In a letter signed by 12 CEOs, the US air travel industry has called upon you, their customers, to help them lobby congress. What’s the problem that they need help solving? Oil speculation. Read the letter inside.
An Open letter to All Airline Customers:
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 http://www.StopOilSpeculationNow.com.
They’ve sent you an EECB… how will you respond?
Airlines: Curb oil speculation [CNN]
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@MadameX: That is not speculation. That is what’s called a ‘risk premium.’ What do you think the price of oil would be tomorrow if missiles started flying across the Persian Gulf? (Hint: Think $200/bbl or higher)
@geeniusatwrok: 3) other commodities do not have the same demand.
Um, have you looked at agricultural, precious metal, or base metal commodities lately? Gold now = $940/oz. This time last year: $665/oz. Corn now = $7/bushel. This time last year: $3.50/bushel.
I thought that the reason why some airlines were doing quite well was that they hedged (sorry, “speculated”) their fuel contracts to ensure a predicable cost structure. And this was why many of them aren’t belly up broke.
Do the executives want us to rescind those contracts? Today? Really?!
How bout ending speculation once and for all? That way it’s fair to all the speculators and the airlines operators?
You buy only what you need.
Does everyone seriously think that these new fees are going to disappear if oil prices dropped dramatically? They won’t. Why are these people not lobbying Congress? Is that not in a CEO’s job description? Seriously, most of us have more important things to do than worry about a company’s profit margin we have no stock in.
@MadameX: Did the demand go up today enough to justify an additional $5 price increase? Nope. There is speculation that we could lose Iran’s supply, causing the price jump.
NO – oil did not jump $5 because of a fear of losing Iran’s supply, it had to do with Iran posturing and power flexing their military muscle by test launching long distance rockets yesterday. The “fear” is that they will close or try to take control of the Strait of Hormuz which is a 21 mile wide shipping lane thru which the world’s oil travels. Who ever controls this shipping lane controls the flow of oil. Whenever there is any action of this sort in the middle east then the forces that be create a “fear” factor in order to raise the price of oil.
The US keeps a fleet of ships in the area as do other countries and rest assured many things will transpire on Earth before anyone “takes control” of the Strait of Hormuz.
> 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
This letter is an out-an-out lie and that excerpt is an example.
The price does NOT go up with “each trade”. If the price would go up with each trade, then what FOOL would sell knowing that very same barrel of oil he just sold was going to bring a higher price on the very next trade?
Futures markets are a ZERO-SUM game. The only way anybody can make a dollar off a contract is if somebody else loses a dollar off that contract. The speculators are taking money from each other, not from the consumer.
Politicians have railed against speculators in futures before. They even banned futures trading in one commodity because they said it was making the price of that commodity too variable. Afterwards, that commodities price became even MORE variable.
[online.wsj.com]
The same thing would happen if you tried to restrict speculation in oil futures except there would be an additional penalty in that the US exhanges would lose all those lovely commissions (and they pay taxes on those commissions) as the speculators moved on to exchanges in other contries.
BTW, Southwest isn’t complaining. They USED the futures markets to lock in the price of their fuel a long time ago.
Whoops. Didn’t notice that Southwest signed. I guess they’re running out of the cheap aviation fuel they locked in last year. Doesn’t change the rest of my points.
How/Where do I go to open an account to speculate on oil? This will be fun!
@smarty: Check out the oil futures market on the NYMEX
@SigmundTheSeaMonster:
Thank you. Well said.
I thought that some airlines hedged their fuel costs. Doesn’t that make them speculators too?
We need help breaking our dependence on foreign peanuts.
I’m sorry, that didn’t really add anything productive to the conversation.
I’d be happy to help the airlines. Of course, that help isn’t free.
$25 Time Lost at Work surcharge
$32.50 Printer Supply surcharge
$10 Mailing fee
Plus any applicable taxes.
When I got this in my inbox this afternoon, this was literally my first thought:
free market
-noun
an economic system in which prices and wages are determined by unrestricted competition between businesses, without government regulation or fear of monopolies.
-Related forms
free-market, adjective
free marketeer, noun
Dictionary.com Unabridged (v 1.1)
Based on the Random House Unabridged Dictionary, © Random House, Inc. 2006.
Why is The Consumerist reporting on a story that obviously came from The Onion?
What’s that? It’s real?
I’ll be damned.
@EBounding: I hope I’m around to see when these speculators get burned. Not literally, of course. But then again, if the bottom drops out of commodity futures, will the government bail them out like they did the housing market? “Think of the poor multi-millionaire hedgefunds managers who lost their jobs! Can we save them, can we?”
/end sarcasm
@lincolnparadox:
I like that. Well done, sir. Can I use that, or a similarly crafted letter?
Cheers!
@SinisterMatt: Use as much as you like. If it gets things changed, I’m happy to assist.
“There has grown up in the minds of certain groups in this country the notion that because a man or a corporation has made a profit out of the public for a number of years, the government and the courts are charged with the duty of guaranteeing such profit in the future, even in the face of changing circumstances and contrary public interest. This strange doctrine is not supported by statute nor common law. Neither individuals nor corporations have any right to come into court and ask that the clock of history be stopped, or turned back, for their private benefit.” — Robert Heinlein
The bottom line is, the free market system has been subverted time and again by the airlines. They refuse to adapt to changing markets, and refuse to adapt to the needs of their customers. They are under the impression they can just run on, as usual until it’s time to ask the government for another handout, at taxpayer expense. This, more than anything should infuriate the public into action.
If the airlines, (or for that matter, any other business) can’t compete with their current business model, then they should change the model, or fail and die. Corporate welfare needs to end.
Fuck em. When people wanted reasonable accommodation from the airlines they couldn’t have been less interested in cooperation. So let them perish. Like any other niche in nature someone else will move in a fill it. Perhaps they will be smart enough to see the writing on the wall and learn that their customers, not oil, are their lifeblood.
Will somebody please explain one thing to me?
What is “Excess Speculation”?
How does this cause my gas to cost more?
Who decides what is excessive?
I’m sorry but this just sounds like corporations crying to Washington once again, asking congress to fix their problems, and disguising it as a grass-roots, “We The People”-type campaign.
I WILL NOT sign any petition unless I UNDERSTAND FULLY the implications of it.
Er, sorry, I guess that’s 3 things.
Here’s the letter I SENT using THEIR FORM
Dear Representative,
You may also be receiving many letters, e-mails, and phone calls asking you to intervene in some aspect of the current housing market, so-called “Mortgage Meltdown”, and a generally bearish market, coupled with a possible recession, and now, the latest, “Excess Oil Speculation”.
I cannot claim to understand the myriad of market forces in the oil / energy commodities market. I must rely on experts to take care of that for me, as I imagine you do as well. I also understand that very little can be done to predict future market trends.
The purpose of this letter is to inform you that I, and most undoubtedly many other constituents, are well aware that economies go up, and they go down. Market forces act, and react. Corporations make bad decisions, that affect many people and involve billions of dollars. However, I feel that this does NOT JUSTIFY government intervention, especially the panicked, “Knee-Jerk Reaction” type of legislation that so many parties are rallying for.
I urge you to consider the situation, and take the action which requires the LEAST amount of government intervention necessary. Congress may pass regulatory laws that are meant to correct or aid the current market situation, but ultimately, such government intervention in a Free Market will only harm its healthy operation.
Dear Airline executives: please wait while I put you on hold and transfer you to customer service – Your call is important to us….
The price of oil isn’t due to oil speculators! I don’t know how more clearly it can be spelled out. The US dollar and most of the currencies that are still tied to it are FALLING in value! The US government has printed a crapload of money in the past few years. Those people in the oil countries are some of the first to notice the dollar THEY are tied to is more plentiful and thus worth less. Because they can’t raise their currency (see tied to US dollar) they have to raise the price of their commodities. See oil.
Commodities are the most BASIC form of MONEY. Remember barter? SOME commodities can go into a “bubble” if they are forcibly needed. But if ALL commodities rise in price it isn’t a bubble!!!
And if you think oil has been rising in price check out the price of Palladium. In 2003 it was around 300 bucks and Oz. Now in 2008 it’s about $8000!!! Yes thats more than 25 times its value 5 years ago!
Everything is so expensive because the US government keeps printing money and diluting the value of your money!
@sirellyn:
But it is so much easier to blame some boogeymen for bad things then expect ourselves or government to make responsible and possibly tough decisions. I have my pitchfork ready, who still sells torches?
How many of these CEO’s do you think use public trans or ride a bike to work? I’m guessing there are a lot of Mercedes SL65s sitting in their reserved parking spot at headquarters.
The mirror is the best place to find the culprit causing high gas prices. We can scream about oil companies, war, speculators, etc. but until we address the consumptive car culture WE ascribe to the cost of oil will be high.
Don’t complain unless you are willing to personally make changes toward lowering demand. This means YOU. Something like 90% of Americans think public trans in a good thing, for someone else. This has to change. Carpool, bike, raise fuel economy of your car, have a staycation. This problem was caused by millions (billions?) of people making many small decisions to consume oil and will only be solved once millions of people make small decisions to conserve oil. There is no “one thing” that will lower gas prices, the problem is that it is millions of little things.
@dopplerd: I couldn’t agree with you more–Americans need to change. My husband and I carpool to work every day and try to do our grocery shopping on the way home, rather than making a separate trip. My husband has started running E85 in his FlexFuel vehicle, and as soon as the automakers put a new car on US soil that gets comparable numbers to the European diesels, I will be replacing my 22MPG car with one that gets 50+ (and hopefully running biodiesel).
And let’s not start the “ethanol isn’t green” argument. For us, its more about sending a message to big oil by cutting as much petroleum as we possibly can.
@MadameX: Please research flexfuel. One of them is really bad and has terrible energy/mpg returns. The other, which for some reason I recall being EU only, is actually alright.
DEAR AIRLINE CEOS:
You scratch my back, THEN I’ll scratch yours. Remember, I’m the paying customer. You want my money. Make it worth it to me. Start treating me as the life blood of your business rather than a parasite. Stop all of the arcane rules, treat me with respect, charge an honest price (sans extra add-on fees), and get me to where I need to be without hassle and excuses.
You do that, and I’ll be more than happy to help you out. Until then I’ll treat you like you’ve been treating me — you’re on your own.
Speculation does not raise prices…that’s a myth to take blame away from where it belongs: on Arab producers inflating prices by decreasing supply as demand rises. Just as speculators “bet” on the price to be high, some “bet” on a lower price. If it goes down, some win, some lose, and vice-versa. Commodity speculation is the stock market version of Vegas, and it is certainly not responsible for 30-60% of prices. We would realize this if we began drilling for our own oil on our own turf and seeing how much the increased supply brings down prices.
Oil speculation is one of the biggest things driving up the price of oil. People invest in it, knowing they will know they won’t use the oil, it’s just because the price will go up and they will make money from the people who need it.
The answer is to cut out the speculators who drive up the price, it’s the only reason they exist. If you buy oil on the market, you have to prove that you will use it, not just resell it. It’s amazing in it’s simplicity, but it will cut the price we all pay by a lot.
Look, they are right for one time. Speculators should be taken out of this market one time and for all. They just buy the oil and resell it for a profit with no intention of using it. All they want to do is jack up the price the rest of us pay and I won’t deal with it. Only sell it to a company that can prove they will use it.
let the airlines rot in hell, they’ve been given too many bailouts and breaks. the owners need to pony up all the money they’ve been raking in if they want to stay in business.
I hope every one of them goes belly up, and the owners get nailed to the proverbial wall.
Let the shitty airlines die first: American, United, Delta, US Airways… Then assuming the airlines are correct, we should fix the oil speculation.