Airlines banding together to stop oil price speculation.

[1480]

I am a member of a flyer mile card program. My wife and I are nearly a year away to go to another country to adopt. I received an e-mail today that reprinted an open letter to congress from all of the US based airlines about oil price speculation. They claim that the mark up just from the trading aspect is 30-60 dollars a barrel of crude. I did a bit of research and it seems that this is a correct assertion on their part. I'm normally one, who does not want the feds to get involved with free enterprise but, since they will put Martha Stewart in prison for making a couple of extra bucks on a stock sale, why not look into oil speculation.... If you agree I'm linking a page that is dealing with this directly. I chose not to cut and paste the e-mail because it's a bit wordy. Let the debate begin!

http://capwiz.com/sosnow/issues/alert/?alertid=11571321

[UnderseaLcpl]

Hi 1480, it's been a while!

I would tend to agree with you on this but I don't see regulating specualtion or the stock market as particularly enforceable. I mean, how exactly do you regulate investment without hampering/ruining it. The whole practice is about trying to one-up everyone else.
If the government really cared about oil prices they would eliminate taxes on said commodity and industry. After all, when you take every stage of production and distribution into account, they make more money from taxes on petroleum than the oil companies do in profits. I have a feeling that speculation is just the latest scapegoat on which to blame failed regulation and policy.

[1480]

And a Ha-rum to you to Sir!

I understand what you are saying and are absolutely correct. They will get their taxes regardless. I'm not sure how federal tax is computed on oil products but if it's like anything else, of course, the higher the price= more tax. Maybe that is why they are turning a blind eye on this problem. They purchase petroleum at a flat rate that see's little fluctuation and they're not taxed. With speculation, you can inflate the market quite heavily. The more a product "changes hands" the more expensive it becomes. I understand the concepts of overhead, but speculation has none of it. They don't store, transport it, distill it or use it. They just buy and sell. Yes, they take a financial risk for doing what? Other then producing a market that should not exist in the first place. Who suffers, you and I. A gallon of milk was 2.69 last year at a wharehouse chain now it's 3.50. Did a crap load of a dairy cows die? No, reflects cost of transport. Diesel is over 5.00 a gallon. I hate to see the price of av-gas is now. You want to see another great depression, keep up with the oil speculation..... Your turn!:up:

[UnderseaLcpl]

Well, the speculators do technically provide a market. An investment market. Companies compete to generate extra revenue via incoporation.

I will concede that there is a problem with the stock market. It is called corporatism.
The boards of many of today's most infamous companies are corporatists. They all own a significant portion of the company's stock. As we all know, stock price goes up when a company beats quarterly predictions, or announces something that causes people to want to buy their stock. These people live off of the dividends and sales of their own company's stock. Unfortunately, this creates a "bad" incentive to do things like maximize profits at the expense of long term success. This is why so many companies are resorting to layoffs, downsizing, or selling off assets. Of course, the whole story is much more complex but generally this is true.

However, the government does this as well. The difference is that speculators do, at some point, invest money in the growth of the company they buy stock or futures from. The Gov just takes it. Over and over and over again.
I admit I have not done the research on energy industry taxes to prove this but I will bet you anything that petroleum is taxed when companies; explore, develop, refine, transport, distribute, and promote it.
Obviously these companies, like any others, aren'y just going to eat these losses, they just raise the price to cover them and maintain what they consider to be an acceptable profit margin. And, as I said before, this cannot be effectively regulated without state intervention. You remember what happened last time they tried that?
Anyone here who was of driving age in the 70s?

Of course, there is even less probability that the Gov will drop petroleum taxes than there is that any regulation will be successful. The best solution IMO, is to just let the market do its work. If gas is too expensive people will just quit buying it or significantly reduce their use of it. Naturally, this will damage the economy overall, at least until gas has a (cheaper) replacement. The first stages of this process have already begun. This, in turn will send a stronger message to the petroleum companies than any legislation or strongly worded letter.

Also, remember that besides "normal" taxation" we are dealing with the "hidden taxes" of ethanol and low-sulfur diesel. The laws that brought these products into existence artificially inflate the price of gas (and food) even more. Yet, there is no proof that these measures will reduce global warming or affect the Earth at all, esp. when you consider that rapidly industrializing nations with more people than us do not adopt them.

Now to tie it all together. Corporations like Exxon-Mobil take advantage of government regulation to make their markets nigh-exclusive. There is no competition because it costs so damn much to get into the business in the first place. Go ahead and query your local chamber of commerce as to how much you might need to spend to open, say, a bicycle shop. Next, multiply the complexity of that by 1000 to account for federal statutes and regs over drilling areas, EPA impact statements and taxation, to name a few. Finally, consider that your market-dominating competitors get subsidized for their overseas buisness and exploration. It is not hard to see why you cannot compete. It may surprise you to know how many industries actually support gov't restricion or taxation/licensing of their trade to prevent competition.

I really have no solution for this problem. The closest I can come to is "trust-busting". Gov't should break up companies that get too big. Is it perfect? No. Is it fair? Hell, no! In fact it runs completely contrary to my views on Gov't involement in buisness. But, it does do one thing. It creates competition. And when buisness competes, whether it be for customers or labor or markets, the rest of us win.
Except for entrepeneurs (sp?), but then if they do well, they make a lot more than any of us regular folk.

[1480]

Some very well thought out points. I think we both agree that unless something is done soon, then there will be a major problem with not only our own but other countries economies as well. I remember when "deregulation" of energy companies hit Illinois, that the customer would have a chance to choose a utility provider. Uhhhhh, my electricity is still provided by com-ed. Gas is still peoples gas, though another company was offering it's services they would have to dig and drill, add a new pipe to connect our house and thats only if they were able to get enough of a percentage of customers on our street to change over the infrastructure. The only thing that has a wide range of offerings is phone, internet and television providers. It could be argued correctly that the last three are considered nonessential.

If you think I'm ducking the original premise, I'm not. Just giving an example of what "trust busting" did to the utlity monopolies. NOTHING! It could be favorably argued that the monopoly already had critical infrastructure in place and that if it was to open up to a competing company then there would be no real competition because the overhead for the new company would cause it to fold. Buy up exisiting infrastructure? Yeah, but imagine the mark up!

My argument of taking out the "middle man" who would not know the difference between an oil barrel and an IED, and let the refining companies directly buy from the manufactorer, the ARTIFICIAL markup would be reduced, thus stabalizing prices. There is no infrastructure in a commodities market. Mind you, I don't think the problem necessarily lies in the "big oil" companies per se but with the market itself. This would increase their profits but keep the prices down and stable.

Maybe I'm living in an economist's nocturnal emission!

[UnderseaLcpl]

Well.... I think that government regulation of the "deregulated" energy market has hurt it.

Once again I must admit my ignorance of the intricacies of the energy market but I do subscribe to the view that competition breeds effeciency.
In my defense, I would posit that I have never encountered an example of an industry where competition free from state interference has produced inefficiency.
Logically, competition cannot breed inefficiency because the inefficient are weeded out. Of course, communism "logically" works for some people as well.
I still have a great deal of reserach to do on the energy industry in the U.S., 1480, and I will submit those findings for your review via PM.
Still, I remain unconvinced of your argument that speculation is a significant or removeable factor in oil prices. Companies have the choice of "locking in" an oil price for future purchases, just as people do in other futures markets. If they speculate incorrectly, they lose business. However, I believe they are only just now approaching this point. After all, many people still drive SUV's or other inefficient vehicles despite the price of fuel.
The most powerful vote we have in changing gas prices or the cost of any other commodity is our dollar. However, the government can nullify our vote by regulating prices or industry practices by means of subsidies, fines, tariffs and taxes.
I think that you misinterpret trust-busting when it comes to energy providers. Even if energy was cheaper under regulation, that generally means that these providers were operating at a loss, which must be made up from taxes or printing of new money, which is, itself a form of tax as it devalues the currency.
I will admit that investiture and the market can fail at times, and I wish I could provide the answers to prevent that, but government is virtually always inefficient in eveything it does by virtue of being an entity with no incentive. Politics, when combined with anything, creates, waste and favoritism. IMO the only industry that is more wasteful than the government is the legal industry, which is also responsible for the largest transfers of assets in the history of mankind. Of course, this is only possible because of our hopelessly obtuse legal system which was created by the government. It is also not surprising that the majority of our political representatives (in the U.S. at least) are or were lawyers.
I'm beginning to drift off-topic here but I think we can agree on one thing given our differing views; the Government is the most ARTIFICIAL factor in industry and market performance.

Always a pleasure discussing these things with you-

The Lance

[jeremy8529]

Hmm, the repercussions of taking oil off the stock market, is very hard to take measure of until it is actually done, and by that time it is always to late to back out. While no one can honestly and accuretly say what WILL happen, they can say what MAY happen while the good is much easier to see, the bad is what will actualy hurt us and it lacks in the shadows in this problem. This is the reason for my vauge anwer, because the actual effect is vague until it bites you in the ass.

The thing we must keep in mind is this, market control is not inherently bad, people who can not adapt will sink rather than swim. Goverment should not be what conforms best to some old and outdated piece of paper written over 200 years ago, but what rather serves the most people the best at any given point of time.

The reason why any extreme of goverment fails eventualys is it's inability to conform to the changing world, so we should remmeber this in our goverment, i forgot were i read this quote " We should embrace change, but not grope it"