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...according to Dan Gilligan (President of the Petroleum Marketers Association who represents more than 8,000 retail and wholesale suppliers from home heating oil companies to gas station owners) on CBS 60 Minutes piece, "Did Speculation Fuel Oil Price Swings?"

CBS Steve Kroft: Are you saying that companies like Goldman Sachs and Morgan Stanley and Barclays have as much to do with the price of oil going up as Exxon? Or…Shell?

Gilligan: Yes. I tease people sometimes that, you know, people say, "Well, who's the largest oil company in America?" And they'll always say, 'Well, Exxon Mobil or Chevron, or BP.' But I'll say, 'No. Morgan Stanley.

According to CBS:
Morgan Stanley isn't an oil company in the traditional sense of the word - it doesn't own or control oil wells or refineries, or gas stations. But according to documents filed with the Securities and Exchange Commission, Morgan Stanley is a significant player in the wholesale market through various entities controlled by the corporation.

It not only buys and sells the physical product through subsidiaries and companies that it controls, Morgan Stanley has the capacity to store and hold 20 million barrels. For example, some storage tanks in New Haven, Conn. hold Morgan Stanley heating oil bound for homes in New England, where it controls nearly 15 percent of the market.

The Wall Street bank Goldman Sachs also has huge stakes in companies that own a refinery in Coffeyville, Kan., and control 43,000 miles of pipeline and more than 150 storage terminals.

And analysts at both investment banks contributed to the oil frenzy that drove prices to record highs: Goldman's top oil analyst predicted last March that the price of a barrel was going to $200; Morgan Stanley predicted $150 a barrel.

Now guess what name came up?

Kroft: Who was responsible for deregulating the oil future market?

Michael Greenberg (a former director of trading for the U.S. Commodity Futures Trading Commission): You'd have to say Enron. This was something they desperately wanted, and they got.

[CBS comment: Greenberger, who wanted more regulation while he was at the Commodity Futures Trading Commission, not less, says it all happened when Enron was the seventh largest corporation in the United States.]

This was when Enron was riding high. And what Enron wanted, Enron got.

In response to why Enron wanted a deregulated market:
Greenberg: Because they wanted to establish their own little energy futures exchange through computerized trading. They knew that if they could get this trading engine established without the controls that had been placed on speculators, they would have the ability to drive the price of energy products in any way they wanted to take it. When Enron failed, we learned that Enron, and its conspirators who used their trading engine, were able to drive the price of electricity up, some say, by as much as 300 percent on the West Coast.

Kroft: Is the same thing going on right now in the oil business?

Greenberg: Every Enron trader, who knew how to do these manipulations, became the most valuable employee on Wall Street.

At the outset of the program, CBS commented:
When 60 Minutes talked to him [Gilligan] last summer, his members were getting blamed for gouging the public, even though their costs had also gone through the roof. He told Kroft the problem was in the commodities markets, which had been invaded by a new breed of investor.

Gilligan: Approximately 60 to 70 percent of the oil contracts in the futures markets are now held by speculative entities. Not by companies that need oil, not by the airlines, not by the oil companies. But by investors that are looking to make money from their speculative positions. All they do is buy the paper, and hope that they can sell it for more than they paid for it. Before they have to take delivery.

Kroft: They're trying to make money on the market for oil?

Gilligan: Absolutely. On the volatility that exists in the market. They make it going up and down.

And when the price of oil jumped $25 in a single day on 9/22/08:
Greenberg commented: Did China and India suddenly have gigantic needs for new oil products in a single day? No. Everybody agrees supply-demand could not drive the price up $25, which was a record increase in the price of oil. The price of oil went from somewhere in the 60s to $147 in less than a year. And we were being told, on that run-up, 'It's supply-demand, supply-demand, supply-demand.

Masters commented: From quarter four of '07 until the second quarter of '08 the EIA, the Energy Information Administration, said that supply went up, worldwide supply went up. And worldwide demand went down. So you have supply going up and demand going down, which generally means the price is going down. This was the period of the spike. So you had the largest price increase in history during a time when actual demand was going down and actual supply was going up during the same period. However, the only thing that makes sense that lifted the price was investor demand.

The CBS program concluded:
The oil bubble began to deflate early last fall when Congress threatened new regulations and federal agencies announced they were beginning major investigations. It finally popped with the bankruptcy of Lehman Brothers and the near collapse of AIG, who were both heavily invested in the oil markets. With hedge funds and investment houses facing margin calls, the speculators headed for the exits.

"From July 15th until the end of November, roughly $70 billion came out of commodities futures from these index funds," Masters explained. "In fact, gasoline demand went down by roughly five percent over that same period of time. Yet the price of crude oil dropped more than $100 a barrel. It dropped 75 percent."

Asked how he explains that, Masters said, "By looking at investors, that's the only way you can explain it."

CBS 60 Minutes video and text link:

In my due diligence on a number of energy and oil-related equities, I found a series of charts that correlated the percentage of performance for the past 3 years for West Texas Intermediate Crude (WTIC) oil with 16 investment alternatives (either a directly investable security or an industry group from which companies could be selected) and posted this info on the Liquid Lounge board.
The 60 Minutes segment sheds more light on explaining the rise and fall of WTIC oil prices.

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