Useful perspective on speculation in oil markets

Michael Giberson

Geoffrey Styles offers some perspective on the Vitol S.A. affair. (Vitol was indirectly revealed to have had a rather large position in NYMEX’s oil contracts when the CFTC reclassified a single trader from “commercial” to “non-commercial.” The CFTC did not name Vitol, but enough information was available that industry insiders were able to discern the company involved.) According to the Washington Post, Vitol held approximately 11 percent of outstanding contracts in the market.

The Washington Post headlined its report online: “A Few Speculators Dominate Vast Market for Oil Trading.” But, as Tyler Cowen remarks, “influence” may be a better choice of words than “dominate.”

I recall that folks said that Amaranth dominated natural gas futures, too, and yet somehow all of their domination led to multi-billion dollar losses and the disbanding of the firm.

Anyway, if you’ve read some of the news reports about the CFTC reclassification, then you should also read Styles for a deeper perspective on the news.

UPDATE: NewsWatch: Energy also has comments.

STILL MORE: Bloomberg reports that the CFTC disputes the Washington Post‘s claim that “financial firms speculating for their clients or for themselves account for about 81 percent of the oil contracts on NYMEX.” Accorder to the Bloomberg article:

The agency said the 81 percent figure cited in the Post story seems to count an entire group of traders, those labeled “swaps dealers,” as speculators even though some of them are engaged in hedging for commercial entities.

(The Styles piece found via The Energy Collective.)

Peter Corsell on smart grid technology

Lynne Kiesling

The latest issue of MIT’s Technology Review has a profile of GridPoint and its founder, Peter Corsell. Peter’s commentary in that issue discusses the importance of applying information technology in the electric power system. There’s also a good video profile, which I recommend to you.

Will Pandora be an Internet radio royalty casualty?

Lynne Kiesling

Pandora is a vast online radio resource, with many subscribers who are huge fans of its services. But it may go out of existence in the near future as a consequence of Internet royalty payments:

Pandora — practically the poster child for online radio — says it will shut down if royalty rates enacted in March of 2007 are not altered soon.

Despite all of those warnings, the rates remain intact and must be observed by webcasters, even as the battle over them continues. Aside from a few concessions to small webcasters and those with lots of unique streams, Washington lawmakers have not altered the rates, which currently require Pandora to fork over 70 percent of its revenue to labels and artists. …

If Washington lawmakers want to ensure that legal music services cannot compete with under-the-radar alternatives that pay nothing to artists, they’re doing a bang-up job. …

While all forms of U.S. radio pay royalties to songwriters and publishers through rights organizations such as BMI and Ascap, record labels and recording artists have not received performance royalties from radio in this country, because radio was thought to have a promotional effect on sales. With sales flagging, labels and artists are trying to collect licensing fees from all uses of their music, including radio. Satellite radio stations must pay a small percentage of revenue, while terrestrial radio stations currently pay no royalty to labels and recording artists.

As I’ve asked here at KP over and over and over and over and over, why does this unreasonable and demonstrably poor policy persist? Is the U.S. Copyright Royalty Board that clueless? Or is it just that the broadcast radio interests are really good at playing them?

Pandora has already ceased streaming radio to the U.K. because of these royalties that they have to pay and terrestrial stations do not. Is it going to take the death of a large, popular site like Pandora for meaningful change to happen here?

The Save NetRadio Coalition has more information and ways to make sure that this issue stays in Congress’s face until they muster the gumption to deal with it.