You know that part of the intellectual basis for The Gas Game is to use energy prices on future markets to approximate wholesale prices and then try to predict what is going to happen to retail prices. Following the futures markets have always made me wonder if they are manipulated, or perhaps the better word is abused. The abuse is that traders buy and sell futures contracts — paper gasoline — but have no interest in real gasoline. When the contracts come due, they “roll them over” to another month, rather than deliver the gasoline or take delivery. Some of this is OK with me — I’ve played the stock market a bit — but I’ve read articles that suggests that this speculation has distorted those markets.
A few weeks ago, I read this article in Time magazine that makes that case that it is quite possible that those markets are distorted, because there really isn’t a lot of money being exchanged on NYMEX. Key quote: “The point is, it would only take about $9 billion to control the entire long position in oil. That sounds like an enormous amount of money, but some of the major individual players in oil are bigger than the market itself: Sultan Hassanal Bolkiah Muizzaddin, of Brunei Shell Petroleum, is worth about $23 billion; Saudi Prince Alwaleed Bin Talal Alsaud is worth about $21 billion; Russian Vagit Alekperov of LUKoil is worth about $13 billion. No, we’re not implicating any of these guys in market rigging; in fact the list of billionaires with that kind of swag is long. The point is that anyone in that category could clearly handle the risks of the oil futures market, and they might even be willing to take delivery on oil.”
Given that the U.S. government is throwing $700 billion around this weekend (and that’s a whole different story), $9 billion just seems like a rounding error.