Category Archives: energy

‘The Asylum,’ Or How Capitalism and the American Dream Met Their Deaths

June 2011  by Rogue Philosopher

The Asylum: The Renegades Who Hijacked the World’s Oil Market by Leah McGrath Goodman details how a handful of commodity traders on the New York Mercantile Exchange (NYMEX) manipulated the energy futures markets and thereby did more than their share to destroy to our economy.

A singular tragedy in this sordid tale is how the commodity markets finally succumbed to the unbridled greed and power lust that characterized the rest of Wall Street. The commodity futures markets were always the bad boys of the financial community. They didn’t play by the stuff-shirt, pinstriped rules of the banks and investment community. The players on the NYSE and AMEX were mostly dullards. By contrast, the boys and gals at the Commodity Exchange Center in the World Trade Center were a colorful, indeed, even charismatic lot.  The traders were outcasts, renegades, cowboys. They stood apart from the financial herd. They drank hard, partied hard, and womanized shamelessly.

In short, they were a lot of fun.

The commodity futures markets were also the one last place in the financial community where someone starting out from humble beginnings and without the advantages of social or political connections could, with some assistance from Lady Fortuna, make it big. Or at least make a real good living for himself and his family. Traders like these represented one of the few remaining symbols of the American Dream.

No more…

Continue reading ‘The Asylum,’ Or How Capitalism and the American Dream Met Their Deaths

How Fear, Greed Factor Into the Price of Gasoline

The price of oil is set not in Vienna at the headquarters of OPEC, but at the New York Mercantile Exchange.

Llewellyn King, PBS

Sunday, May 1, 2011

WASHINGTON — The fate of the Obama presidency hangs not on a birth certificate or the red ink on the federal budget but by the hose nozzle of your local gas station.

Electoral discontent is measured by the price of a gallon of gasoline. Heading past $4 toward $5, that is a lethal trajectory for President Obama.

Enter the demagogues, especially the clown-in-a-business-suit, Donald Trump. Unfettered by the gravity that goes with facts, Trump says that he would fix the oil price — now around $110 a barrel — by facing down the producers, particularly the Organization of the Petroleum Exporting Countries (OPEC). He told an interviewer on television that he would call OPEC and tell them to pump more or face the consequences. The latter, he did not specify. War? Against whom?

In a compelling book by Leah McGrath Goodman, The Asylum: The Renegades Who Hijacked the World’s Oil Market, the author lays out the ugly fact that often — in fact, more often as not — the price of oil is set not in Vienna at the headquarters of OPEC, but in downtown Manhattan at the New York Mercantile Exchange (NYMEX).

Tens of thousands of future contracts are traded in nanoseconds at the NYMEX, and the price of oil is set. This price affects not only the price that will be paid when these contracts expire and delivery takes place, but also, according to Goodman, the all-important over-the-counter market, where sellers trade more directly with buyers without government oversight.

Goodman contends that there is little oversight of the NYMEX because the agency charged with the role is the weak and ineffectual Commodities Futures Trading Commission (CFTC), where many staff and commissioners are busy burnishing their resumes so they can cash in later as market executives.

The over-the-counter market is not regulated at all because of a pernicious interference from Congress known as the “Enron Loophole.” How did it get into law? It is one of those pieces of special-interest protection that owes its existence to legislative immaculate conception. It was not in the committee version of the bill; it slipped in along the way without parenthood, but is largely believed to be the work of former Sen. Phil Graham, R-Texas, whose wife, Wendy, was chair of the CFTC.

In classic theory, a market is where a willing buyer and a willing seller strike a price. In the world of traders, it is something else: It is where volatility is rewarded and myths hold sway.

Today there is no actual shortage of crude oil. Supply and demand, according to those who monitor these things, is in balance. But fear stalks the trading floors because fear is good for traders; and fear is a critical part of the oil price. Continue reading How Fear, Greed Factor Into the Price of Gasoline

5 Shocking Gas Prices Around The Globe

Surprised by Gas Price of $4 a Gallon? Try $8.35 in Germany

By SUSANNA KIM

April 12, 2011

While American drivers are spooked by $4-per-gallon gasoline prices in the U.S., they may be shell-shocked on other continents like Europe. In London, gas was $8.17 per gallon in March, and in Istanbul, Turkey the price was $9.63, according to DailyFinance. 

Leah McGrath Goodman, author of “The Asylum: The Renegades Who Hijacked the World’s Oil Market,” said at least two factors contribute to the variance in global gas prices. First, countries that produce their own oil often have lower prices. Second, different governments choose to subsidize or tax citizens for purchasing gas.

“Every country is different, obviously,” Goodman said. “Some countries have amazing subsidies. In Libya, even with its conflict, its low price has a lot to do with the fact that the government can choose to charge people a lot less.”

Here are five national averages around the globe… Continue reading 5 Shocking Gas Prices Around The Globe

Same Oil, Same Palaver…

Another year of high oil prices, another endless conversation about the role of speculators. Call up anyone on Wall Street or in Washington to find out what’s really going on. Chances are, the answers you get will go a little something like an Abbott and Costello routine.

Abbott: Well, let’s see, we have almost $4 gas and $110 oil. Who’s trading it? What’s the reason it’s so high? I Don’t Know…

Costello: That’s what I want to find out.

Abbott: I say, Who’s trading it; What’s the reason it’s so high; I Don’t Know.

Costello: Are you the portfolio manager?

Abbott: Yes.

Costello: You gonna’ be the regulator too?

Abbott: Yes.

Costello: And you don’t know the fellows’ names?

Abbott: Well I should.

Costello: Well then who’s trading it?

Abbott: Yes.

Costello: I mean the fellow’s name.

Abbott: Who.

Costello: The guy trading it.

Abbott: Who.

Costello: The first one to trade it at $110.

Abbott: Who.

Costello: The guy trading…

Abbott: Who is the first!

Costello: I’m asking YOU who’s the first.

Abbott: That’s the man’s name. Continue reading Same Oil, Same Palaver…

New Book Reveals Who Controls Global Oil Prices

By Tim O’Shei

HOUSTON BUSINESS JOURNAL | Friday, Apr 8th 2011

Who controls the global oil prices?

Powerful banks? Massive hedge funds? Big Oil? OPEC?

There’s never been a straight answer to that question – until now.

Leah McGrath Goodman, a former special writer and editor for The Wall Street Journal and 1998 graduate of St. Bonaventure University, spent the last seven years writing a book that reveals where oil prices have been set for decades: the New York Mercantile Exchange. Or, as the title of Goodman’s book calls it, “The Asylum.”

Published this year by William Morrow/HarperCollins, “The Asylum” takes readers into the boardroom and onto the trading floor of Nymex. Goodman paints a warts-and-all portrait of the often rough-edged traders, for whom she claims making or losing millions in a day was as commonplace as fistfights, drugs and pornography.

By executing both their own deals for oil contracts and orders from big banks and hedge funds, the Nymex traders set the benchmark for global oil pricing. They still do, though Nymex is now part of a group that includes its former competitor, the Chicago Mercantile Exchange, and most of the trading action happens online rather than on the floor.

Business First Managing Editor Tim O’Shei, a classmate of Goodman’s at St. Bonaventure, recently talked to her about the book and about the oil market. Following is a truncated version of that conversation: Continue reading New Book Reveals Who Controls Global Oil Prices

The Global Oil Casino Benefits Only Its Players

Originally published in The Financial Times on April 6th, 2011

Tensions in the Middle East and north Africa, we are told, lie behind the recent increase in global fuel prices, which Wednesday hit a 2 ½-year high. Yet while Brent crude this week stayed above $120 a barrel, in Tripoli petrol hovered at around 54 cents a gallon. And that is not a typo. The popular reason for why those closest to the fighting, in this case, suffer less than those farther afield, is Libya’s hefty subsidies. The less popular reason is that world energy markets have been carefully designed to profit from the slightest supply hiccup, even if there is little evidence of actual shortages.

The energy-trading fraternity has never let the facts get in the way of a good supply scare. True, this historically fragile market is vulnerable to price swings as demand threatens to climb faster than production. But there is more to it than that. Indeed, what President Barack Obama did not mention last week in his energy security speech about the faults of the global energy market could fill a Saudi oilfield. Continue reading The Global Oil Casino Benefits Only Its Players

Killing Your Own: The Truth About Oil Speculators

Originally published on huffingtonpost.com on Mar. 14, 2011

In the mid-1990s, the U.S. Marine Corps sent more than a dozen generals, colonels and other high-ranking officers to the trading floor of the New York Mercantile Exchange, the world’s reigning oil market. Their mission: to see how the traders behaved when forced to make tough decisions under high stress with incomplete information.

What they found taught them a lot about the nature of the oil speculator. Continue reading Killing Your Own: The Truth About Oil Speculators

The Secret Group Setting the Price of Oil: Us

Originally published on fortune.cnn.com on Mar. 9, 2011

In this excerpt from The Asylum: The Renegades Who Hijacked the World’s Oil Market, Leah McGrath Goodman witnesses a NYMEX energy trader hazing ritual and watches Bill O’Reilly uncover how those traders set the price of a barrel of oil.

It was dawn when I received my first of many after-hours phone calls from Mark Bradley Fisher, otherwise known as the Fish. A self-made millionaire with a Napoleonic sense of his own destiny, Fisher prided himself on his work ethic, his intellectual prowess, and his ability to rise early in the morning and toil late into the night. As a result, he had a habit of calling me almost exclusively at inconvenient times.

It was February 2005, the year Wall Street began to realize something was wrong with the oil market. Fisher, however, was not particularly disturbed. After all, he was one of the wealthiest and most powerful energy traders in the world.

Fumbling in the darkness, I nearly fell out of bed trying to find my cell phone. As I flipped it open, Fisher sounded none too pleased at the five-ring wait. Continue reading The Secret Group Setting the Price of Oil: Us

When It Comes to $100 Oil, It’s Every Man for Himself

Originally published on abcnews.go.com on Feb. 24, 2011

Energy Trading Is Rife with Loopholes for Some but Not All

Oil topped $100 a barrel for the first time Wednesday since 2008, the same year that Wall Street and Washington brought the nation to the brink of financial Armageddon.

But that was then. Surely both camps are much more prepared to deal with the fallout now, right?

Not so fast.

All appearances to the contrary, both camps have wasted very little time getting back to business as usual. Only in this case, Americans know for certain one thing they did not know back in 2008: If anything goes wrong, they’ll likely be the ones to foot the bill.

And that changes everything. Here is what you do not know about how the Powers That Be have been handling high energy prices and the ongoing credit crisis, more popularly known in Washington these days as “the recent unpleasantness.” Continue reading When It Comes to $100 Oil, It’s Every Man for Himself

‘The Asylum:’ New Book Uncovers the Dark Side of the New York Merc

Originally published on CNBC.com on Feb. 15, 2011

“It’s the side of Wall Street Wall Street doesn’t want you to see,” one high-level banker warned me before I ventured down the rabbit hole that would become my seven-year sojourn to the heart of the oil market.

I will be honest: I expected the drugs, the corruption, the fistfights and the territorial death matches over money. It wasn’t surprising that the traders who ruled over the New York Mercantile Exchange, the world’s most powerful oil market, imbibed illegal substances and brought guns, strippers and pornographic material into the trading pits.

As many of the market’s inhabitants had come from nothing, their riches effectively overwhelmed them, leaving them with a feeling of omnipotence, a sense that real-world consequences did not apply to them. Much of the oral history of the men and women who built the global oil market, as related in “The Asylum,” invariably touches on their struggle with these things.

What I could not get over, however, was that most of the bad behavior appeared to be well-known to the nation’s top market regulators, the New York Police Department and some of the highest-ranking officials of the U.S. government. Yet as oil prices streaked to nearly $150 a barrel in 2008, no one did anything about it. To the contrary, there was mass denial and the desertion of many key “regulators” from their posts. Continue reading ‘The Asylum:’ New Book Uncovers the Dark Side of the New York Merc