The Oil Company’s and Those Damn Speculators

30 06 2008
Authored by:  William Robert Barber

From Bill O’Reilly to the US Senate instead of simply working to the logical solution of improving supply; O’Reilly and the Senate along with the multitude of innocuous contrarian’s best described as they, them, and those would rather cloud the simple with the contrived.

First it was the oil companies because of their outrageous profits; of course with outrageous profits come outrageous taxes but no one mentions that particular result of outrageous profits. The emphases are limited to greed, the CEO salary, and the general wholly immoral nature of oil companies.

Now of course, not only is the fault of such intolerable gas prices a result of oil company greed; but, also, because of the no good rotten speculators. Those bastards are driving the cost of a gallon of gas by the risking of their capital in the futures market. In this regard, I particularly enjoy the scurrilous nonsense spouted by Bill O’Reilly, as to the operational motivations of a futures speculator.  Obviously, Mr. O’Reilly knows nothing about the Options Market; because if he did the first thing he would do is go to the Internet distributed informational chart on the number of bets placed on oil futures that are call bets against how many are put bets. If he did so he would find that the bets between the two contradictory bets are very close. In other words, the call bets, placed by those motivated to believe the price of oil will rise compared to the put bets motivated by those who believe the price of oil will drop are fairly even. No speculator is betting one way or the other but instead is betting both sides, from time to time, hedging higher on one or the other depending on world events. When placing option bets between calls and puts the idea of arbitrage is the ideal; trying to hedge both sides so to squeeze out 5% profit on the transactions.

The other point of silliness provided by those who know so little to nothing at all is the red herring of ‘margin’ placement. Margins are a ratio of actual cash placed against an off set of other than cash financial instruments, such as government issued bonds or notes, equity holdings, or other SEC defined acceptable surplus. The ratio has differing ratios depending on the particular financial legitimacy of the company requiring the margin. For the most part these margin placements are afforded by the SEC licensed broker-dealers, who are regulated institutions; these positions are closely monitored and could be called for cash settlement at any time. No speculator is off the hook because they have only paid 5% of the bet on the futures option market.

Indeed, in the states of California, Florida, and Hawaii, to name a few, the largest user tax increase in this nation’s history has occurred because of the tie of sales taxes to the rising price of gasoline. These states are making a fortune (billions) because they have tied their sales tax to the rising cost of gasoline. Here is an interesting fact: Forty-nine percent of the price of a gallon of gasoline is result of government imposed taxes and fees.

Naturally, the great and grand beneficiary of higher gas pricing is government. Government imposes taxes and fees on the companies, who supply, distribute, retail, and pay the salaries of its employees. Individuals pay the government directly and indirectly for everything related to the dispensing of the gas into their cars. If that’s not enough, it was the government’s neglect of the obvious that put us citizens in the present gas pricing position in the first place. The blame resides solely with the lack of governmental leadership, forethought, and tenacity to overcome all challenges to sensibility. Too bad Mr. O’Reilly does not read my blog.

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