I saw a very peculiar ad on US News and World Report once. I don’t know whether it was published elsewhere. It asked who owns oil companies. Then it goes at great length to say that common folks, like you and me, are the owners of oil companies, because most oil company shares are held by mutual funds, IRAs, retirement funds of all sorts etc. So, according to the ad, we should all rejoice upon the fact that oil companies are making the big bucks with the rise in oil prices.
This looks just like George Bush father trying to sound like a tough Texas college athlete on his youth, Obama’s wife saying her husband snores, and Al Gore trying a few ridiculous dance steps to show he is a ‘normal being’, not a stiff.
Delve deeply into the matter, and you will find out that oil prices are not going through the roof because of PRODUCT supply and demand mechanisms, but rather, because of unrestricted and immoral speculation in commodities exchanges all over the world. Depending on what pundit you hear, speculation would account for as much as 30% of price. It is not the price of oil that is uncontrolled, it is the price of paper…
The question to ask is, who is speculating so much? Rather unfortunately, you will find that companies in the oil business are largely responsible for such speculation. In other words, they make money from sale of the product, then with the profit earned, they speculate some more and drive the price up, up, and up. This is really a feedback mechanism, and I don’t see it stopping. It is greed to the nth degree.
The ad goes on to say that most shares are not owned by management. It fails to say that management does in fact receive millions, if not billions of dollars in cash profit share or bonus payments every year, before dividends are declared. So their interest is to extract as much profit as possible from oil prices, and walk alway with their mounds of cash.
These folks, who are not regular Joes, are making money now. The regular folks, whom the ad identify as the real owners of oil companies through mutual funds, reap no immediate benefit from such ownership. Sure, they might have a better retirement twenty years down the line, but even that is questionable. If oil prices continue rising so much, the ugly head of inflation will eat up much of the earnings from IRA’s, retirement or mutual funds.
Do not be fooled, regular folks.
Financial authorities worldwide should consider whether or not futures, options and derivative markets are any good for humanity. I know it is not going to happen, but the suggestion is made. It seems that the next commodity on target is carbon rights…