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Thursday, July 10, 2008


Stop oil speculation now?

posted by Aziz P. at Thursday, July 10, 2008 permalink View blog reactions
I've been forwarded one variant or another of the following email by several friends:

Subject: Help Fight America's Oil Crisis

An Open letter to All Airline Customers:

Our country is facing a possible sharp economic downturn because of skyrocketing oil and fuel prices, but by pulling together, we can all do something to help now. Visit

For airlines, ultra-expensive fuel means thousands of lost jobs and severe reductions in air service to both large and small communities. To the broader economy, oil prices mean slower activity and widespread economic pain. This pain can be alleviated, and that is why we are taking the extraordinary step of writing this joint letter to our customers.

Since high oil prices are partly a response to normal market forces, the nation needs to focus on increased energy supplies and conservation. However, there is another side to this story because normal market forces are being dangerously amplified by poorly regulated market speculation.

Twenty years ago, 21 percent of oil contracts were purchased by speculators who trade oil on paper with no intention of ever taking delivery. Today, oil speculators purchase 66 percent of all oil futures contracts, and that reflects just the transactions that are known. Speculators buy up large amounts of oil and then sell it to each other again and again. A barrel of oil may trade 20-plus times before it is delivered and used; the price goes up with each trade and consumers pick
up the final tab. Some market experts estimate that current prices reflect as much as $30 to $60 per barrel in unnecessary speculative costs.

Over seventy years ago, Congress established regulations to control excessive, largely unchecked market speculation and manipulation. However, over the past two decades, these regulatory limits have been weakened or removed. We believe that restoring and enforcing these limits, along with several other modest measures, will provide more disclosure, transparency and sound market oversight. Together, these reforms will help cool the over-heated oil market and permit the economy to prosper.

The nation needs to pull together to reform the oil markets and solve this growing problem.
We need your help. Get more information and contact Congress by visiting

It certainly sounds very official, and in a sense it is - the email is signed by the CEOs of most of the major domestic airlines and the website is a genuine one, not a hoax.

In reality, Stop Oil Speculation Now is a lobbying group funded by the airlines. They are trying to divert traveler anger at higher ticket prices (bec airlines are passing on higher furl prices to their customers). In a sense they are trying to keep summer travelers on the plane by creating a nebulous scapegoat of "investors" or "speculators" that they can pin the blame on.

I think the best way to look at this is as a marketing ploy more than anything else. The argument being made, that investors are driving up oil prices, is total nonsense. The reason oil is expensive is because of supply, demand, refinery capacity, and of course political instability (to put it mildly). A bunch of laws that regulate investments isn't really going to do anything one way or the other.

Get used to $4 gasoline for your car and $300 airline tickets - and above - for the forseeable future. One great tool that I use to find a decent fare is Kayak which does an aggregate search over orbitz, hotwire, expedia, etc. and makes it really easy to find the best fare/schedule you need.

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About Nation-Building

Nation-Building was founded by Aziz Poonawalla in August 2002 under the name Dean Nation. Dean Nation was the very first weblog devoted to a presidential candidate, Howard Dean, and became the vanguard of the Dean netroot phenomenon, raising over $40,000 for the Dean campaign, pioneering the use of Meetup, and enjoying the attention of the campaign itself, with Joe Trippi a regular reader (and sometime commentor). Howard Dean himself even left a comment once. Dean Nation was a group weblog effort and counts among its alumni many of the progressive blogsphere's leading talent including Jerome Armstrong, Matthew Yglesias, and Ezra Klein. After the election in 2004, the blog refocused onto the theme of "purple politics", formally changing its name to Nation-Building in June 2006. The primary focus of the blog is on articulating purple-state policy at home and pragmatic liberal interventionism abroad.