Still, hard to estimate how much premium the futures market would add to the fundamental supply deamdn imbalance. A reputable congresspeople (forget his name -something like Van Patten) are saying upt to 25% (though he was not clear whether he meant price level or of recent price increases). If he meant price level, could it be that much? Oil should really be $3 and futures speculation makes it $4?

My instincts have been saying it has to be having an effect, but I didn’t know enough about how it works to know the mechanical linkages.

D

” Biofuels have forced global food prices up by 75% – far more than previously estimated – according to a confidential World Bank report obtained by the Guardian. “

Another quote from Guardian article:
‘ “Without the increase in biofuels, global wheat and maize stocks would not have declined appreciably and price increases due to other factors would have been moderate,” says the report. The basket of food prices examined in the study rose by 140% between 2002 and this February. The report estimates that higher energy and fertiliser prices accounted for an increase of only 15%, while biofuels have been responsible for a 75% jump over that period.

It argues that production of biofuels has distorted food markets in three main ways. First, it has diverted grain away from food for fuel, with over a third of US corn now used to produce ethanol and about half of vegetable oils in the EU going towards the production of biodiesel. Second, farmers have been encouraged to set land aside for biofuel production. Third, it has sparked financial speculation in grains, driving prices up higher. ‘

link to Guardian article is
http://www.guardian.co.uk/envi…..ableenergy

I assume the story is on the level. Too bad the report is “secret”.

Seems to me the following passages are key

” When it comes time for the speculators to roll the contracts forward, they have to sell their existing contracts either to someone who is willing to take delivery, or to a producer who sold the oil forward and can now clear that liability without actually producing the stuff. Given relatively high spot demand and tight supply, these rolling transactions have worked fine to this point, without driving prices lower. “
–from first Naked Capitalism link

” [T]he futures market has grown to become not only a market that allows producers and refiners to hedge their risks and speculators to take positions, but is also at the heart of the current oil-pricing regime. Thus, instead of using dated Brent as the basis of pricing crude exports to Europe, several major oil-producing countries such as Saudi Arabia, Kuwait and Iran rely on the IPE Brent Weighted Average (BWAVE).11…

[11] The BWAVE is the weighted average of all futures price quotations that arise for a given contract of the futures exchange (IPE) during a trading day. The weights are the shares of the relevant volume of transactions on that day. Specifically, this change places the futures market, which is a market for financial contracts, at the heart of the current pricing system.

JD concludes:

As you can see, Krugman and Birger are profoundly confused about the way the international oil markets actually function. Futures aren’t a paper bet on the direction of prices determined by some independent process. Futures themselves *determine* the price of most physical oil traded today. The futures price (+ or – the differential) literally *is* the price of oil.
“
–from second Naked Capitalism link

—-

In this story, seems to me, producing countries buying open long futures positions to tie futures prices into pricing system. I’m not an futures market expert, and will follow discussions in those links.

Naked Capitalism has a couple of posts on the matter, saying that speculation is a problem, here and here.

The comments on Naked Capitalism are pretty thoughtful.

But what did happen during Queen Marie’s time was to force selling bread at the same price regardless of type or quality. During the revolution, the edict in effect incented bakers to stop making quality bread and to make only cheap bread since “price controls” were put in place. The result? As any rational person can predict, a lot of people went hungry as expensive bread was too cheap to produce and cheap bread was too expensive to buy.

So today, when people shout, “let them eat cake,” what they really mean is “let them pay living wages,” or “let them provide health insurance,” and “let them provide gasoline!” Perhaps Marie was just a liberal who wanted to do good with other peoples’ bread.

I’m going to start buying them up now – I’ll be the J. Paul Getty of landfills!!!!1!

Hat tip!!!

;~D