Speculators: Using Our Paper Against Us?

by Kevin D. Freeman on February 27, 2012

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In our last post, we discussed the fact that we were fighting an economic war with our paper (access to the dollar) against Iran’s oil. The result has been watching oil prices climb in dollar terms. Yes, we are pressuring Iran internally. But, we had better win because once the world realizes that their oil is a better weapon than our paper, we will lose. We have $16 trillion in outstanding debt and are adding $1 trillion or more every year for the forseeable future. By contrast, oil supplies are finite and the demand is increasing yearly.

We must also be aware that Iran and others who dislike America (including Venezuela, Russia, elements in the Middle East), can also use our financial markets against us as we outlined in the book, Secret Weapon (www.secretweapon.org). This is in essence using our paper against us. They can accomplish this through direct manipulation, surrogates, or simply propaganda and saber-rattling. OPEC as a whole can withhold production to make prices rise. Or, Sovereign Wealth Funds can inject money into the paper oil markets.

One of the premises of Secret Weapon has been that a sustained oil price rise was a weapon used against the United States. Critics argued with the idea that speculation in the oil markets was even possible or that enemies would choose to use an oil weapon if available. In regard to speculation driving prices higher, we have all the proof we need from academic studies (Ekaus at MIT), experienced oil traders (Dan Dicker’s “Oil’s Endless Bid”), and now WikiLeaks showing that even the Saudis admit the role of speculation. As for the second argument regarding the willingness of enemies to use oil as a weapon, there is ample proof in various forms. The fact that we are in the midst of an economic war with Iran is sufficient to eliminate this already weak argument against reality.

As we stated quite clearly in Secret Weapon, Iran and other nations can use our financial markets as force multipliers to amplify what takes place in the oil markets. This is the national security component of oil speculation. These points were made last week by Kevin G. Hall | McClatchy Newspapers:

Once again, speculators behind sharply rising oil and gasoline prices

WASHINGTON — U.S. demand for oil and refined products — including gasoline — is down sharply from last year, so much that United States has actually become a net exporter of gasoline, unable to consume all that it makes.

Yet oil and gasoline prices are surging.

On Tuesday, oil rose past $106 a barrel and gasoline averaged $3.57 a gallon — thanks again in no small part to rampant financial speculation on top of fears of supply disruptions.

The ostensible reason for the climb of crude prices on the New York Mercantile Exchange, where contracts for future delivery of oil are traded, is growing fear of a military confrontation with Iran in the Persian Gulf’s Strait of Hormuz, through which 20 percent of the world’s oil passes.

Other factors driving up prices include last month’s bankruptcy of Petroplus, a big European refiner, and a recent BP refinery fire in Washington state that’s temporarily crimped gasoline supply along the West Coast; gas now costs an average of $4.04 a gallon in California.

While tension over Iran has ratcheted up over the last few months, the price of oil and gasoline has leaped far beyond conventional supply and demand variables. Financial speculators are piling into the market, torquing the Iranian fear factor into ever-higher prices.

“Speculation is now part of the DNA of oil prices. You cannot separate the two anymore. There is no demarcation,” said Fadel Gheit, a 30-year veteran of energy markets and an analyst at Oppenheimer & Co. “I still remain convinced oil prices are inflated.”

Consider that light, sweet crude trading on the NYMEX changed hands at $79.20 a barrel just four months ago, but soared past $106 a barrel Tuesday afternoon, partly on news that Iran would halt shipment of oil to Britain and France. But those countries already had stopped buying Iranian oil. And Didier Houssin, the International Energy Agency’s director for energy markets and security, said that “there are alternative supplies that can make up for any loss of Iranian exports,” The Wall Street Journal reported.

Still, oil’s price shot up because it trades in financial markets, where Wall Street firms and other big financial players dominate the trading of oil, even though they have no intention of ever taking possession of the oil whose contracts they are trading.

Since oil prices are the biggest component in the price of gasoline, pump prices are soaring. AAA said Tuesday that the nationwide average price for a gallon of gasoline stood at $3.57, compared with $3.38 a month ago and $3.17 a year ago. It takes about $6 more to fill up the tank than it did this time last year — and last year’s gasoline-price surge helped take the steam out of the economic recovery.

(Read the rest of the article here:  http://www.mcclatchydc.com/2012/02/21/139521/once-again-speculators-behind.html).

This is very serious and cannot be ignored any longer. No one else is connecting the dots to the national security risks we face. Wall Street makes too much money from the trading and Washington has their head in the sand. Higher oil prices could restart the depression:  http://www.moneynews.com/HansParisis/Oil-Price-Global-Recession/2012/02/27/id/430615?s=al&promo_code=E44F-1. This time, however, the full destruction of the U.S. dollar is intended. With our severe budget debt, we aren’t in a position to respond with bailouts or stimulus.

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