April 7, 2011 • 33 mins
In an uncertain economy, investors often flock to commodities like oil, trading oil futures in a derivative market. Some believe this creates an artificially high price. Join Josh and Chuck and learn if this market is responsible for inflating gas prices.
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Speaker 1 (00:00):
Brought to you by the reinvented two thousand twelve Camray.
It's ready. Are you welcome to Stuff you Should Know?
From House Stuff Works dot Com. Hey, and welcome to
the podcast. I'm Josh Clark. Across from me is one
Charles W. Chuck Bryant. And since there's a couple of
(00:23):
the microphones in front of us that would make this
stuff you should know, the all audio podcast, All Goodness,
all the time. And in the other room, as guest producer,
Elizabeth Lizzie. Yeah, her old buddy is back here working,
which is nice, giving us um pieces of dry mango.
And in between she worked for Emily and so I
just haven't been able to lose Lizzie. That's good, but
(00:44):
she's not when you want to lose Lizzie's awesome. Stop
picking on Lizzie, Chuck. I'm a big fan. I started
the Lizzie Fan Club here. Oh yeah, and then I
dissolved it. I was gonna say, I have not been
invited to that. That's just me, Chuck. Remember when we
were on the call all with a senior White House
official yesterday, Yeah, that was kind of cool. Huh yeah
(01:06):
White House. Yeah, Obama Administration that's who's in there. Basically
we were talking about the UM. Well, we're basically going
over the talking points for the energy security policy that
he unveiled today as of this recording March thirty one, right,
I was tomorrow the thirty one. So he goes over
(01:29):
this or or she's going over this with us and UM.
Basically Obama has said that over the next decade he
wants to reduce American oil imports by a third, right,
And it's something that every president going back to I
think Nixon has said that. All right, So it's an
ambitious goal, is what you're saying. Well, not sorary third,
(01:51):
but yeah, they all There's a video that John Stewart
ran on The Daily Show where it literally showed the
same clip from like our last five presidents saying reduced
foreign dependency on they have the best researchers on that show. UM.
So okay, Well, Obama took his rightful place, following in
the footsteps of Richard Nixon, and UM has has said
that he wants to reduce our imports by a third
(02:13):
in about ten years. UM. And one way to do
that is to UM figure out how to conserve oil,
how to reduce use e g. A smarter grid, more windpower,
more nuclear um more um clean coal, clean coal was
another one. Natural gas, no clean coal, and to basically
(02:36):
get online are reserves that we have now. So the
big talking point around Washington with the Democrats right now
is that oil is um. That the oil companies have
leases on something like seventy nine million acres of UM
of oil land, suspected oil land that we were not tapping, right,
(03:00):
that's not being used. It just own these leases, right,
And then I think like nineteen million acres are actually
being mined for their oil or natural gas. And Obama's
position is, hey, you fat cats, um, you need to
go ahead and start producing or else we're going to
(03:20):
penalize you, like invest in the United States, come off
some of these profits and start spending on exploration and
production and get American oil out of the ground, which
is hugely different than what he was saying he should
do before, which is like no ausch or really nothing
like that. Um. So it's it's kind of a big
deal that he's really putting oil at the center of
(03:42):
his energy security policy. UM. But one thing we asked
that they didn't really answer very well is what role
does preventing speculation in the commodities market play in energy security?
That's my question. I get the sense, and this is
one of those topics again that you know, Chuck's little
(04:04):
guitar playing English major brain has a hard time wrapping
around this. But I get the feeling that there's not
a lot of people in the government they want to
talk a lot about oil speculation. It's like, don't bring
that up, no, um, which is strange because its whole
you know, there's that whole kicking around Wall Street, um
during the recession thing that was going on, and that
(04:26):
seems to have been largely abandoned. Um. But the question
of whether or not oil speculation is affecting oil prices today,
it still remains oils up to UH. I think triple
A saying a national average of three sixty right now
for unlighted for regular that's a national average. Yea, yeah,
(04:48):
that's crippling. And and well, I know the recession ended.
I just made air quotes, um, but people are hurting. Uh.
Food prices are increasing, oil prices are increasing, Gas prices
are increasing, and UM, a three dollar and sixty cent
gallon of gas is crippling to the average American. Yeah,
and that's average. I mean you've got to some places
(05:10):
like California and there in the summertime they may be
creeping up over five bucks a gallon. Yeah, so the
money for a gallon of gases, it is a barrel
of oil today is trading for opeque. By the way,
it stands to make one trillion in revenues in two
thousand eleven. That's the course it's on right now. Yeah,
it's a lot of UM. So so uh the there
(05:35):
there's this idea out there that oil trading at one
fifteen and barrel should actually be trading at something like
UM ninety a barrel, and that oil speculation is accounting
for UM twenty to twenty five dollars on top of
the barrel price, and it counts for a lot of
this increase in in UM the price of oil. So
(05:58):
this is nothing new. This is going on right now
in two thousand and eleven. But it just happened in
two thousand and eight. Do you remember when oil hit
four dollars a gallon? It hit four eleven as a
national average. This is the highest ever remember two seven,
So two thousand seven, two eight, Yeah, I remember when
it took the first big jump, um, whenever that was.
I was living in l a And I remember it
(06:19):
got over two dollars a gallon, and it was a
big jump. It was like one weekend it was you know,
a dollar or eighty five, and the next weekend it
was like to thirty five. Then we would have probably
been like two three or two thousand four. It was
a big It was like a fifty cent jump or
something like that. Um, don't quote me, I'm going on
my feeble memory, but I remember saying at the time,
you know what, I just had a feeling, said, this
(06:40):
is something different. Gas is never gonna be this cheap again,
never gonna go back down. You know, in nine, the
average was ninety cents a gallon. Nine it was it
was so twelve years ago a gallon. Now we're all
we're at three sixty, we've already hit four and change
for an average. I remember feeling a little hondap for like,
you know, fourteen dollars. Yes, that was just so beautiful now,
(07:05):
so um chuck. From two thousand four to two thousand
and eight, the price of a barrel of crude oil
increased from thirty one dollars and sixty one cents in
two tho four, two hundred and thirty seven dollars and
eleven cents in July two thousand eight. Right, so guess
prices grew from one to four oh nine over that
same period. There's a lot of things. There's so much
(07:30):
that goes into oil production that could affect the markets.
Instability right right now, people are taking to the streets
of Yemen, in Syria and once in a while in Iran,
Um they are um, they are overthrowing the government in Egypt.
There's a civil war going on in Libya. Libya's oil
(07:51):
production is virtually offline right now. So so well, it
depends on who you're asking. It's actually pretty stable. It's
just socialists, which is why everybody's like, oh, that's a
dangerous country. If you're America, it is, right, but that's
one of the reasons that people said, you know, geopolitics
in these instability unstable regions that produce oil has a
(08:12):
lot to do with it. But Michigan Senator Carl Levin
during a hearing said, you know what, yeah, it's unstable,
but it's been unstable for decades and we've been buying
oil from them. No problem. But that's how he claimed
at least right, and Hugo Chavez, remember for through SITCO,
that's the Venezuelan oil company that's here in the US.
(08:33):
Through SITCO. Remember, he used to donate like a million
gallons of heating oil to people in the Northeast to
keep them alive. And that was like basically him saying
like this is what socialism gets you, people of Boston
with UM. Yeah, so it's unstable in that he's not
a friend of America. We were not capable of pushing
(08:53):
him around, and we need their oil, right, but we
have a dayton because people like money, economies like money,
and we want to their oil. So everybody's chill out.
What's more with this um recent drop in production that
that's represented by Libya going in the civil war, Saudi
Arabia stepped up and said, you know what, that's three
percent of the oil that's produced every day, and we're
(09:15):
gonna add an extra three percent to make up for
this temporary shortfall. So there actually isn't any kind of
thing in the production or supply side. Well, no, because
you mentioned in the article like could it be peak oil,
but now it's not peak oil. Well, peak oil, do
we not podcast on the end? No, we know we
have we need to do that. That's the point where
you know there's only a fine it amount of oil.
(09:35):
So once we cross that little threshold, it's like all
of a sudden, there's getting less and less oil. Yeah,
and there's there's a whole um group of people out there,
very educated, smart people. They're not crack pots olas. Sometimes
people look at them like that, who believe we have
past peak oil and it's gonna take us five years
or ten years to figure it out. But by that
time it'll be way too late, and the the world's
(09:57):
gonna come to a grinding halt for a while until
we can figure out what to do. UM. A lot
of people think that we haven't hit peak oil. And
if you look at UM the at least the published figures,
Saudi Arabia is often accused of fudging on their numbers,
and I think they were found to UM a while back.
But most people say, no, supply still exceeds demand, which
(10:18):
if you look at Mr Adam Smith's The Wealth of Nations,
the the basis of the capitalist economy. If supply exceeds demand,
prices should remain low. And oil, Isn't that the kind
of thing you want rewriting the rules of base economics. No,
because ultimately it's a commodity, and a commodity is something
(10:38):
that we can make things out of, or something we need.
Wheat is a commodity, we need that. Pork bellies a commodity.
That's the most delicious commodities. Um, and oil is a
very very vital commodity. So if Carl Levins saying, yeah,
that's unstable, but were we we can deal with them.
If Saudi Arabia is saying, yes, Olivia's off line right now, um,
(11:01):
but we're gonna make up the shortfall. If if we
haven't actually passed peak oil and the supply still exceeds
the demand. A lot of people are saying, why is
oil so high? Why is it increasing and increasing? And
there's a correlation that's going on right now. The the
answer to that, obviously for a lot of people's minds,
(11:22):
And I'm not taking a position on this because it
is a very controversial thing to say that is oil speculation. Yeah,
there's speculation that the speculation is what's driving up the price, right,
that's perfect chuck uh. And one of the ways that
it's being. UM, I guess suggested is that from I
think July of two thousand, eight h there were six
(11:44):
D seventeen thousand oil futures contracts on the market, on
the oil commodities market. Can we explain what the future is? Well,
we'll go back. I just wanted to get this one
last stat out, and we'll go back to the beginning, UM,
and then July or January two thousand eleven. So July
two seventeen thousand, January two eleven, one million UH futures
(12:07):
contracts on the oil market, it's right. And between those
two times, after the last bubble burst, it's been creeping
up and up and up. Prices have basically commensurate with
oil futures contracts. So it really looks a lot like
it could be oil speculations driving up the prices. So
let's talk about oil speculations. Yes, and my mind starts
(12:28):
to melt starting now, all right, Josh, the future and
you're gonna tell me with this, But UM, any kind
of future is a contract between a buyer and as seller.
Buyer agrees to purchase a fixed amount of a commodity
that it fixed price, and oil future we're talking about
oil obviously, So it's different than actually buying into a
(12:50):
commodity because you're just betting on whether or not it
will be higher or lower at the end of your contract.
That correct, A future is a derivative and a derivative
of as any kind of financial contract or instrument that's
the value of which is based on the value of
something else. It's you know what it is to me,
to my little brain that doesn't think about the stuff, Well,
(13:11):
is it's a made up way to make money almost,
That's exactly right. It's like someone created this and said, hey,
this doesn't even exist, but as long as there's someone
buying and selling it, it does exist. Because so a
futures contract is very standard. It's not an exotic financial instrument,
but the way that it's being used in the derivatives
(13:32):
market is um extremely exotic and volatile. So, Chuck, you
have a bunch of oil, and I I have a
refinery over here in my backyard, and uh, well, I'm
I'm saving up it for a better life for it. Um,
So I want to buy some oil from you, all right,
(13:55):
But I think that oil, the price of crude is
going to go up. You know, A year from now
per barrel, right, and I'm going to so I'm gonna
go ahead and buy it for the market price now right,
and um, you're going to sell me a futures contract.
So we have an agreement that a year from now
in um, at the end of March two thousand twelve,
(14:17):
the that contract expires because you have to I have
to buy that oil from you, okay, but not now
a year from now. Right now, if I'm right and
oil goes up, say I, I'm buying a hundred barrels
at fifty bucks of barrel. That's our future contracts, our
contracts for five grands um. If it goes up. If
the price of oil goes up to fifty two dollars
(14:38):
of barrel a year from now, I just got fifty
barrels of oil for two hundred bucks less than I
should have paid. It's a good deal for you, it is.
But the future's um contract is also. Um. Well, it's
a bet, right because the price of oil could go down.
I said in two thousand twelve, and the MARCHI done.
(14:59):
Twe I'll buy those fifty barrels of oil from you
for fifty bucks. But if the value of oil in March,
she does twelve forty eight bucks of barrel. Then I'm
paying two more than I could have if I just
bought on what's called the spot market, which is I
go to you, I want your oil right now, and
you sell it to me for whatever the market prices. Right.
And if this sounds weird, it's not so different than
(15:20):
betting on whether or not a stock will go up
or down. It's the same thing. It is, but in
a lot of ways, it's just kind of it's it's
saying it can Also it also comes into play if
if I don't need oil right now, but I'm gonna
need it in the future, and I think it's gonna
go up right now. When the real bet comes in,
that's when when I'm when I'm saying that I think
(15:41):
it's gonna go up, I'm gonna go long. It's called
going long. Yeah. And at the end of this contract,
you're actually gonna get oil. Correct, if you're holding the
contract and that I have with you, um, then yes,
So that has to buy oil from you that is
a country and be like give me my money, I'll
give you your oil. Right. But that's an important thing
to distinguish because that is a future and that means
(16:03):
actually oil is being traded at some point, right, And
that's a normal thing. Right. Okay, Now that's going long.
If I'm betting that oil prices are going to go up.
If I think oil prices are gonna fall, I'll go short. Right.
So it's virtually the same thing. We go into a contract, right,
So Chuck, let's say conversely, Um, you you think that
(16:23):
oil is gonna go down, so you're happy to sell
me a future's contract, right, Um, the price of oil
goes down, right, we we say, we say, for you know,
five grand, Um, the price of oil goes down to
forty eight bucks of barrel, and you buy that contract
back from me at the market price you just made
two bucks. Okay, Okay, So there's going short and there's
(16:48):
going long. But as you said, in a standard commodities
market that there's not a secondary derivative derivatives market going on,
then ultimately there's going to be an exchange of oil
the secondary derivatives market. You never get caught with the
contract when it expires. Your trading contracts day by day,
moment by moment, as the price of oil changes up
(17:10):
and down throughout the day. You're making money off of
those fluctuations by buying and selling, by shorting and longing um,
the the price of oil on these contracts, and that
is speculation that, okay, leads to what's called an artificial market.
Supply and demand no longer applies to the commodity itself.
(17:34):
Supply and demand is also subject to the two the
the financial instruments as well. Yeah, the whims of who
has a lot of money and can affect a market
with a big purchase. So that's called an unstable market
because it's you don't it's very violable. It's not it's
not nearly as steady as a real tangible market. No.
(17:56):
I mean, if you look at if you look at uh,
you know, um, it's just a regular commodities market where
there aren't any futures or derivatives um trading by anybody
besides the people who actually will end up with this stuff.
There's the changes, the fluctuations over you know, a month
or a year or a quarter are you know, pennies
(18:16):
or a buck or two. Here it's when investment banks
and hedge funds, who, by the way, when interest rates
are very very low, tend to turn to the commodities
market for to safely park their money. Right, because they're
not gonna make much much money when interest rates are low. Um,
they turn to the commodities market when they get involved.
(18:38):
That's when things start going from thirty bucks of barrel
in two thousand and four two hundred and forty dollars
a barrel in two thousand and eight. Right, And that's
what happened with the housing uh bust, all of a sudden,
Wall Street Housing wasn't a good place to put any money,
So Wall Street flocked over to speculation futures, oil futures, right,
and and um, we should say in that this is
(19:00):
this is all very much debatable. This is if you
believe that oil speculations affecting oil, this is how it happens. Right.
They were just explaining that that's what we do. Well,
what we just explained was how derivatives trading works. This
is no secret. It's the effect that it has, that's
what's that's what's debatable. So the people who believe that
there is consequences for oil for derivatives trading to say
(19:25):
that here's what happens. Right, if you want, if you
want to get your hands on actual oil, right you
aren't going to be able to keep up with an
investment bank or a hedgephone manager who is buying up futures.
So you're gonna need oil now, and you're gonna have
to stockpile. It's one good thing about oil is you
can stockpile it for a while, right well, and oil
(19:46):
producers can hoard it. That that's exactly right as well,
But there's you could also the derivatives market in futures
can also inadvertently force a horde among people who actually
use the oil, who are buying oil for use, not
just trading in the derivatives market by saying, Okay, I
can't buy futures because they're just too expensive right now,
(20:09):
so I'm gonna buy whatever I can get my hands on.
So the spot market that deals in actual oil right
that moment has a higher demand, which means the actual
price of oil goes up, which means those oil futures
go up even further, which means prices across the board rise,
especially for gasoline. That's right, and when big companies like
(20:31):
Goldman Sackson City Group are these huge financial institutions are
buying up tons and tons of uh are speculating. Then
that's going to have a really big sway on the
market that alone will right, they stand and gain tons
of cash, tons of cash. But imagine if you not
(20:52):
only stood to getting tons of cash from the secondary market,
but you're an oil producer as well. Yeah, and all
of a sudden you're aculating on your own production or
buying oil features. If you buy a bunch of oil
features from higher price, you can actually the market um
trades on rumor, right, So people are like, well, somebody's
(21:12):
buying up a bunch of this stuff, and the prices
actually rising, right, so that a lot of people are
gonna be willing to pay more and more and more.
If you're an oil producer doing that, then you're going
to stand again through the financial instruments and through the
actual sale of your oil. And there was an investigation
into this um the the secondary oil markets that found
(21:32):
that in the New York Mercantile Exchange alone, which is
the commodities market, or one of them for the us UM,
eleven percent of the oil futures contracts were owned by
vital which is a Swiss oil producer. So how, Chuck,
how can an oil company be allowed to artificially inflate
(21:54):
the price of oil for its own gains, And how
can investment banks be allowed to drive up the price?
That is, in fact, what's going on. How can they
be allowed to drive up the price of a commodity
as valuable as oil If normally it should be something
like thirty or forty or fifty dollars a barrel, and
it's double or triple or quadruple, what what experts believe
it's actual value should be. Well, it shouldn't be able
(22:17):
to happen, because they're starting in with our congress. There
was something put in place called the Commodity Futures Trading Commission,
the CFTC, and they were put in place specifically to
prevent this kind of thing from speculation artificially inflating prices
of commodity. So they were like, they've realized a long
time ago this could be a real problem. Let's put
this thing in place and let's make them keep it
(22:39):
in check. So if you were trading on that exchange,
you gotta file reports every day. The Commission looks them over,
keeps an eye out for speculation. They know if somebody
is trying to corner the market. There who and they
try to stop it. But quite a few things have
happened to nooter for the most part. The CFTC. Yeah,
because you can create a federal agency and empowered all
(23:02):
you want, but if successive presidents disagree with you about
the value of that that agency, they can neglect it,
they can strip it of its powers. They can as
you say, new to it and not even have the
courtesy to put noodle noodicles on it afterward, just leave
it laying there, you know. So in two thousand, the
very big thing happened. Prices were still pretty low for oil,
(23:23):
less than thirty bucks of barrel, but a little company
called en Ron started lobbying Congress to remove regulatory powers
of the CFTC. And basically what the deal was. The
CFTC um had regulatory powers over the official exchange. So
Enron says, hey, New York Mercantile Exchange and uh, CFTC,
(23:45):
I'm sorry. And Ron said, hey, you know, we've got
the software that allows futures to be traded over the counter,
which is something outside of the formal exchange market. Right.
It's basically like I can say, hey, Chuck um, you've
got a bunch of futures like in your pocket, can
come to your house and buy it and it will
be a legitimate exchange. But it's over the counter. It
exists outside of the market, that's right. And that became
(24:06):
known as the Enron loophole because all of a sudden,
O t C trading was allowed for futures exchanges with
no government oversight because it was out of the jurisdiction
of the CFTC. So, josh, that was one thing happened
in two thousand. Then another little thing came along, uh
called the Intercontinental Exchange. The IC was set up in London,
and that was to trade European oil futures. And the
(24:28):
funny thing about that is it was headquartered here in Atlanta,
so it's headquartered in Atlanta, but it's European oil futures,
so the CFTC didn't have any oversight over them because
it was European, right, So, um, you could trade American
oil futures on this exchange. Well six years later, that's
when they set up the American terminals. Think about it, like,
(24:51):
the time in London and the time in New York
are totally different, and that's kind of a problem. So really,
if you can get these commodities, the same commodities trading
on the same time zone. You can really create you
you have a more robust market, that's right. And now
all of a sudden, the CFTC couldn't even regulate these
(25:11):
formal exchanges on the formal formal formal market, even though
it was based in Atlanta. They set up trading post
trading post terminals inside the United States in New York.
But it's almost like the O t B. Like horse
racing is illegal, but you can this race is in Cuba, right,
and but you can bet on it in you know,
(25:32):
on the Lower East Side. And so as these things
just kept going and going, um, the the CFTC just
lost any jurisdiction whatsoever. And rafty people that are coming
up with these things, they basically saying like, let's set
up away where we can make gobs of money outside
(25:52):
of regulation, and I mean outside of regulation. People have
no ideas. I was reading some blog post and it
was about how the aluminum market was being cornered by somebody,
and they thought it was some hedge fund manager and
they had an idea who but not enough to publish.
But they have no idea who's buying what there's it's all.
(26:13):
It all exists in the shadows the derivatives market too,
because it's outside of the jurisdiction of this federal agency
that was created specifically to police these things. You know,
I'm never gonna be wealthy because I'm one of those
dumb schlubs who it's just like, let me go out
and near my paycheck. And I'm not like against the
stock market, like I'll invest in the stock market and
set up my foreone can on that. But I'm not.
(26:34):
I can't even fathom the kind of what causes someone
to think of like, hey, how can I really make
tons of money with no oversight? And I'll invent this
way to trade ether and not really the people would
buy ether of them. They probably, especially drug dealers. Patrick
Bateman would have eaten you alive. Oh man, I'd be
(26:55):
so dead. So um. There was a July two thousand
eight or by the International Energy Agency that concluded that
speculation didn't really have anything to do with it. They're like, no, no, no,
that's not what's driving oil prices up. There's another report
the next September contradicted the i e. A report said,
now there's actually a lot of correlations between this big
(27:16):
influx of money and oil futures and the rising cost
of oil. I mean, I'm a dummy. To me, it
kind of looks plain that that's probably what's been happening.
But there's probably a lot of people are going to
right and say, oh, what you guys didn't consider was
X y Z. No. There's there's a lot of factors
that that um that go into producing and buying and
selling oil, and there's no way you can cover all
(27:37):
of them. And that's not the point. And I don't
think that's anybody who's accusing the speculation of influencing the price.
That's not the point of anybody, because it's not there's
nobody who's going to say this is a of the problem.
There's other stuff that does have this effect. I think
what gets people to say speculation is hav an effect
is because there's people out there who's like, it has
(27:58):
no effect, and it's just not possible that a million
futures contracts can't have some effect on the end price.
And it is just correlated, it's not causal. So quickly
right along with it it was I don't know, and
I mean, ultimately what it comes down to, is uh,
(28:20):
the average American who's still you know, maybe unemployed, paying
tons of money for food, is getting you know, reamed
at the pump still and if there's anything that could
be done to reduce that without causing harm to the
to the markets, why not. But hey, good news, Josh.
In two thousand eight, Congress introduced the Consumer First, Hey
(28:44):
how about that Consumers First the Energy Act in May
two thou and that would have extended oversight for the
CFTC to foreign lands, probably would have helped a lot,
and it died on the Senate floor a month later.
A month later. Yeah, they said consumer First, let's kill it.
They're talking about it now, like, um, this whole Obama
pushes basically making the oil companies out to be bad guys.
(29:07):
So the Democrats are really taking their they're banging the
war drumb against oil companies right now. And then investment
bankers are a fun target too. So this is this
is coming up again, but it's coming up like it
did in two thousand and eight because oil speculation is rampant.
And I know everyone thinks we're we're anti capitalism, but
that's not true at all. It was just just play fairly.
(29:28):
Just play fair at the very least, admit that you're
having the effect that you're having. That's that's what I
think would gal anybody who who is like, yes, oil
speculation as an effect. UM. And it's not just oil.
By the way, If you want to read a really
cool article UM on speculation commodity speculation, UM, read Frederick
Kaufman's The Food Bubble. It's he tries very hard but
(29:52):
fails ultimately in the end to connect Goldman Sacks trading
wheat and creating a wheat bubble that created the food
crisis in the riots in Haiti and Egypt in two
thousand and eight. UM and it's he came so close,
but he wasn't able to UM. But it's worth a
read anyway. It was in Harper's like last year. Interesting. Yeah,
(30:13):
so that is oil speculation. UM. It's us speculating on
oil speculation, or speculating as little as we as we
can write. UM. If you want to learn more about
that type in oil in the handy search bar how
stuff works dot com. We have a bunch of cool
stuff on the side about that. UM and I said oil,
followed by handy search bar, which means listener mail Josh,
(30:37):
I'm gonna call this uh sperm donation. Uh. Dear Josh,
Chuck and Jerry. What I'm gonna say Lizzie today? Because
Jerry has left us tell you it again? Dear Josh,
Chuck and Lizzie. My name is Melanie'm a college student
from Seattle attending full time school in South Korea. I
was listening to how twins work and it made me
think of my own unique family situation. My mom and
(31:00):
legal father, her husband could not have a child together,
so they decided to get a sperm donor. The laws
are looser now, but twenty years ago information was more
closed off in secretive. I grew up not knowing really
anything about my real dad until just about a month ago.
In late February, the day before I was to depart
back to South Korea, I got a letter in the
mail from my real father. He lives in Athens, Georgia.
(31:21):
Pretty cool. We have been communicating through Facebook and email,
and I've discovered that we have quite a bit in
common despite never knowing each other. Of course, you do
Jean's baby, it's all the Jenes. I wonder if it
turned out to be biker Lee. We have very similar handwriting, religious,
spiritual beliefs, paranormal, paranormal experiences, TVs TV show taste. He
(31:47):
is a nurse and that was the first job I
ever wanted, so it's not really And he was a
journalist in my main talent in a large interest of
mine's writing. On top of all this, five years ago
or so, my mom received a letter from a lady
who had registered the same donor number. So, in short,
I also have a half brothers. That's very cool. Um.
We were able to meet once actually my senior year,
(32:08):
and also discovered we had several things in common. My
boyfriend was a part Japanese guy named Max, and as
was his best friend, a part Japanese guy named Max Wow,
same political views, both played guitar, same favorite band, half brother,
half sister reunited. Does she say the same favorite band?
(32:28):
She doesn't mention what the band is, but she said,
this leads me to my request that we do an
episode on sperm and egg donation and how relationships can develop.
So let's add that to the kittie to the queue. Yeah,
let's do that, Melanie A thanks a lot, Melanie, And
we got to come down to Athens for a little while. Right, No,
(32:49):
she did not come down, she just was in contact.
You definitely have to go to Athens, and while you're
there to make sure you eat at Harry Bassett's. I
strongly recommend the chicken Rochambo and they do not kick
you in the crotch when you ordered. I promise this
isn't like of a prank. No no, um. If you
were produced outside of the traditional means of reproduction, we
(33:12):
want to hear about it. Yeah, good one, Um, wrap
it up. Sending in an email to stuff podcast at
how stuff works dot com for more on this and
thousands of other topics. Is it how stuff works dot com.
To learn more about the podcast, click on the podcast
icon in the upper right corner of our homepage. The
(33:34):
how Stuff Works iPhone app has a ride. Download it
today on iTunes. Brought to you by the reinvented two
thousand twelve camera. It's ready, are you
Brought to you by the reinvented two thousand twelve Camray.
It's ready. Are you welcome to Stuff you Should Know?
From House Stuff Works dot Com. Hey, and welcome to
the podcast. I'm Josh Clark. Across from me is one
Charles W. Chuck Bryant. And since there's a couple of
(00:23):
the microphones in front of us that would make this
stuff you should know, the all audio podcast, All Goodness,
all the time. And in the other room, as guest producer,
Elizabeth Lizzie. Yeah, her old buddy is back here working,
which is nice, giving us um pieces of dry mango.
And in between she worked for Emily and so I
just haven't been able to lose Lizzie. That's good, but
(00:44):
she's not when you want to lose Lizzie's awesome. Stop
picking on Lizzie, Chuck. I'm a big fan. I started
the Lizzie Fan Club here. Oh yeah, and then I
dissolved it. I was gonna say, I have not been
invited to that. That's just me, Chuck. Remember when we
were on the call all with a senior White House
official yesterday, Yeah, that was kind of cool. Huh yeah
(01:06):
White House. Yeah, Obama Administration that's who's in there. Basically
we were talking about the UM. Well, we're basically going
over the talking points for the energy security policy that
he unveiled today as of this recording March thirty one, right,
I was tomorrow the thirty one. So he goes over
(01:29):
this or or she's going over this with us and UM.
Basically Obama has said that over the next decade he
wants to reduce American oil imports by a third, right,
And it's something that every president going back to I
think Nixon has said that. All right, So it's an
ambitious goal, is what you're saying. Well, not sorary third,
(01:51):
but yeah, they all There's a video that John Stewart
ran on The Daily Show where it literally showed the
same clip from like our last five presidents saying reduced
foreign dependency on they have the best researchers on that show. UM.
So okay, Well, Obama took his rightful place, following in
the footsteps of Richard Nixon, and UM has has said
that he wants to reduce our imports by a third
(02:13):
in about ten years. UM. And one way to do
that is to UM figure out how to conserve oil,
how to reduce use e g. A smarter grid, more windpower,
more nuclear um more um clean coal, clean coal was
another one. Natural gas, no clean coal, and to basically
(02:36):
get online are reserves that we have now. So the
big talking point around Washington with the Democrats right now
is that oil is um. That the oil companies have
leases on something like seventy nine million acres of UM
of oil land, suspected oil land that we were not tapping, right,
(03:00):
that's not being used. It just own these leases, right,
And then I think like nineteen million acres are actually
being mined for their oil or natural gas. And Obama's
position is, hey, you fat cats, um, you need to
go ahead and start producing or else we're going to
(03:20):
penalize you, like invest in the United States, come off
some of these profits and start spending on exploration and
production and get American oil out of the ground, which
is hugely different than what he was saying he should
do before, which is like no ausch or really nothing
like that. Um. So it's it's kind of a big
deal that he's really putting oil at the center of
(03:42):
his energy security policy. UM. But one thing we asked
that they didn't really answer very well is what role
does preventing speculation in the commodities market play in energy security?
That's my question. I get the sense, and this is
one of those topics again that you know, Chuck's little
(04:04):
guitar playing English major brain has a hard time wrapping
around this. But I get the feeling that there's not
a lot of people in the government they want to
talk a lot about oil speculation. It's like, don't bring
that up, no, um, which is strange because its whole
you know, there's that whole kicking around Wall Street, um
during the recession thing that was going on, and that
(04:26):
seems to have been largely abandoned. Um. But the question
of whether or not oil speculation is affecting oil prices today,
it still remains oils up to UH. I think triple
A saying a national average of three sixty right now
for unlighted for regular that's a national average. Yea, yeah,
(04:48):
that's crippling. And and well, I know the recession ended.
I just made air quotes, um, but people are hurting. Uh.
Food prices are increasing, oil prices are increasing, Gas prices
are increasing, and UM, a three dollar and sixty cent
gallon of gas is crippling to the average American. Yeah,
and that's average. I mean you've got to some places
(05:10):
like California and there in the summertime they may be
creeping up over five bucks a gallon. Yeah, so the
money for a gallon of gases, it is a barrel
of oil today is trading for opeque. By the way,
it stands to make one trillion in revenues in two
thousand eleven. That's the course it's on right now. Yeah,
it's a lot of UM. So so uh the there
(05:35):
there's this idea out there that oil trading at one
fifteen and barrel should actually be trading at something like
UM ninety a barrel, and that oil speculation is accounting
for UM twenty to twenty five dollars on top of
the barrel price, and it counts for a lot of
this increase in in UM the price of oil. So
(05:58):
this is nothing new. This is going on right now
in two thousand and eleven. But it just happened in
two thousand and eight. Do you remember when oil hit
four dollars a gallon? It hit four eleven as a
national average. This is the highest ever remember two seven,
So two thousand seven, two eight, Yeah, I remember when
it took the first big jump, um, whenever that was.
I was living in l a And I remember it
(06:19):
got over two dollars a gallon, and it was a
big jump. It was like one weekend it was you know,
a dollar or eighty five, and the next weekend it
was like to thirty five. Then we would have probably
been like two three or two thousand four. It was
a big It was like a fifty cent jump or
something like that. Um, don't quote me, I'm going on
my feeble memory, but I remember saying at the time,
you know what, I just had a feeling, said, this
(06:40):
is something different. Gas is never gonna be this cheap again,
never gonna go back down. You know, in nine, the
average was ninety cents a gallon. Nine it was it
was so twelve years ago a gallon. Now we're all
we're at three sixty, we've already hit four and change
for an average. I remember feeling a little hondap for like,
you know, fourteen dollars. Yes, that was just so beautiful now,
(07:05):
so um chuck. From two thousand four to two thousand
and eight, the price of a barrel of crude oil
increased from thirty one dollars and sixty one cents in
two tho four, two hundred and thirty seven dollars and
eleven cents in July two thousand eight. Right, so guess
prices grew from one to four oh nine over that
same period. There's a lot of things. There's so much
(07:30):
that goes into oil production that could affect the markets.
Instability right right now, people are taking to the streets
of Yemen, in Syria and once in a while in Iran,
Um they are um, they are overthrowing the government in Egypt.
There's a civil war going on in Libya. Libya's oil
(07:51):
production is virtually offline right now. So so well, it
depends on who you're asking. It's actually pretty stable. It's
just socialists, which is why everybody's like, oh, that's a
dangerous country. If you're America, it is, right, but that's
one of the reasons that people said, you know, geopolitics
in these instability unstable regions that produce oil has a
(08:12):
lot to do with it. But Michigan Senator Carl Levin
during a hearing said, you know what, yeah, it's unstable,
but it's been unstable for decades and we've been buying
oil from them. No problem. But that's how he claimed
at least right, and Hugo Chavez, remember for through SITCO,
that's the Venezuelan oil company that's here in the US.
(08:33):
Through SITCO. Remember, he used to donate like a million
gallons of heating oil to people in the Northeast to
keep them alive. And that was like basically him saying
like this is what socialism gets you, people of Boston
with UM. Yeah, so it's unstable in that he's not
a friend of America. We were not capable of pushing
(08:53):
him around, and we need their oil, right, but we
have a dayton because people like money, economies like money,
and we want to their oil. So everybody's chill out.
What's more with this um recent drop in production that
that's represented by Libya going in the civil war, Saudi
Arabia stepped up and said, you know what, that's three
percent of the oil that's produced every day, and we're
(09:15):
gonna add an extra three percent to make up for
this temporary shortfall. So there actually isn't any kind of
thing in the production or supply side. Well, no, because
you mentioned in the article like could it be peak oil,
but now it's not peak oil. Well, peak oil, do
we not podcast on the end? No, we know we
have we need to do that. That's the point where
you know there's only a fine it amount of oil.
(09:35):
So once we cross that little threshold, it's like all
of a sudden, there's getting less and less oil. Yeah,
and there's there's a whole um group of people out there,
very educated, smart people. They're not crack pots olas. Sometimes
people look at them like that, who believe we have
past peak oil and it's gonna take us five years
or ten years to figure it out. But by that
time it'll be way too late, and the the world's
(09:57):
gonna come to a grinding halt for a while until
we can figure out what to do. UM. A lot
of people think that we haven't hit peak oil. And
if you look at UM the at least the published figures,
Saudi Arabia is often accused of fudging on their numbers,
and I think they were found to UM a while back.
But most people say, no, supply still exceeds demand, which
(10:18):
if you look at Mr Adam Smith's The Wealth of Nations,
the the basis of the capitalist economy. If supply exceeds demand,
prices should remain low. And oil, Isn't that the kind
of thing you want rewriting the rules of base economics. No,
because ultimately it's a commodity, and a commodity is something
(10:38):
that we can make things out of, or something we need.
Wheat is a commodity, we need that. Pork bellies a commodity.
That's the most delicious commodities. Um, and oil is a
very very vital commodity. So if Carl Levins saying, yeah,
that's unstable, but were we we can deal with them.
If Saudi Arabia is saying, yes, Olivia's off line right now, um,
(11:01):
but we're gonna make up the shortfall. If if we
haven't actually passed peak oil and the supply still exceeds
the demand. A lot of people are saying, why is
oil so high? Why is it increasing and increasing? And
there's a correlation that's going on right now. The the
answer to that, obviously for a lot of people's minds,
(11:22):
And I'm not taking a position on this because it
is a very controversial thing to say that is oil speculation. Yeah,
there's speculation that the speculation is what's driving up the price, right,
that's perfect chuck uh. And one of the ways that
it's being. UM, I guess suggested is that from I
think July of two thousand, eight h there were six
(11:44):
D seventeen thousand oil futures contracts on the market, on
the oil commodities market. Can we explain what the future is? Well,
we'll go back. I just wanted to get this one
last stat out, and we'll go back to the beginning, UM,
and then July or January two thousand eleven. So July
two seventeen thousand, January two eleven, one million UH futures
(12:07):
contracts on the oil market, it's right. And between those
two times, after the last bubble burst, it's been creeping
up and up and up. Prices have basically commensurate with
oil futures contracts. So it really looks a lot like
it could be oil speculations driving up the prices. So
let's talk about oil speculations. Yes, and my mind starts
(12:28):
to melt starting now, all right, Josh, the future and
you're gonna tell me with this, But UM, any kind
of future is a contract between a buyer and as seller.
Buyer agrees to purchase a fixed amount of a commodity
that it fixed price, and oil future we're talking about
oil obviously, So it's different than actually buying into a
(12:50):
commodity because you're just betting on whether or not it
will be higher or lower at the end of your contract.
That correct, A future is a derivative and a derivative
of as any kind of financial contract or instrument that's
the value of which is based on the value of
something else. It's you know what it is to me,
to my little brain that doesn't think about the stuff, Well,
(13:11):
is it's a made up way to make money almost,
That's exactly right. It's like someone created this and said, hey,
this doesn't even exist, but as long as there's someone
buying and selling it, it does exist. Because so a
futures contract is very standard. It's not an exotic financial instrument,
but the way that it's being used in the derivatives
(13:32):
market is um extremely exotic and volatile. So, Chuck, you
have a bunch of oil, and I I have a
refinery over here in my backyard, and uh, well, I'm
I'm saving up it for a better life for it. Um,
So I want to buy some oil from you, all right,
(13:55):
But I think that oil, the price of crude is
going to go up. You know, A year from now
per barrel, right, and I'm going to so I'm gonna
go ahead and buy it for the market price now right,
and um, you're going to sell me a futures contract.
So we have an agreement that a year from now
in um, at the end of March two thousand twelve,
(14:17):
the that contract expires because you have to I have
to buy that oil from you, okay, but not now
a year from now. Right now, if I'm right and
oil goes up, say I, I'm buying a hundred barrels
at fifty bucks of barrel. That's our future contracts, our
contracts for five grands um. If it goes up. If
the price of oil goes up to fifty two dollars
(14:38):
of barrel a year from now, I just got fifty
barrels of oil for two hundred bucks less than I
should have paid. It's a good deal for you, it is.
But the future's um contract is also. Um. Well, it's
a bet, right because the price of oil could go down.
I said in two thousand twelve, and the MARCHI done.
(14:59):
Twe I'll buy those fifty barrels of oil from you
for fifty bucks. But if the value of oil in March,
she does twelve forty eight bucks of barrel. Then I'm
paying two more than I could have if I just
bought on what's called the spot market, which is I
go to you, I want your oil right now, and
you sell it to me for whatever the market prices. Right.
And if this sounds weird, it's not so different than
(15:20):
betting on whether or not a stock will go up
or down. It's the same thing. It is, but in
a lot of ways, it's just kind of it's it's
saying it can Also it also comes into play if
if I don't need oil right now, but I'm gonna
need it in the future, and I think it's gonna
go up right now. When the real bet comes in,
that's when when I'm when I'm saying that I think
(15:41):
it's gonna go up, I'm gonna go long. It's called
going long. Yeah. And at the end of this contract,
you're actually gonna get oil. Correct, if you're holding the
contract and that I have with you, um, then yes,
So that has to buy oil from you that is
a country and be like give me my money, I'll
give you your oil. Right. But that's an important thing
to distinguish because that is a future and that means
(16:03):
actually oil is being traded at some point, right, And
that's a normal thing. Right. Okay, Now that's going long.
If I'm betting that oil prices are going to go up.
If I think oil prices are gonna fall, I'll go short. Right.
So it's virtually the same thing. We go into a contract, right,
So Chuck, let's say conversely, Um, you you think that
(16:23):
oil is gonna go down, so you're happy to sell
me a future's contract, right, Um, the price of oil
goes down, right, we we say, we say, for you know,
five grand, Um, the price of oil goes down to
forty eight bucks of barrel, and you buy that contract
back from me at the market price you just made
two bucks. Okay, Okay, So there's going short and there's
(16:48):
going long. But as you said, in a standard commodities
market that there's not a secondary derivative derivatives market going on,
then ultimately there's going to be an exchange of oil
the secondary derivatives market. You never get caught with the
contract when it expires. Your trading contracts day by day,
moment by moment, as the price of oil changes up
(17:10):
and down throughout the day. You're making money off of
those fluctuations by buying and selling, by shorting and longing um,
the the price of oil on these contracts, and that
is speculation that, okay, leads to what's called an artificial market.
Supply and demand no longer applies to the commodity itself.
(17:34):
Supply and demand is also subject to the two the
the financial instruments as well. Yeah, the whims of who
has a lot of money and can affect a market
with a big purchase. So that's called an unstable market
because it's you don't it's very violable. It's not it's
not nearly as steady as a real tangible market. No.
(17:56):
I mean, if you look at if you look at uh,
you know, um, it's just a regular commodities market where
there aren't any futures or derivatives um trading by anybody
besides the people who actually will end up with this stuff.
There's the changes, the fluctuations over you know, a month
or a year or a quarter are you know, pennies
(18:16):
or a buck or two. Here it's when investment banks
and hedge funds, who, by the way, when interest rates
are very very low, tend to turn to the commodities
market for to safely park their money. Right, because they're
not gonna make much much money when interest rates are low. Um,
they turn to the commodities market when they get involved.
(18:38):
That's when things start going from thirty bucks of barrel
in two thousand and four two hundred and forty dollars
a barrel in two thousand and eight. Right, And that's
what happened with the housing uh bust, all of a sudden,
Wall Street Housing wasn't a good place to put any money,
So Wall Street flocked over to speculation futures, oil futures, right,
and and um, we should say in that this is
(19:00):
this is all very much debatable. This is if you
believe that oil speculations affecting oil, this is how it happens. Right.
They were just explaining that that's what we do. Well,
what we just explained was how derivatives trading works. This
is no secret. It's the effect that it has, that's
what's that's what's debatable. So the people who believe that
there is consequences for oil for derivatives trading to say
(19:25):
that here's what happens. Right, if you want, if you
want to get your hands on actual oil, right you
aren't going to be able to keep up with an
investment bank or a hedgephone manager who is buying up futures.
So you're gonna need oil now, and you're gonna have
to stockpile. It's one good thing about oil is you
can stockpile it for a while, right well, and oil
(19:46):
producers can hoard it. That that's exactly right as well,
But there's you could also the derivatives market in futures
can also inadvertently force a horde among people who actually
use the oil, who are buying oil for use, not
just trading in the derivatives market by saying, Okay, I
can't buy futures because they're just too expensive right now,
(20:09):
so I'm gonna buy whatever I can get my hands on.
So the spot market that deals in actual oil right
that moment has a higher demand, which means the actual
price of oil goes up, which means those oil futures
go up even further, which means prices across the board rise,
especially for gasoline. That's right, and when big companies like
(20:31):
Goldman Sackson City Group are these huge financial institutions are
buying up tons and tons of uh are speculating. Then
that's going to have a really big sway on the
market that alone will right, they stand and gain tons
of cash, tons of cash. But imagine if you not
(20:52):
only stood to getting tons of cash from the secondary market,
but you're an oil producer as well. Yeah, and all
of a sudden you're aculating on your own production or
buying oil features. If you buy a bunch of oil
features from higher price, you can actually the market um
trades on rumor, right, So people are like, well, somebody's
(21:12):
buying up a bunch of this stuff, and the prices
actually rising, right, so that a lot of people are
gonna be willing to pay more and more and more.
If you're an oil producer doing that, then you're going
to stand again through the financial instruments and through the
actual sale of your oil. And there was an investigation
into this um the the secondary oil markets that found
(21:32):
that in the New York Mercantile Exchange alone, which is
the commodities market, or one of them for the us UM,
eleven percent of the oil futures contracts were owned by
vital which is a Swiss oil producer. So how, Chuck,
how can an oil company be allowed to artificially inflate
(21:54):
the price of oil for its own gains, And how
can investment banks be allowed to drive up the price?
That is, in fact, what's going on. How can they
be allowed to drive up the price of a commodity
as valuable as oil If normally it should be something
like thirty or forty or fifty dollars a barrel, and
it's double or triple or quadruple, what what experts believe
it's actual value should be. Well, it shouldn't be able
(22:17):
to happen, because they're starting in with our congress. There
was something put in place called the Commodity Futures Trading Commission,
the CFTC, and they were put in place specifically to
prevent this kind of thing from speculation artificially inflating prices
of commodity. So they were like, they've realized a long
time ago this could be a real problem. Let's put
this thing in place and let's make them keep it
(22:39):
in check. So if you were trading on that exchange,
you gotta file reports every day. The Commission looks them over,
keeps an eye out for speculation. They know if somebody
is trying to corner the market. There who and they
try to stop it. But quite a few things have
happened to nooter for the most part. The CFTC. Yeah,
because you can create a federal agency and empowered all
(23:02):
you want, but if successive presidents disagree with you about
the value of that that agency, they can neglect it,
they can strip it of its powers. They can as
you say, new to it and not even have the
courtesy to put noodle noodicles on it afterward, just leave
it laying there, you know. So in two thousand, the
very big thing happened. Prices were still pretty low for oil,
(23:23):
less than thirty bucks of barrel, but a little company
called en Ron started lobbying Congress to remove regulatory powers
of the CFTC. And basically what the deal was. The
CFTC um had regulatory powers over the official exchange. So
Enron says, hey, New York Mercantile Exchange and uh, CFTC,
(23:45):
I'm sorry. And Ron said, hey, you know, we've got
the software that allows futures to be traded over the counter,
which is something outside of the formal exchange market. Right.
It's basically like I can say, hey, Chuck um, you've
got a bunch of futures like in your pocket, can
come to your house and buy it and it will
be a legitimate exchange. But it's over the counter. It
exists outside of the market, that's right. And that became
(24:06):
known as the Enron loophole because all of a sudden,
O t C trading was allowed for futures exchanges with
no government oversight because it was out of the jurisdiction
of the CFTC. So, josh, that was one thing happened
in two thousand. Then another little thing came along, uh
called the Intercontinental Exchange. The IC was set up in London,
and that was to trade European oil futures. And the
(24:28):
funny thing about that is it was headquartered here in Atlanta,
so it's headquartered in Atlanta, but it's European oil futures,
so the CFTC didn't have any oversight over them because
it was European, right, So, um, you could trade American
oil futures on this exchange. Well six years later, that's
when they set up the American terminals. Think about it, like,
(24:51):
the time in London and the time in New York
are totally different, and that's kind of a problem. So really,
if you can get these commodities, the same commodities trading
on the same time zone. You can really create you
you have a more robust market, that's right. And now
all of a sudden, the CFTC couldn't even regulate these
(25:11):
formal exchanges on the formal formal formal market, even though
it was based in Atlanta. They set up trading post
trading post terminals inside the United States in New York.
But it's almost like the O t B. Like horse
racing is illegal, but you can this race is in Cuba, right,
and but you can bet on it in you know,
(25:32):
on the Lower East Side. And so as these things
just kept going and going, um, the the CFTC just
lost any jurisdiction whatsoever. And rafty people that are coming
up with these things, they basically saying like, let's set
up away where we can make gobs of money outside
(25:52):
of regulation, and I mean outside of regulation. People have
no ideas. I was reading some blog post and it
was about how the aluminum market was being cornered by somebody,
and they thought it was some hedge fund manager and
they had an idea who but not enough to publish.
But they have no idea who's buying what there's it's all.
(26:13):
It all exists in the shadows the derivatives market too,
because it's outside of the jurisdiction of this federal agency
that was created specifically to police these things. You know,
I'm never gonna be wealthy because I'm one of those
dumb schlubs who it's just like, let me go out
and near my paycheck. And I'm not like against the
stock market, like I'll invest in the stock market and
set up my foreone can on that. But I'm not.
(26:34):
I can't even fathom the kind of what causes someone
to think of like, hey, how can I really make
tons of money with no oversight? And I'll invent this
way to trade ether and not really the people would
buy ether of them. They probably, especially drug dealers. Patrick
Bateman would have eaten you alive. Oh man, I'd be
(26:55):
so dead. So um. There was a July two thousand
eight or by the International Energy Agency that concluded that
speculation didn't really have anything to do with it. They're like, no, no, no,
that's not what's driving oil prices up. There's another report
the next September contradicted the i e. A report said,
now there's actually a lot of correlations between this big
(27:16):
influx of money and oil futures and the rising cost
of oil. I mean, I'm a dummy. To me, it
kind of looks plain that that's probably what's been happening.
But there's probably a lot of people are going to
right and say, oh, what you guys didn't consider was
X y Z. No. There's there's a lot of factors
that that um that go into producing and buying and
selling oil, and there's no way you can cover all
(27:37):
of them. And that's not the point. And I don't
think that's anybody who's accusing the speculation of influencing the price.
That's not the point of anybody, because it's not there's
nobody who's going to say this is a of the problem.
There's other stuff that does have this effect. I think
what gets people to say speculation is hav an effect
is because there's people out there who's like, it has
(27:58):
no effect, and it's just not possible that a million
futures contracts can't have some effect on the end price.
And it is just correlated, it's not causal. So quickly
right along with it it was I don't know, and
I mean, ultimately what it comes down to, is uh,
(28:20):
the average American who's still you know, maybe unemployed, paying
tons of money for food, is getting you know, reamed
at the pump still and if there's anything that could
be done to reduce that without causing harm to the
to the markets, why not. But hey, good news, Josh.
In two thousand eight, Congress introduced the Consumer First, Hey
(28:44):
how about that Consumers First the Energy Act in May
two thou and that would have extended oversight for the
CFTC to foreign lands, probably would have helped a lot,
and it died on the Senate floor a month later.
A month later. Yeah, they said consumer First, let's kill it.
They're talking about it now, like, um, this whole Obama
pushes basically making the oil companies out to be bad guys.
(29:07):
So the Democrats are really taking their they're banging the
war drumb against oil companies right now. And then investment
bankers are a fun target too. So this is this
is coming up again, but it's coming up like it
did in two thousand and eight because oil speculation is rampant.
And I know everyone thinks we're we're anti capitalism, but
that's not true at all. It was just just play fairly.
(29:28):
Just play fair at the very least, admit that you're
having the effect that you're having. That's that's what I
think would gal anybody who who is like, yes, oil
speculation as an effect. UM. And it's not just oil.
By the way, If you want to read a really
cool article UM on speculation commodity speculation, UM, read Frederick
Kaufman's The Food Bubble. It's he tries very hard but
(29:52):
fails ultimately in the end to connect Goldman Sacks trading
wheat and creating a wheat bubble that created the food
crisis in the riots in Haiti and Egypt in two
thousand and eight. UM and it's he came so close,
but he wasn't able to UM. But it's worth a
read anyway. It was in Harper's like last year. Interesting. Yeah,
(30:13):
so that is oil speculation. UM. It's us speculating on
oil speculation, or speculating as little as we as we
can write. UM. If you want to learn more about
that type in oil in the handy search bar how
stuff works dot com. We have a bunch of cool
stuff on the side about that. UM and I said oil,
followed by handy search bar, which means listener mail Josh,
(30:37):
I'm gonna call this uh sperm donation. Uh. Dear Josh,
Chuck and Jerry. What I'm gonna say Lizzie today? Because
Jerry has left us tell you it again? Dear Josh,
Chuck and Lizzie. My name is Melanie'm a college student
from Seattle attending full time school in South Korea. I
was listening to how twins work and it made me
think of my own unique family situation. My mom and
(31:00):
legal father, her husband could not have a child together,
so they decided to get a sperm donor. The laws
are looser now, but twenty years ago information was more
closed off in secretive. I grew up not knowing really
anything about my real dad until just about a month ago.
In late February, the day before I was to depart
back to South Korea, I got a letter in the
mail from my real father. He lives in Athens, Georgia.
(31:21):
Pretty cool. We have been communicating through Facebook and email,
and I've discovered that we have quite a bit in
common despite never knowing each other. Of course, you do
Jean's baby, it's all the Jenes. I wonder if it
turned out to be biker Lee. We have very similar handwriting, religious,
spiritual beliefs, paranormal, paranormal experiences, TVs TV show taste. He
(31:47):
is a nurse and that was the first job I
ever wanted, so it's not really And he was a
journalist in my main talent in a large interest of
mine's writing. On top of all this, five years ago
or so, my mom received a letter from a lady
who had registered the same donor number. So, in short,
I also have a half brothers. That's very cool. Um.
We were able to meet once actually my senior year,
(32:08):
and also discovered we had several things in common. My
boyfriend was a part Japanese guy named Max, and as
was his best friend, a part Japanese guy named Max Wow,
same political views, both played guitar, same favorite band, half brother,
half sister reunited. Does she say the same favorite band?
(32:28):
She doesn't mention what the band is, but she said,
this leads me to my request that we do an
episode on sperm and egg donation and how relationships can develop.
So let's add that to the kittie to the queue. Yeah,
let's do that, Melanie A thanks a lot, Melanie, And
we got to come down to Athens for a little while. Right, No,
(32:49):
she did not come down, she just was in contact.
You definitely have to go to Athens, and while you're
there to make sure you eat at Harry Bassett's. I
strongly recommend the chicken Rochambo and they do not kick
you in the crotch when you ordered. I promise this
isn't like of a prank. No no, um. If you
were produced outside of the traditional means of reproduction, we
(33:12):
want to hear about it. Yeah, good one, Um, wrap
it up. Sending in an email to stuff podcast at
how stuff works dot com for more on this and
thousands of other topics. Is it how stuff works dot com.
To learn more about the podcast, click on the podcast
icon in the upper right corner of our homepage. The
(33:34):
how Stuff Works iPhone app has a ride. Download it
today on iTunes. Brought to you by the reinvented two
thousand twelve camera. It's ready, are you
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