other goods or services. The quality of a given commodity may differ slightly, but it is essentially uniform across producers. When they are traded on an exchange, commodities must also meet specified minimum standards, also known as a basis grade.

Any good exchanged during commerce, which includes goods traded on a commodity exchange.

The basic idea is that there is little differentiation between a commodity coming from one producer and the same commodity from another producer - a barrel of oil is basically the same product, regardless of the producer. Compare this to, say, electronics, where the quality and features of a given product will be completely different depending on the producer. Some traditional examples of commodities include grains, gold, beef, oil and natural gas. More recently, the definition has expanded to include financial products such as foreign currencies and indexes. Technological advances have also led to new types of commodities being exchanged in the marketplace: for example, cell phone minutes and bandwidth.

The sale and purchase of commodities is usually carried out through futures contracts on exchanges that standardize the quantity and minimum quality of the commodity being traded. For example, the Chicago Board of Trade stipulates that one wheat contract is for 5,000 bushels and also states what grades of wheat (e.g. No. 2 Northern Spring) can be used to satisfy the contract.
 
I am for less government in general, but you need supervision in some cases. Recently deregulation has led to rolling blackouts in California and the current over inflated oil prices. A completely unregulated market is not a good thing, remember the government did not create the Great Depression, short sighted and greedy investors did.
 
When you start hear business people saying that the price of oil is higher than what demand calls for and that it's driven up by speculators then you really have to stop and listen, I've seen this more than once on tv as of late.
 
So how should it be traded, then? Oil, like natural gas, beef, corn and soybeans are commodities. Commodity prices are dictated by speculation. I found this to better stregthen my argument:

Jay, I normally agree with your arguments that the government should stay out of the economy and that free markets will regulate themselves, but in this case, I do not believe that the demand has risen in proportion to the price of oil.

I am for less government in general, but you need supervision in some cases. Recently deregulation has led to rolling blackouts in California and the current over inflated oil prices. A completely unregulated market is not a good thing, remember the government did not create the Great Depression, short sighted and greedy investors did.

:+1:

A very small group of people made a fortune in 1929 just before the crash. The group of investors who started the selling frenzy made a killing and cashed out.
 
People who know what they're talking about describe why regulating futures would be pointless

Futures investing is NOT the same as the kind of stuff that led to the Great Depression, which was based on investment in and overvaluation of stocks and properties. Don't tar the futures investors and hedgers with the same brush. Oil speculation is basically a massive betting parlor on the future price of oil, with one crucial element: every speculator's bet is made with ANOTHER speculator taking the opposite bet. The point is that futures markets are set up such that the losses and gains are restricted to the futures market itself, and doesn't spill over into the spot market, aka where real oil is traded. Southwest Airlines managed to work the market such that it benefited from a futures contract on fuel prices, and just because the other airlines weren't smart/lucky enough to make the same move doesn't mean they need to start crying to Uncle Sam to close the sandbox.
 
Futures investing is NOT the same as the kind of stuff that led to the Great Depression, which was based on investment in and overvaluation of stocks and properties.

Yes because overvaluation of oil is different than other forms of overvaluation. The CEO of Shell has said that oil should be at $80 a barrel, the futures market has made it more thanks to deregulation caused by Phill Gramm's Enron Loophole.
 
Yes because overvaluation of oil is different than other forms of overvaluation. The CEO of Shell has said that oil should be at $80 a barrel, the futures market has made it more thanks to deregulation caused by Phill Gramm's Enron Loophole.

Yes, it is different from 1920s era overvaluation. In that time, overvaluation was a good thing, causing property and asset values to go up on paper; only when it ended, did things go down the shitter. Now, "overvaluation" of oil is is having the opposite effect. The real question should be why oil prices stayed so relatively low through the period of booming demand in the 1990s and early 2000s, and why it took so long to go back up. And that Enron Loophole came into effect way back in 2000, and the only real casualty of that was, incidentally, Enron, when its stack of cards fell in on itself. Now we're back to supply and demand. This time, unlike in 1973, it's demand that's the culprit.

As for the Shell CEO's pronunciation, I looked up the article in which he says it (here), and his main argument is that "there are no physical shortages to explain the rise in prices". Well there doesn't need to be a shortage to explain the rise in prices if demand matches supply; that's the definition of supply and demand working as they should, with the price as an aftereffect of matching supply with demand. His statement on "oil prices being too high" sounds at best vague, and at worst PR pandering.

The point that I made in my first post is that, by virtue of how it works, the futures market doesn't feed back into the spot market (where the real oil is traded). Clamping down on the futures market is like putting one of those "Tornado vortex manipulators" on your car's intake: sure it will have an effect on something, but at best it does nothing real, and at worst it constricts a vital passage.
 
I just read an article saying this is all wrong. Speculators actually smooth out volatility in the market place. Something to do with how tenuous oil supply is right now and if there wasn't speculation, sudden supply or demand changes would cause the price to surge up and down by dozens of dollars per barrel. Also, the finger pointing towards speculators is hardly anything new. When oil went to 40 dollars per barrel years ago, they said it was unsustainable then too and said speculators were to blame and it was just a bubble. Well then it went to 60, and then 80 and 100... now it's at 150. Each time they repeated the same mantra. This time is no different. Oil is just expensive now. Gotta deal with it and move on with our lives imo.
 
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