Charlieoi
01-18-2016,
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:
What’s your overall take on Wall Street and the oil market’s effect on the country today?
Goodman: The underlying problem in the oil market and in the broader market in this country is that ordinary Americans are now seen as a resource to be exploited by those who are in power – the wealthy and those with political influence. We’re seeing Washington and Wall Street working so closely together that you really can’t tell the difference between them anymore. The figureheads of each like to go back and forth between both locations, picking jobs, then switching and going back again. The government officials we are trusting and paying to look out for Americans are using those positions to get really nice, high-paying jobs in private-sector places, including Wall Street, that are effectively being used as bribes. It’s a problem, and it is obvious that it’s a threat to the long-term prosperity of this nation.
Let me put it this way: If you can imagine a country where the rich and the influential have managed to take over pretty much every last power center, can you imagine a situation different than the one we see here in the U.S. today?
The Asylum has several examples of that, but what really stuck in my mind were some of the crazy things – the drugs, sex, gambling – that you describe happening on and near the Nymex trading floor. The charges are explosive. What kind of reaction have you been getting?
Goodman: There has been no denying of how bad things are in terms of the traders and their behavior. There has been a lot of incredulity over who controls the market for oil itself. I saw someone wrote on the Amazon page that Nymex wasn’t really the market that calls the shots on oil, anyway, that everyone knows oil prices are controlled by OPEC and the banks and the oil companies and the hedge funds. These guys just pushed the orders through and had no idea what was going on. While it’s true that banks, oil companies and hedge funds now dominate the market, the Nymex traders handled almost all the orders and traded right alongside them, generating huge volumes. The idea that they had no idea what was afoot is a perception a lot of people have been enjoying putting out there. Because if you’re going to accept that these people were running the show, then you have to have a conversation about how we can have politicians and important, key figures in the city of New York visit this trading floor, and nobody ever said, “Maybe we shouldn’t have people doing drugs and bringing strippers and drinking alcohol while trading the benchmark global oil contract.” People would actually have to assume responsibility for what took place. And that’s out of the question. It’s more, “Oh, they weren’t running it anyway.” But they were running it.
I can see where people get confused. The long-held belief is that oil and gas prices are controlled by Big Oil, OPEC, banks and hedge funds and the like. But you make it pretty clear that the traders, who were executing the deals for big clients, could also make their own bets on the floor – and time them around massive trades from big players.
Goodman: At the end of the day, it was the traders in the pit who decided how everything was going to go down. My book tells what, exactly, took place behind closed doors in the traders’ own words, as Americans struggled to come to grips with rising oil and gas prices. It is all true. The traders talk openly about how they could arrange things around [big trader orders] so they could benefit. That happened frequently. The traders would take big orders from big players and get the best of them as a way to profit.
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:
What’s your overall take on Wall Street and the oil market’s effect on the country today?
Goodman: The underlying problem in the oil market and in the broader market in this country is that ordinary Americans are now seen as a resource to be exploited by those who are in power – the wealthy and those with political influence. We’re seeing Washington and Wall Street working so closely together that you really can’t tell the difference between them anymore. The figureheads of each like to go back and forth between both locations, picking jobs, then switching and going back again. The government officials we are trusting and paying to look out for Americans are using those positions to get really nice, high-paying jobs in private-sector places, including Wall Street, that are effectively being used as bribes. It’s a problem, and it is obvious that it’s a threat to the long-term prosperity of this nation.
Let me put it this way: If you can imagine a country where the rich and the influential have managed to take over pretty much every last power center, can you imagine a situation different than the one we see here in the U.S. today?
The Asylum has several examples of that, but what really stuck in my mind were some of the crazy things – the drugs, sex, gambling – that you describe happening on and near the Nymex trading floor. The charges are explosive. What kind of reaction have you been getting?
Goodman: There has been no denying of how bad things are in terms of the traders and their behavior. There has been a lot of incredulity over who controls the market for oil itself. I saw someone wrote on the Amazon page that Nymex wasn’t really the market that calls the shots on oil, anyway, that everyone knows oil prices are controlled by OPEC and the banks and the oil companies and the hedge funds. These guys just pushed the orders through and had no idea what was going on. While it’s true that banks, oil companies and hedge funds now dominate the market, the Nymex traders handled almost all the orders and traded right alongside them, generating huge volumes. The idea that they had no idea what was afoot is a perception a lot of people have been enjoying putting out there. Because if you’re going to accept that these people were running the show, then you have to have a conversation about how we can have politicians and important, key figures in the city of New York visit this trading floor, and nobody ever said, “Maybe we shouldn’t have people doing drugs and bringing strippers and drinking alcohol while trading the benchmark global oil contract.” People would actually have to assume responsibility for what took place. And that’s out of the question. It’s more, “Oh, they weren’t running it anyway.” But they were running it.
I can see where people get confused. The long-held belief is that oil and gas prices are controlled by Big Oil, OPEC, banks and hedge funds and the like. But you make it pretty clear that the traders, who were executing the deals for big clients, could also make their own bets on the floor – and time them around massive trades from big players.
Goodman: At the end of the day, it was the traders in the pit who decided how everything was going to go down. My book tells what, exactly, took place behind closed doors in the traders’ own words, as Americans struggled to come to grips with rising oil and gas prices. It is all true. The traders talk openly about how they could arrange things around [big trader orders] so they could benefit. That happened frequently. The traders would take big orders from big players and get the best of them as a way to profit.