by Jerry Gordon, The Iconoclast, July 17, 2008
A few days ago we posted a comment on the introduction by Senators Lieberman, Collins and Cantwell of federal legislation to rein in the speculative energy commodities trading that has fueled the oil bubble: S 3248, the Commodity Speculation Reform Act of 2008. Last week propelled by rumors of Middle East preparation for a possible Israeli attack on Iran’s nuclear facilities and a terrorist attack on oil facilities in the gulf of Niger, the price of a barrel of crude oil had spiked to more than $147.00. We pondered whether the oil bubble had finally peaked.
Then, this week, almost audibly, the air began to seep out of the oil bubble. The world media credits it to drops in demand in the US and the adverse rumblings by Federal Reserve Chairman Bernanke before Congress about worsening stagflation reflected in the ramp up of wholesale prices in June coupled with airlines and refineries balking at purchasing oil futures contracts at $150. The result was the 10 % reduction in the benchmark West Texas Intermediate crude oil futures prices in NYMEX trading by more than $15.00 over the past three trading days to close at $129.29 a barrel today.
Yesterday, Harry Reid US Senate Majority leader introduced a bill, S3268 - Stop Excessive Energy Speculation Act that incorporated many of the provisions in Senator Lieberman’s proposal, with which we concurred. As noted in an email from Senator Lieberman staff:
The legislation captures the essential concepts laid out in S. 3248, the Commodity Speculation Reform Act of 2008 introduced by Senators Lieberman, Collins, and Cantwell last week. It includes broad-based speculative position limits that apply to commodity holdings wherever they are, and directs the CFTC to apply specific criteria to eliminate excessive speculation.
Is this a mere coincidence that the oil bubble is deflating now that Congress has finally ramped up pressure on speculative energy trading in the commodity markets? We don’t know. However, volatility over the last week bespeaks of the beginnings of a possible energy market slide. Is this perhaps a reflection of underlying economic realities. If the Independent Senator from Connecticut hadn’t taken the lead on reforming energy futures speculation by institutional investors, threatened to close the Swaps loophole, demanded daily reporting of OTC and overseas markets trading , and bucked up the CFTC to exercise its regulatory responsibility, that hissing noise on the trading floors of NYMEX might not have been heard, today.