A Bill to Tame Oil Speculation BE IT ENACTED BY THE STUDENT CONGRESS HERE ASSEMBLED THAT: SECTION 1.

We must limit oil speculating positions to stabilize oil markets. SECTION 2 Speculation is a financial action on placing a position that does not promise safety of the initial investment along with the return on the principal sum. Positions are the amount that speculators bet on a stock or commodity. SECTION 3. Congress will mandate that the CFTC establishes speculative oil position limits equal to the position accountability levels that have been in place at the New York Mercantile Exchange since 2001 and the CFTC to double the margin requirements on speculative oil trading so that Wall Street investment banks back their bets with real capital. SECTION 4. This bill will be implemented by January 1stof 2012 SECTION 5. All other laws that are in conflict with this new policy shall hereby be declared null and void. Introduced by Isidore Newman School

Background/Summary: What are position accountability limits sets by New York? The exchange sets guidelines for the net open positions that a single trader or a firm can hold on any one month or all months combined basis in a commodity with the exception of the spot month, when hard positions limits apply. The exchange will contact a market participant who approaches or exceeds a position accountability level and will require additional information related to such a position. If, upon review, the Exchange is concerned that the size of the position is a threat to the orderly operation of the market, the market participant will be directed either to not increase or to decrease its position. Position accountability levels are designed to effectively oversee markets and avoid any concentrations that may threaten the orderly operation of a market. What exactly is oil speculation? So right now, the oil price might be really high. In the future, it might be even higher right? So a lot of companies rely heavily on oil. There s this company called Dunder-Mifflin, which relies on oil since it s a paper company and needs oil to transport paper. Thus, they don t want to pay the future high price of oil. What do they do? They make a bet, sort of. Instead of buying oil in the future. They tell the oil companies, I ll give you $x amount of money for x amount of gallons in the future. And the oil companies comply. Now the arguments are going to run two ways. The affirmation will say that this raises the price of oil by a lot. How does that work? Since a lot of people think that the price of oil will be high in the future, then the demand of oil starts to rise. If demand rises, so does price. This means that the bets on future prices of oil could dramatically raise current prices. Because people are going to think prices are going to rise, they naturally raise the current one. The negation will say no, it s not the problem of the speculators. Instead, it s because of other economic factors. There are more people who need oil, the crisis in the middle east raised the price of oil, inflation, etc. Armand says this is the truer argument, though both sides have appraisable arguments.

1) Deregulation of oil futures causes spikes in gas prices

By: Logan Burruss / CNN News NEW YORK - Oil market speculation will cost U.S. households more than ever in 2011, a consumer group predicts, and the drain on household incomes will increase unless government rules to curb it are imposed. "Speculation will add $600 to the average household expenditures on gasoline in 2011," a report released Thursday by the Consumer Federation of America said, "resulting in the highest level of spending ever of almost $2,900." Consumer spending is the main driver of the U.S. economy, and gasoline spending is responsible for less than half of all U.S. oil product consumption, CFA said. In the current weak economic environment, the consequences of rising oil prices are very serious. "When speculators, oil companies and OPEC rob consumers of that much spending power, the inevitable result is a dramatic reduction of economic activity and employment," said CFA Director of Research Mark Cooper. Speculation has been an integral part of the oil market for some time, but it alone may not be to blame for the recent volatility and price spikes. The report says market deregulation has a lot to do with it. The oil market was deregulated in December of 2000, creating opportunities for excessive speculation and a massive increase in the market's size, the report states. Prior to this change in policy, speculation didn't have a heavy impact on oil prices, nor was it so widespread. "This report provides a timely reminder that it was weak regulation that landed us in our current economic mess," CFA Director of Investor Protection Barb Roper said, "and it will take a strong policy response to restore the economy to health." The CFA said deregulation added about $30 per barrel to the cost of oil in 2011, draining more than $200 billion -- 1 percent of gross domestic product and 2 percent of consumer spending -- from the economy. A 2 percent reduction in consumer spending on goods and services translates into the loss of hundreds of thousands of jobs, according to the CFA. In 2011 oil prices traded in a range between about $80 and $100 a barrel. Without speculation, the price of crude oil would instead fall somewhere between $60 and $75 per barrel, according to the CFA.

2) Speculation can lead to a dead-weight loss for the speculators themselves Economist James Tobin
Investments can also be speculative investments. It becomes speculation when the investment is made without adequate analysis. Or the investor is only interested in short-term investments. This type of investment carries a higher risk as they depend on fluctuation in the prices of the assets where the price does not directly reflect the real value of the asset. The speculative investment may be beneficial or harmful. The speculator typically buys a produce or an asset when it is in short supply or when the demand is high so that the increased short supply drives up the price. When the price is high, the produce or asset will last longer. But the higher price will keep away a section of the consumer from buying. Speculative buying also is likely to result in hoarding of the produce, further leading to an artificially created short supply fueling the prices even higher. At the same time a higher price could also promote increased production and possibly import if needed. Increased demand and higher price is a result of speculative buying. Similarly, the price is made to fall artificially with speculative selling which can lead to the price falling below its actual value. Often speculative buying shows up as a continuous rise in the price with more prospects of increased price. This is attractive to speculators who continue to buy more hoping to make a windfall of a profit at a later date. This speculative buying spree could reach a point when the speculators loses confidence and begins to sell. A selling spree can rapidly crash its price leading what has come to be popularly called bubble burst. Speculation is high in the foreign exchange market, a major economic activity. There are a number of useful learning tools that can assist anyone to learn about the forex market such as Learn Forex Live, Forex Trading Made E-Z, the London ForexRush System and Forex Breakouts. Increased speculative investment leads to short term volatility of the market that results in unstable price. The leads to a bubble that soon swells up beyond control and bursts. Such economic bubbles and bubble bursts too have been frequent in recent times. Increased bubble bursts do impact the larger economy creating an economic melt down. There is an increasing demand to control and regulate speculation. Suggestions ranging from a ban on speculation to ban on speculation in certain commodities such as oil to levying a penalty on speculation have been suggested. Tobin Tax, named after the economist James Tobin, has been suggested as a tax levied at 1 percent or lower. 3) CNN Money Oil speculation has gotten too large and relaxed

Too big, too lax The problem is that the futures market has gotten so big, and the trading rules in the markets so lax, that it's not easy to dismiss the speculation theory. The infamous December 2000 "Enron loophole" is the topic du jour in Congress. That legislation didn't just make it easier for savvy traders to buck the system. It exempted entire over-the-counter electronic exchanges (where trading takes place directly between parties, without an intermediary broker) from regulatory oversight by the Commodity Futures Trading Commission. As a result, capital zoomed to new unregulated exchanges like Atlanta-based ICE, an American firm operating under U.K. regulation, where trading volume tripled from 2005 to 2008, representing 47.8% of global oil futures trading. And participants in the new electronic markets didn't even have to file "large trade reports" with the CFTC, obscuring trading details across the fastest growing exchanges. That's scary murkiness.

In addition, while the 1936 Commodity Futures Exchange Act once curtailed excessive speculation, the Enron loophole redefined who a speculator was, and more importantly, wasn't. If investment banks could claim they were "hedging" certain derivative trades, they could avoid speculation limits set by the exchanges altogether. "In dark markets, more paths of manipulation are available," says former CFTC trading division head and University of Maryland Law Professor Michael Greenberger. "That may not be happening now, but we just don't know." Senators Joe Lieberman, I-Conn., and Susan Collins, R-Maine, last month presented three proposals to regulate oil prices, promising more legislation after the July 4th holiday. They would close the Enron loophole and create a way to add up all positions held by the same party across every exchange, cap the total amount of speculation allowed per commodity, and cut back commodity investments for institutions like pension funds. If all three proposals were enacted, they would promote sorely lacking transparency in the futures market. If speculation isn't driving spot oil prices, the laws would have no effect on them. But, to the extent that something funky is going on in the futures market, a clearer picture of the market's participants and of oil's true value would emerge. That might help an ailing economy. "You can't solve the debate without looking at what's happening," says Greenberger. "Even people who accept the supply and demand argument, must accept that the markets are too opaque. We need to look at the data, so we can know for sure." 4) Dollar and oil link Center for Research on Globalization A common speculation strategy amid a declining USA economy and a falling US dollar is for speculators and ordinary investment funds desperate for more profitable investments amid the US securitization disaster, to take futures positions selling the dollar short and oil long. For huge US or EU pension funds or banks desperate to get profits following the collapse in earnings since August 2007 and the US real estate crisis, oil is one of the best ways to get huge speculative gains. The backdrop that supports the current oil price bubble is continued unrest in the Middle East, in Sudan, in Venezuela and Pakistan and firm oil demand in China and most of the world outside the US. Speculators trade on rumor, not fact. In turn, once major oil companies and refiners in North America and EU countries begin to hoard oil, supplies appear even tighter lending background support to present prices. Because the over-the-counter (OTC) and London ICE Futures energy markets are unregulated, there are no precise or reliable figures as to the total dollar value of

recent spending on investments in energy commodities, but the estimates are consistently in the range of tens of billions of dollars. The increased speculative interest in commodities is also seen in the increasing popularity of commodity index funds, which are funds whose price is tied to the price of a basket of various commodity futures. Goldman Sachs estimates that pension funds and mutual funds have invested a total of approximately $85 billion in commodity index funds, and that investments in its own index, the Goldman Sachs Commodity Index (GSCI), has tripled over the past few years. Notable is the fact that the US Treasury Secretary, Henry Paulson, is former Chairman of Goldman Sachs. 5)Senator Bernie Sanders Corporations can profit off oil futures and the demise of the American people WASHINGTON (Reuters) - Oil trading data that exposed the extensive positions speculators held in the run-up to record high prices in 2008 were intentionally leaked by a U.S. senator, sparking broader concern about industry confidentiality as Congress moves on Wall Street reform. Senator Bernie Sanders, a staunch critic of oil speculators, leaked the information to a major newspaper in a move that has unsettled both regulators and Wall Street alike. In a June 16 e-mail reviewed by Reuters, a senior policy adviser to Sanders discusses how his office received private data with the names and positions of traders and forwarded it exclusively to a Wall Street Journal reporter. The e-mail, which also attaches two files with the data, was sent to Public Citizen's Tyson Slocum asking him to review it and speak with the newspaper about his observations. In a statement from Sanders provided to Reuters, Sanders said he felt the data needed to be publicly aired. The CFTC has kept this information hidden from the American public for nearly three years," he said. "This is an outrage. The American people have a right to know exactly who caused gas prices to skyrocket in 2008 and who is causing them to spike today. The leaked information has sparked concern at the Commodity Futures Trading Commission, which is legally prohibited from releasing confidential information that identifies trader positions and identities. The leak also raises broader questions as U.S. regulators gear up to collect massive new amounts of private data from market players on everything from swaps and hedge funds to blueprints for how large financial firms can be liquidated. The breach of data could make Wall Street less reluctant to hand over sensitive information if they fear it is not appropriately safeguarded."This type of incident will have a chilling effect on derivatives trading in the U.S. because market participants will be reluctant to take the risk that their positions will be exposed to the public-and their competitors," John Damgard, president of the Futures Industry Association, said in a statement sent to Reuters.Republicans have already raised concerns in recent hearings about the Treasury's new Office of Financial Research created by Dodd-Frank, and whether its collection of data from hedge funds and banks may constitute a regulatory overreach.Although the CFTC is barred from releasing confidential data, the law does require the CFTC to hand over such information if a Congressional committee acting within its proper authority requests it. Once it is in the hands of Congress, there is nothing to prevent lawmakers from releasing it publicly.The leaked data contains long and short positions held by oil traders in 2008, the same year that oil prices spiked to $147 a barrel. Critics at the time

accused oil speculators of driving up prices, leading lawmakers to later insert a provision into the Dodd-Frank Wall Street overhaul law compelling the CFTC to place stricter limits on how many commodity contracts any one trader can control.Among the kinds of traders accused of excessive speculation included passive long investors such as pension funds, which often seek exposure to commodities markets indirectly by going through an intermediary swap dealer such as such as Goldman Sachs and Morgan Stanley.The data that was leaked to the Wall Street Journal was compiled by the CFTC in 2008 during a "special call" in which the agency sought crude oil position data from swap dealers so they could piece together market activity occurring both on and off the exchange, people familiar with the matter said.The CFTC first became aware of the breach of the data after a staffer from Sanders' office sent the agency an e-mail with the information and asked the CFTC's chief economist to discuss it more.The agency began exploring internally whether or not any staffers were responsible for the leak, and concluded that no CFTC employees were involved, according to people familiar with the matter.It is unclear exactly how Sanders acquired the private information, and a spokesman declined to say.But people familiar with the matter say the data later obtained by Sanders was first formally requested by the U.S. House Energy Committee. From there it somehow migrated over to the U.S. Senate.
NEGATION 1) Stopping Oil futures in America will lead to dependence on foreign oil MSNBC Senior Producer John Schoen

The spike in oil prices has led to a lot of speculation about whats causing the surge. One of the usual suspects is the oil speculator whos trying to make a buck betting prices will go even higher. So, a lot of readers are asking, why cant we just put a stop to all this speculation? With the latest spike in oil prices, consumers and Congress have started taking names. For awhile there, Big Oil raking in more profits than it invested in finding more oil was the main culprits. Strong demand from the developing world took part of the blame. Then the weak dollar was in the hot seat. Lately, speculators in the oil futures markets are the bad guys. (Our e-mail inbox contains a number of more creative theories about why oil prices are rising, but this list includes the usual suspects.) All of these factors are playing a part: the growth in demand is coming faster than new supplies are being found and developed. If that keeps up, we may face an actual shortage one side of the equation has to give. But as the value of the dollar has fallen and inflation has perked up, theres no question that investors have been flooding the oil trading oil pits with orders. Buying oil is a great hedge against both. So if all this speculation is pushing oil prices higher, why dont we just clamp down on the speculators? Congress is considering doing just that. One quick solution: make speculators put up more money when they buy futures contracts. Under current rules, you can buy large volumes of oil with relatively

small amounts of money. By raising the down payment on oil futures contracts, the theory goes, youd eliminate some of the buyers who are just there to place bets. The problem, as with everything to do with oil prices, is that the oil market is global. So if you shut the door on the U.S. commodity market, speculators could turn to other oil markets like the International Commodity Exchange in London to place their trades. If you got all the governments around the world to agree to clamp down (a neat trick if you can pull it off), traders would still figure out how to find each other. They could go on eBay. That could make matters worse. One benefit of having a unified market, with the price of each trade made public, is that everyone can see what oil is trading for right now. If you chase traders away from an open market, its becomes much harder to know what oil is worth at any given moment. Prices would take bigger swings because you couldnt get an accurate market price when it was your turn to buy or sell. If the seller demanded $200 a barrel, youd have a harder time arguing that the price was too high.

2) TIME It s easier for the U.S Gov. to regulate oil futures than physical oil So much money has piled into oil that there's a belief that there are too many people involved in the futures market. In fact, the opposite is true. The participants are so few that a couple of major players can, if they choose, garner absolute control, cornering the market and creating a price bubble for their own benefit Currently, with virtually no regulation, the oil-futures market given that it drives the price of oil worldwide is very small. Dangerously small. To limit trading would make it smaller still. If the government decides to curb trading in the oil-futures market, it would limit trading by purely financial speculators. Instead, the government should focus on trade activity by oil companies, oil suppliers and oil hedgers like airlines. Yes, you read correctly: oil traders with physical ties to crude represent the greatest threat for another price hike. The oil-futures market is tiny compared with the physical oil market: less than 3% of the world's oil consumption over the next year is accounted for in the open interest the contracts currently being traded at the New York Mercantile Exchange (NYMEX). To put it in perspective, Saudi Arabia alone produces four times that much oil. Consider the leverage that the futures market allows you can trade more than 10 times your money in oil and suddenly every dollar you put into the futures market controls well over $300 worth of oil. We can put a price tag on the whole market: for a mere $4 billion, you can easily control the fate of the entire multitrillion-dollar industry. Goldman Sachs pays out more than that in annual bonuses. Most disturbing, the U.S. government cannot possibly regulate the global market. Oil is an international commodity, traded by Americans and non-Americans alike on exchanges both in the U.S. and overseas. The U.S. should not outsource markets by placing a divide between America and the rest of the world. Do regulators hoping to ease oil prices really want the dollar price of oil determined in Dubai, the backyard playground of the largest oil exporter? With the proposed regulation, foreign oil suppliers will have a greater futures-market share. The oil market will become more susceptible to manipulation by these suppliers.

3)Tufts Education Oil prices are raising because of rising middle class = more demand So how is demand rising? Years ago, we used to look at the United States, Europe and Japan as the main drivers of global oil demand. It is now China and India and the developing world that are the primary drivers. As soon as people have discretionary income and can feed themselves, the next thing they want is mobility. And when you have 1.4 billion Chinese with growing incomes, this will increase demand for cars or scooters and the fuel that runs them. The other thing that has happened in China is industrial growth, fueled in large part by exports to the West. The Chinese electrical system has not been able to keep up, so new factories buy big diesel generators because they cant get the power from the grid. So China has become a huge oil importer. Where does our oil come from and how does this affect price? It actually doesnt matter where the oil comes from. The U.S. imports a little over half the oil we consume, and our biggest supplier is Canada. Our next biggest supplier is Mexico followed by Saudi Arabia, Venezuela and Nigeria. But in fact, there is only one global oil market, and it is completely integrated. The Canadians, for example, charge us the world price. It is the same for food prices: there is one global market price. The U.S. is a huge food exporter, but American consumers pay the world price for wheat, corn and soybeans because we are an open economy, fully integrated with the world market. Even if the U.S. didnt import any Middle Eastern oil, if there were a huge supply loss in the Middle East, the price would go up for everybody, including us. We also have to remember that when the dollar weakens globally, which it has recently, oil looks cheaper to everybody but us, since oil prices are denominated in dollars. What if we wanted to lessen dependence on foreign oil? Could we produce enough for our needs? It is sensible for us to develop all the oil resources we have, but it is unlikely that our oil resource base would be large enough to replace all the imported oil, or even a substantial amount of it. The U.S. uses about 20 million barrels of oil a day. We import about half of that, so we would have to produce another 10 million barrels a day. That is not entirely impossible, but it would require some really lucky geology, which you cant count on. 4) Tufts same source, oil speculators CANT economically drives prices high Arent speculators driving prices higher? My answer is a definitive no. In economics, speculators can only drive the price up if they physically purchase the product and withhold it from the market. Speculators are making paper bets on the stock exchanges. These are futures bets. But for everyone betting prices will be above, say, $110 per barrel next month, there is somebody who is betting it is going to be lower. There have to be two sides, or there is no bet. So as a group, speculators make zero money. Speculators dont drive thingsthese are just bets. Whats going to happen to prices short- and long-term? Is there any way to predict which way they are going to go?

We had huge price spikes in the mid 70s, in 197980 and again in 2008, and they all went back down. My observation is that the market is a lot more powerful than people give it credit for. Every time we have had a price spike, we have been surprised at how powerful the market response has been, and its always been followed by a reduction in prices. There will be powerful market forces pushing back against these high prices as well. We will certainly see behavioral changes that will influence the marketpeoples driving habits, the types of vehicles they buy and even on a longer time horizon the introduction of natural gas and other new kinds of vehicles. Natural gas is now selling at a commercial rate of $1.20 per gallon, but we would need to build infrastructure for supply and delivery to support it. My guess is that the market will show some significant changes over time, but how much time and how high prices might go before that time, I dont know. But the market will decide based on our behavior.

5) Dollar prices undergoes inflation, so naturally, prices of oil would rise And other things have not been equal. Japan's nuclear plants are out of commission, and Libya, which accounts for about 2 percent of world oil production, is wracked by civil war. This is small compared to previous disruptions in the region, but it still affects the price. The evil oil-speculator theory also runs up against the fact that the Federal Reserve's inflationary policies (QE2) and other factors have continued the dollar's slide against foreign currencies to a three-year low. As the dollar loses value, oil sellers demand more for their product. "Commodities, along with most traded goods globally, are priced in dollars," former Federal Reserve official Gerald P. O'Driscoll of the Cato Institute writes. "It is the old story of too much money chasing too few goods."