Have you received this?

[Mike Schwartz]

I would imagine that anyone collecting frequent flier miles with any of these carriers listed below has or will get this e-mail. It does raise an interesting topic.


Hello Mr. Schwartz,


Our country is facing a possible sharp economic downturn because of skyrocketing oil and fuel prices, but by pulling together, we can all do something to help now.

For airlines, ultra-expensive fuel means thousands of lost jobs and severe reductions in air service to both large and small communities. To the broader economy, oil prices mean slower activity and widespread economic pain. This pain can be alleviated, and that is why we are taking the extraordinary step of writing this joint letter to our customers.

Since high oil prices are partly a response to normal market forces, the nation needs to focus on increased energy supplies and conservation. However, there is another side to this story because normal market forces are being dangerously amplified by poorly regulated market speculation.

Twenty years ago, 21 percent of oil contracts were purchased by speculators who trade oil on paper with no intention of ever taking delivery. Today, oil speculators purchase 66 percent of all oil futures contracts, and that reflects just the transactions that are known. Speculators buy up large amounts of oil and then sell it to each other again and again. A barrel of oil may trade 20-plus times before it is delivered and used; the price goes up with each trade and consumers pick up the final tab. Some market experts estimate that current prices reflect as much as $30 to $60 per barrel in unnecessary speculative costs.

Over seventy years ago, Congress established regulations to control excessive, largely unchecked market speculation and manipulation. However, over the past two decades, these regulatory limits have been weakened or removed. We believe that restoring and enforcing these limits, along with several other modest measures, will provide more disclosure, transparency and sound market oversight. Together, these reforms will help cool the over-heated oil market and permit the economy to prosper.

The nation needs to pull together to reform the oil markets and solve this growing problem.

We need your help. Get more information and contact Congress by visiting www.StopOilSpeculationNow.com.


Richard Anderson Gerard J. Arpey

Richard Anderson
CEO
Delta Air Lines, Inc.


Gerard J. Arpey
Chairman, President and CEO
American Airlines, Inc.

Bill Ayer Dave Barger

Bill Ayer
Chairman, President and CEO
Alaska Airlines, Inc.


Dave Barger
CEO
JetBlue Airways Corporation

Mark B. Dunkerley Robert Fornaro

Mark B. Dunkerley
President and CEO
Hawaiian Airlines, Inc.


Robert Fornaro
Chairman, President and CEO
AirTran Airways

Timothy E. Hoeksema Lawrence W. Kellner

Timothy E. Hoeksema
Chairman, President and CEO
Midwest Airlines


Lawrence W. Kellner
Chairman and CEO
Continental Airlines, Inc.

Gary Kelly Douglas Parker

Gary Kelly
Chairman and CEO
Southwest Airlines Co.


Douglas Parker
Chairman and CEO
US Airways Group, Inc.

Douglas M. Steenland Glenn F. Tilton

Douglas M. Steenland
President and CEO
Northwest Airlines, Inc.


Glenn F. Tilton
Chairman, President and CEO
United Airlines, Inc.

[Ron Thorne]

We haven't received it yet, but expect to any time.

This letter raises very serious questions, indeed. Wall Street is a kooky place, to say the very best.

[hornplayer]

hadn't seen that before, but not unusual.

Twenty years ago (time noted in the letter) Pappy Bush was elected president. Dumbo Dubbya is there now. and what? is their family business?????

[Pete C]

Yes, I got it. there are economists out there, however, who'll argue that speculation is not the real problem, and only accounts for a fraction of the price fluctuation. Gordon?

[Jimmy Cantiello]

The fact that the U.S. dollar is in the toilet and has been for quite some time is a factor as well. But you knew that already, I'm sure.

[Douglas]

Originally Posted by Pete C

Yes, I got it. there are economists out there, however, who'll argue that speculation is not the real problem, and only accounts for a fraction of the price fluctuation. Gordon?

IMO speculators tend to flatten peaks. At the moment, the group of traders who are usually classified as speculators (non commercial traders) are on aggregate short for west texas intermediate. They also represent a small share of the overall market contrary to the claims on the original letter. If you are interested, you can look at the "commitments of traders" at the weblink below

http://www.cftc.gov/marketreports/co...ders/index.htm

[Gary Sisco]

This is The Economist on the question. One thing I do know for sure and agree with is that pols will fuck things up worse than they already are. In a world of chancey bets, that's one that is and will remain certain.

Don’t blame the speculators
Jul 3rd 2008
From The Economist print edition

Politicians who try to make oil cheaper by restraining speculation will just make things worse

ALTHOUGH the price of oil continues to hit new records, it has in one respect been a quiet week on the oil markets. America’s lawmakers are celebrating Independence Day by taking a few days off. That has led to a brief interruption in the torrent of proposals aimed at curbing speculation.

Ten different bills on the subject are in the works in Congress. Before the House of Representatives shut up shop, it approved one by a vote of 402-19. America’s politicians are not the only ones to have fingered speculators for the feverish rise in the price of oil and other raw materials. Italy’s finance minister believes that there is a “magnum of speculative champagne” included in the price of each barrel. Austria wants the European Union to impose a tax on speculation. Saudi Arabia and other big oil producers routinely blame the price on frothy markets, rather than idle wells.

The accusers point to the link between the volume of transactions on the futures markets and the price of oil. Since 2004 the near tripling of trading in oil on the New York Mercantile Exchange (NYMEX), the world’s biggest market for the stuff, has neatly coincided with a tripling in the price.

What is more, investing in oil has become something of a fad. Commodities traders and hedge funds with long experience have been joined by less expert sorts, including pension funds and individuals. All this, the theory runs, is contributing to a bubble in commodities. The rush of punters betting on higher prices is begetting a self-fulfilling prophecy: it is the tide of new investment, rather than inadequate supply or irrepressible demand, that is pushing the price of oil ever higher.

Follow the oil, not the futures
This reasoning holds obvious appeal for those looking for a scapegoat. But there is little evidence to support it. For one thing, the surge in investment in oil futures is not that large relative to the global trade in oil. Barclays Capital, an investment bank, calculates that “index funds”, which have especially exercised the politicians because they always bet on rising prices, account for only 12% of the outstanding contracts on NYMEX and have a value equivalent to just 2% of the world’s yearly oil consumption.

More importantly, neither index funds nor other speculators ever buy any physical oil. Instead, they buy futures and options which they settle with a cash payment when they fall due. In essence, these are bets on which way the oil price will move. Since the real currency of such contracts is cash, rather than barrels of crude, there is no limit to the number of bets that can be made. And since no oil is ever held back from the market, these bets do not affect the price of oil any more than bets on a football match affect the result.

The market for nickel provides a good illustration of this. Speculative investment in the metal has been growing steadily over the past year, yet its price has fallen by half. By the same token, the prices of several commodities that are not traded on any exchanges, such as iron ore and rice, have been rising almost as fast as that of oil.

Speculators do play an important role in setting the price of oil and other raw materials. But they do so based on their expectations of future trends in supply and demand, not on whims. If they had somehow managed to push prices to unjustified heights, then demand would contract, leaving unsold pools of oil.

The futures market does sometimes signal that prices are likely to rise, which might prompt speculators to hoard oil in anticipation. But it is not signalling that at the moment, and there is no sign of hoarding. In the absence of rising stocks, it is hard to argue that the oil markets have lost their grip on reality.

Some claim that oil producers are in effect hoarding oil below the ground. But there is also little sign of that, either among companies or countries: all big exporters bar Saudi Arabia are pumping as fast as they can.

It takes two to contango
Despite their dismal reputation, the oil speculators provide a vital service. They help airlines and other big oil consumers to hedge against rising prices, and so to reduce risk—a massive boon amid the economic turmoil. By the same token, they provide oil producers with more predictable future revenues, and so allow them to expand more confidently and borrow more cheaply. That, in turn, should help to lower the price of oil in the long run. Any attempt to curtail speculation, by contrast, is likely to make life harder for firms and oil more expensive.

[Gary Sisco]

Another certainty: People here are going to suffer this winter, and suffer seriously. Yesterday, there was a front page, lead article in the local daily. No pre-buy discounts this winter for home fuel oil. People who buy oil now will pay the difference on a higher price come winter, that's all. No discount. And, the dealer's association says shipments will be paid for on the spot this winter.* They're talking fuel oil prices five dollars/gallon plus. A lot of people are going to be choosing whether to eat or be warm. Buy their medications or be warm. Etc.

One the biggest problems dealers are facing right now is that, because of the credit crunch, they don't have the cash flow necessary to pay wholesale for their own oil inventories. They're encouraging people to pay up now, discount or not, or face even higher prices than will be the case otherwise, come winter, if stocks are low because they can't buy the huge amounts necessary for winter.

It's pretty scarey. A lot of people are going to be in a whole lot of trouble.

*And they'll be accepting credit card payments, which of course will mean a whole lot of people run their credit up beyond their means in order to be warm in the short term.

There's nothing good about this situation for people in the Northeast.

[shrugs]

http://www.energysupplylogistics.com/refineries/

[Pete C]

Originally Posted by Douglas

IMO speculators tend to flatten peaks.

What was I thinking of asking Gordon when we have heavyweights like you & John on the board.

[Jon Abbey]

how anyone has any respect for the profession of economist is seriously beyond me. "heavyweight", my ass.

[Gary Sisco]

There's a lot of useful information in that Economist article.

Thing a lot of people in the US are having a hard time coming to grips with is that the worldwide demand for oil has increased dramatically without regard for anything American. When demand increases, prices go up. No conspiracy necessary. As China (and other places, like India, Brazil, etc) continues to industrialize, which it will, for longer than any of us will be around to see, demand for oil, gas, etc., will continue to increase.

No one ever said globalization would benefit Americans.

And capitalism can't do anything but globalize, for the same reason a malignant cancer will metastasize. It can't do anything else without ceasing to be what it is.

We're all in for a rough ride (except of course for the Cheneys and their like).

Further aggravation of the problem, of course, can be blamed on the idiocy in DC.* What small degree futures (speculation) play in this mess is dwarfed by said idiocy. Futures exist in many other commodities, too, not just oil.

People who've been poo-pooing things like the trade imbalances and national debt and so forth will get to see why they shouldn't have been complacent. The weaker the dollar gets, the more expensive oil will be on the domestic market, for obvious reasons.

It's not going to be pretty and a lot of people are going to be seriously hurt.

*For example, the cost of the war alone is now more than $350/month for an American family of four. Myself, I'd rather have the money to keep warm with and to eat with and to pay the mortgage with, than to kill thousands more people for reasons no one has yet articulated, even.

[clinthopson]

The Economist is right on. Using the speculators as the cause is just a ploy for the airlines to jack up their fares.

Personal experience: I booked our flights on Alaska to Cancun, the only non-stop from LAX to the Yucatan, last week. Six months ago the rounds trip for two would have been about $850, last week it was $1,550.

[Jon Abbey]

Originally Posted by Gary Sisco

Thing a lot of people in the US are having a hard time coming to grips with is that the worldwide demand for oil has increased dramatically without regard for anything American.

I just had this fight on another board, and I really don't care enough to spend time arguing about at it, but as best I can tell, I don't think demand has gone up much worldwide, and supply is also still going up.

but straightforward supply/demand issues are simply not the main reason behind oil prices going up 1300-1500 percent since 2000 (from $10 to $130-$150 or wherever it is today), and neither is the weak dollar.

[Gary Sisco]

Don't even get me started. Flying back from KY in April, I got stuck for seven hours in the Cincinnati airport. Why? They didn't have a crew to fly the airplane -- had to fly in crew members from all over the country. Duh?

And of course it was hugely expensive, on top, because of the necessarily short notice.

I could have rented a car and driven back, much cheaper, and would only have been about five hours later getting home than I was.

[Gary Sisco]

Whatever, Jon. You don't think China (and other places) industrializing increases oil demand? How could it not? A weak dollar doesn't buy less oil per dollar? How could it not?

[Jon Abbey]

Originally Posted by Gary Sisco

Whatever, Jon. You don't think China (and other places) industrializing increases oil demand? How could it not? A weak dollar doesn't buy less oil per dollar? How could it not?

1300 percent, Gary. 1300 percent.

http://en.wikipedia.org/wiki/Image:B...ot_monthly.svg

demand:

"World crude oil demand grew an average of 1.76% per year from 1994 to 2006, with a high of 3.4% in 2003-2004. World demand for oil is projected to increase 37% over 2006 levels by 2030."

http://en.wikipedia.org/wiki/Peak_oil#Demand_for_oil

as for the dollar, it's gone down about 15 percent since May 2007, oil has more than doubled in that time.

[Jon Abbey]

oh, and supply is going up (!):

"Average yearly gains in global supply from 1987 to 2005 were 1.2 million barrels per day"

http://en.wikipedia.org/wiki/Peak_oil#Production

[clinthopson]

In Beijing, they're paying $3.40.

[Jimmy Cantiello]

In Saudi Arabia they're paying $0.45/gal.

[Gary Sisco]

Yeah, sure, Jon, but you're not factoring in just how much oil those apparently small increases in demand amount to. It's an enormous amount of oil. Every oil exporter is pumping at capacity except Saudi Arabia. The most important words in your last were *per day.*

There's no way in the world that China's industrializing hasn't greatly altered demand. And its industrialization is really only just beginning.

A couple percent increase in annual demand amounts to a huge lot of oil.

Clinton made a big deal once in his second term, when fuel prices went up in the Northeast (to an amount that would now make me fall down on my knees and thank all the gods I don't believe in), by releasing x million barrels from the national reserve. It got a lot of headlines but didn't amount to even a working day's demand.

A modern economy requires mindboggling amounts of energy, and, under capitalism, which must grow or die, an ever-increasing amount. Can't be otherwise. That's one of the things that made last year's corn subsidies so stupid. One, it took more energy to produce the biofuel from it than would have been used had they not. But, two, if every arable acre of land in the US grew nothing but corn, and if all of that corn was used to make biofuel, it wouldn't amount to spit so far as the economy's demand goes.

Nevertheless ...

To make it worse, many millions of people around the world are going to be hungry, with millions hungry to the point of starvation. A significant factor in that development is the idiotic corn subsidies, that dramatically drove the price of food up all over the world -- for nothing in the end, apart from lining a few wallets that were already well lined.

And many people in the US are going to suffer this winter. "Warmth" programs and etc won't amount to spit, either. I've watched that go down in VT for years. When someone's absolutely out of fuel in winter, they might get a couple hundred bucks worth via one of those programs, *if* early on in the winter. Less than that or no assistance at all later on. And that was before. This year? Catastrophe, for many. Including Bronwyn and I if we're still here. Real catastrophe.

[Gary Sisco]

Originally Posted by Jimmy Cantiello

In Saudi Arabia they're paying $0.45/gal.

True, but because the rest of the price is subsidized for the population by the Saudi state, which means, of course, by us and everyone else who buys their oil.

[Jimmy Cantiello]

That's what I was driving at, Gary. There's also an 11% inflation rate in Saudi Arabia, btw.

[Gary Sisco]

I know. And it worries them because oil is priced in US dollars. But they have to keep subsidizing their show or have their heads removed, one.

That's something they have to worry about, unlike the idiots we insist on putting in charge...

[Jon Abbey]

Originally Posted by Gary Sisco

A couple percent increase in annual demand amounts to a huge lot of oil.

you ignored the part where I said supply was going up also.

I'm not saying these other factors have nothing to do with it, obviously. I just think that the markets have typically overshot the case, and the "real" price of oil should be somewhere in the $70 range.

[Gary Sisco]

It's not speculation to bet that oil prices will be higher at some coming date, which is all that futures bidders do. They don't hold any oil. Speculation would be like what real estate-buying corporations were doing until recently (which very much helped blow up the housing bubble): repeatedly selling each other properties they'd bought for investment. Many millions were made just in tiny Vermont, and the cost of housing and land increased accordingly, for what was in the end bogus demand.

If someone were hording oil, it would be speculation. Betting it will be more expensive in future is just a solid bet.

What has me worried, though it's an outside chance (it never being safe to rule out the idiot or psycho factors), is this: saber rattling against Iran.

All Americans should try this: Find the Persian Gulf on a map. Take a look at how narrow is the Straits of Hormuz. Now remember that the navigable channel though the strait is much, much narrower. The Iranians, easily, have the military capacity not just to attack US ships with missiles. More effective still, and well within their capacity, would be to sink any shipping in the Strait. Doesn't matter what. They could sink a couple of their own rustbuckets and get it done. Send a tanker or any goodsized ship to the bottom and no oil will move until the channel's clear again. That's all they would have to do to send the world economy into chaos. It's very easily done, and I've been warning about this for years, now. They have, in short, a bigger weapon to wield, that will cause more and more longterm damage. Many people should get busy thinking about that one little thing. The dipshits-in-charge will not. That, too, is a solid bet.

Myself, when I encounter a rattlesnake, I figure the best thing to do is leave it alone. The worst thing to do is fuck with it.

[Douglas]

Originally Posted by Pete C

What was I thinking of asking Gordon when we have heavyweights like you & John on the board.

If I had wanted to ask that question I would have asked Gordon first as well.

Me, I'm just someone's ass.

[Gary Sisco]

One thing about comparing this country's price with that country's price is that their States all tax or subsidize prices in different fashions. So, it's not apples and oranges that are being compared. Venezuela right now has cheap fuel, for example, but not because it's an oil exporter. It's because price is controlled by the state.

The price of oil is globally fungible, which means a barrel of x-grade oil sells for the same price wherever you are on the planet.

China's by far the largest society and its energy demands will do nothing but increase for any kind of foreseeable future. It's demand is growing enough that it's now very much gearing up to create a real "blue water" navy, to protect its shipping lanes. That's not a joke of a proposition for any country. Navies are damned expensive. But so is being entirely dependent on the shipping lanes being open. Ask Japan. WW2, anyone remember?

Others we don't think about much will as well. Right now the "G-8" (again, see The Economist) is looking increasingly ridiculous, as it continues to exclude countries in what used to be called the Third World. Brazil, for instance, has a very large economy, globally speaking.

It's going to be nuts. Myself, I'd rather let people's buying and using determine the price than let the idiots in Washington get involved in it anymore than they will be already. They won't be any smarter when it comes to energy than they have been on anything else. The war and the awarding of no-bid contracts with guaranteed profits is just one example, and it's costing American citizens a huge amount of money, all of which expense is a huge drag on the economy. I'll be wanting that $350/month drag on mine when the fuel starts burning next winter, believe it.

A friend of mine I saw yesterday was a smart motherfucker. Two years ago, having the money, he paid for two years' fuel up front. He won't owe the man a dime until next June 1st. Already contracted, at whatever price it was two years ago, in summer. Hell, I hadn't thought we'd even still be in Vermont two years ago. Now, no one can do what my friend did, becaus the dealers won't do it anymore. They lost money last year.

That's the thing with hindsight. Everyone knows what they should have done in the past, when it no longer matters. My friend used foresight instead of spending the money on consumer toys.

The price of gas, I can't control, but I can control how much of it I use. I don't use any at all unless it's really necessary, and I don't buy more than $15 worth at a time. Until two months ago, it was $20 worth at a time. I just don't drive, period, if it's not necessary for real.

Winter fuel, now, that's something I can control somewhat, but only somewhat. What it will mean (even if we get moved) is Bronwyn's room will be warm. The rest will be kept as cool as possible that won't damage the building. Cold, in other words. Last year I nearly died of cardiac arrest over the fuel bills. This year they're talking more than five bucks/gallon for fuel oil, paid on the spot or no fuel.

Hell, I wouldn't even try to keep the place mowed this year if we weren't trying to sell it. I have to keep it looking as good as possible but it hurts the wallet. I can't even believe my eyes when I fill a gas can at the pump. Shit! :-0

[Gary Sisco]

Originally Posted by Douglas

If I had wanted to ask that question I would have asked Gordon first as well.

Me, I'm just someone's ass.

Don't feel bad. That's a huge club. Everyone is just someone's ass.

[Douglas]

Originally Posted by Gary Sisco

Don't feel bad. That's a huge club. Everyone is just someone's ass.

Oh I don't feel bad at all. I feel like I've just shed pounds.