GREED AND SPECULATION IN OIL FUTURES CONTINUE - NOW THE BANKS ARE TRADING. LOOKING FOR BIG TROUBLE FROM CONGRESS.

How Banks Are Poised to Cash In on the Cold Snap

(Jan. 8) – The cold snap that has large swaths of the United States in a deep freeze may mean higher heating bills for millions of consumers, but the frigid air is good news for top banks. Or, to put it in the language of the perhaps inevitable political talking point: As Main Street shivers, Wall Street is poised to cash in. Big financial firms have invested heavily in the oil and gas sector in recent years, buying up energy storage facilities. With demand for heating oil rising, and raising prices along with it, tankers used to store oil at sea are now headed back to the Northeast, the trade Web site HeatingOil.com reports, carrying with them the makings of healthy weather-related profits for the likes of Morgan Stanley and JPMorgan. The practice of storing oil offshore while prices are lower – critics call it "hoarding" – and selling it when the price goes up has become commonplace. Such investors are taking advantage of a market condition known as contango, in which the price received for delivering a commodity – in this case heating oil – in the future is higher than the price for delivering it immediately. Contango had been present in the heating oil market during the fall, providing an incentive for companies to hold rather than sell their oil. Now that the demand has returned, oil owners are reaping the profits. Crude oil prices are up to more than $80 a barrel, while heating oil futures have also risen sharply as the temperatures outside have plummeted.The store-and-sell method is perfectly legal, but its use during the cold spell reignites a long-running debate over its fairness among consumer advocates, economists and industry executives."The commodity traders are making hundreds of millions – if not billions – of dollars at the expense of the homeowners," said Fadel Gheit, managing director for oil and gas at Oppenheimer & Co. The households facing higher energy bills, he said, "are getting screwed."Gheit maintains that the sharp increases in heating oil prices are a result of a market that's out of whack because of rampant and unregulated bets by Wall Street firms. "They have speculated and manipulated oil prices for the last five years," he said. "It was a free-for-all. It was like a toga party, and everybody was drunk."Defenders of the oil storage practices say they are nothing more than simple supply-and-demand economics. "It isn't about hoarding or anything else. It's just the natural cycle of the market," said Ruchir Kadakia, the director of global oil fundamentals at IHS Cambridge Energy Research Associates, an energy consulting firm.But a leading critic, while acknowledging that "seasonal variations" play a role in the fluctuating price of oil, argues that the supply-and-demand argument doesn't hold up, because top Wall Street firms have distorted the market in their favor. "That is an assumption that the market is an automatic, robust, competitive place. It is not," said Tyson Slocum, who heads the energy division for the consumer watchdog Public Citizen. "This is not a competitive market. This is collusion, plain and simple."Slocum testified last summer before the federal Commodity Futures Trading Commission, arguing in favor of stiffer regulations on financial firms dipping into the energy market. He pointed to reports of Goldman Sachs, JPMorgan Chase and Morgan Stanley all making significant investments in energy infrastructure. Morgan Stanley, for example, had spent hundreds of millions of dollars to buy and lease offshore storage tanks in New Jersey near New York Harbor, along with oil and gas fields elsewhere.The issue has also gotten the attention of lawmakers in Congress. Sen. Bernie Sanders, I-Vt., introduced legislation in June to restrict oil speculation and force companies to disclose how much oil they were keeping in tankers offshore. The measure was approved by a Senate committee but has yet to become law."We cannot allow this to continue," Sanders said at the time, "especially when the firms that are taking advantage of this situation have received the largest taxpayer bailout in the history of the world."