Airlines Take On Oil Speculators
Published by Al Adomite on July 11th, 2008
An interesting letter popped into my inbox yesterday. An “open letter” from xx different airline companies, the letter suggests that reform of oil commodity markets would be a meaningful way of lowering gas prices. Their new announced website, StopOilSpeculationNow.com has more, but here’s a sampling of their argument:
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.
I’ve recently been thinking about the concept of free markets and its relationship with government regulation. How much better to put it in a contemporary context within the gas price debate. I’m still not convinced that there’s not a supply problem when it comes to oil, but it’s interesting that oil consumers like the airlines would take up this argument. Although, how could it hurt the airlines by pushing for regulation, how could the airline industry be any more regulated?
SOS Now suggests repealing the “Enron Loophole,” and I think I’ll work on getting up to speed on that first. Meanwhile, oil set a record this morning.
Filed under National Issues
July 11th, 2008 at 1:48 pm
Those speculators are going to get burned. That is why they are called speculators!
Interesting how the only airline to make money has been Southwest Airlines. They used oil futures to lock in a good prices on fuel a long time ago.
The aother airlines for whatever the reason did not.