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TRUTHLOVER
Thinking is important but not enough!
Articles Posted: 11; Links Seeded: 282
Member Since: 3/2008Last Seen: 11/29/2009
Member Since: 3/2008Last Seen: 11/29/2009
8 Votes
18 Comments
Is Speculation Driving Up Oil and Gas Prices?
News Type: Opinion — Seeded on Sat Jun 28, 2008 3:16 AM EDT
Article Source: The Seattle Timesadvertisement
This is an even-handed article, with opinions on both sides (and arguments supporting one set of opinions) on the role of speculators in the oil business.
Published to:
- truthlover's Column, All of Newsvine
- Groups: EconVine, Heated Debate, Oil, Political Analysis, The Green Room, Worldviews
- Regions: Seattle/Tacoma
 | Don't blame the oil 'speculators' | CNN | Fri Jun 27 | 18 |
| 6 Myths About Oil Speculators | Yahoo! Finance | Fri Jun 27 | 33 |
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{"commentId":2071272,"authorDomain":"truthlover"}
To all those who adopt and encourage the pablum view that supply and demand dives the price of oil, you're right! It's the supply and demand for commodity futures, not the supply and demand for the actual commodity.
{"commentId":2071272,"threadId":"301199","contentId":"1620058","authorDomain":"truthlover"}
- 3 votes
#1 - Sat Jun 28, 2008 3:17 AM EDT{"commentId":2071293,"authorDomain":"profwork"}
Look to the Enron Exemption. My wiki speaks to this. Speculation reinforces the market fundamentals, which now acknowledges the reality of Peak Oil. Thus, long term prices will remain high. The reality is not speculation as much as geology.
{"commentId":2071293,"threadId":"301199","contentId":"1620058","authorDomain":"profwork"}
- 2 votes
#2 - Sat Jun 28, 2008 3:33 AM EDT{"commentId":2071333,"authorDomain":"truthlover"}
I certainly acknowledge the reality of peak oil... the question is when and how will this effect prices... recall that the prices at the beginning of the Iraq war were in the $30 range... we do have a difference of opinion here... but everyone from OPEC leaders to Ralph Nader agree that there is plenty of oil on the market to meet demand... it is speculation based on various views and theories... not people buying oil futures so they can actually receive this commodity...oil was at $50 a barrel in January 2007, then $75 a barrel in August 2007. then $130 in late May and now over $140...it is clear that oil pricing is speculative activity, having very little to do with physical supply and demand.
{"commentId":2071333,"threadId":"301199","contentId":"1620058","authorDomain":"truthlover"}
- 1 vote
#3 - Sat Jun 28, 2008 3:49 AM EDT{"commentId":2071367,"authorDomain":"profwork"}
Thanks, truthlover, but what I personally suspect is the story is that Peak Oil is now and belatedly accepted by the investor community following a back-handed endorsement by the Wall Street Journal and directly by T. Boone Pickens (suspect) -- my Wall Street sources corroborate.
What both investors and Peak Oil advocates miss is the rapidity of the market response, not really a bad thing. I am personally pleased that the market is finally recognizing reality.
So should you: Market fundamentals, aka Peak Oil, drive this exuberance. Adapt.
{"commentId":2071367,"threadId":"301199","contentId":"1620058","authorDomain":"profwork"}
- 2 votes
{"commentId":2071408,"authorDomain":"gumwars"}
If anyone is inclined to do so, look carefully at the oil market. Look beyond the simple numbers presented by the media and do some of your own digging.
The price quoted in on the business page on CNN Money is the price of either Brent crude or WTI (West Texas Intermediate) which are the benchmark crudes by which all other oil futures are priced. On the ICE, a new crude commodity has been added to the futures market, middle east sour crude. It is available as an over-the-counter future and has been trading at around $100 a barrel.
This is all background to the dynamics that appear to be wreaking havoc on the market. Sweet crude oils are by far the easiest to handle, cradle to grave, of all the crudes available on the market. Sours tend to be hazardous (some are even lethal) and are difficult to refine. Additionally, sour crude will not yield the same quantity of finished product as sweet does and often times refiners are left with a goodly portion of residual that will need to be refined again in order to produce something that can be brought to market. Sour typically is used for heating oil, asphalt, and some distillate fuels.
truthlover, you are observant and correct in stating there is a surplus of oil on the market. However, there is a real shortage of sweet crude. Most crude that is produced in the middle east tends to be sour, especially Saudi Arabia.
The real problem comes into focus when you look at US refinery capabilities. I doubt that any of us will find information that states in plain english what type of crude oil our refineries are tooled to handle, but seeing how very little has been done to this sector in 30 years and coupled with the information available on the EIA website; the conclusion is that US refineries are made to handle the same crude it was producing 30 year ago. The refineries have not been updated and the result is apparent.
According to the EIA, US refineries have been declining in output since 2005. The market is drowning in oil that no customers will purchase. The oil that everyone wants is in terminal production decline and has been for a few years. On the surface this appears to be speculation as the market shows a surplus of oil and the price continues to increase. The reality is that our nation is not equipped to handle sour crude and we are starting to see the pressure this has on the market.
I doubt that if speculators were more stringently regulated it would have a positive impact on the market. In all likelihood, it would create even greater market distortion than is present now.
{"commentId":2071408,"threadId":"301199","contentId":"1620058","authorDomain":"gumwars"}
- 2 votes
#4 - Sat Jun 28, 2008 4:30 AM EDT{"commentId":2077596,"authorDomain":"truthlover"}
I appreciate your distinction between sweet and sour oil and which one is plentiful. I have to disagree with your conclusion about distortions--one has to have an incredible in "the invisible hand" to except that conclusion. The two most generalized counterexamples include externalized costs (here: environmental) as well as management decisions that tend not to look ahead more than two years (here: no new refineries). In addition, the oil companies are highly subsidized by taxpayers.
And, of course, worse is that the recent administrations have given huge tax write-offs for SUVs and other large vehicles while dismissing the need for significantly higher mileage cars.
That, too, was a way of subsidizing the oil companies.
{"commentId":2077596,"threadId":"301199","contentId":"1620058","authorDomain":"truthlover"}
- 2 votes
{"commentId":2077617,"authorDomain":"gumwars"}
I have to disagree with your conclusion about distortions--one has to have an incredible in "the invisible hand" to except that conclusion.
I would casually point to the Federal Reserve as the invisible hand. As Sec. Hank Paulson has been pushing hard to make the FED supreme regulator of all fiscal markets, and it is already the overseer of the SEC/CFTC/DTCC, the connection isn't too hard to make. The FED is single handedly the most powerful distorting force in our economy, possibly on the planet. It has already done an staggering amount of damage to the value of the dollar, which is partly to blame for the flight to commodities and the subsequent rise in oil futures.
So to that effect, I stand by my statement. Additional regulation of the commodities market, by the same entity responsible for the underlying distortions, would, in my opinion cause even more distortion. As it is, the market barely functions independant of the FED now. I would not like to see this further amplified by giving more sway to the central banks.
{"commentId":2077617,"threadId":"301199","contentId":"1620058","authorDomain":"gumwars"}
- 1 vote
{"commentId":2077840,"authorDomain":"truthlover"}
Your quote of my comment reveals two ghastly spelling mistakes. What I meant to say, as may be obvious. is that "one has to have an incredible BELIEF in "the invisible hand" to ACCEPT that conclusion."
Having said that, I don't think the Fed Reserve should be involved in any of this.
I'm thinking more of rules that could even now be applied to the stock market: no one can short a stock. (I don't know if commodity futures can be shorted, but if they can, this would be a good rule there too.) The overseeing body would be more like the SEC.
{"commentId":2077840,"threadId":"301199","contentId":"1620058","authorDomain":"truthlover"}
- 1 vote
{"commentId":2077851,"authorDomain":"gumwars"}
Taking a short position on a stock is fine, as long as you actually have the stock. The naked short selling that is going on is something entirely different. I'm still transcribing an excellent story about the phenomena now. If you haven't heard of it, I highly recommend it.
From my understanding of futures, you can take a short position but I don't think it lends itself to the same kind of abuse we're seeing with traditional stocks. Indexes, on the other hand, can be totally abused.
Concerning your statement on the FED, I couldn't agree more with you. In my humble opinion, the FED should be abolished.
{"commentId":2077851,"threadId":"301199","contentId":"1620058","authorDomain":"gumwars"}
- 1 vote
{"commentId":2078033,"authorDomain":"truthlover"}
Why would a person short a stock that he or she owned?
How do you see indexes being abused--is it by shorting the SPY or QQQQ?
The FED is a totally different issue--in fact, there is a sizable group of folk who believe the FED is not legally legitimate but, of course, they are considered "kooks."
As for a possible rule for commodities: suppose once a commodity future was purchased, it could not be re-sold and the buyer had to take physical possession of the commodity?
{"commentId":2078033,"threadId":"301199","contentId":"1620058","authorDomain":"truthlover"}
- 1 vote
{"commentId":2078456,"authorDomain":"gumwars"}
Legal shorting would be borrowing shares to go short. As to why you'd want to take a short position I have no idea. Personally I'm a commodities guy (and I like to take physical possession as well).
I like that rule on commodities, BTW. It would stop speculation dead in its tracks, which would drive the institutional investors out too.
{"commentId":2078456,"threadId":"301199","contentId":"1620058","authorDomain":"gumwars"}
- 1 vote
{"commentId":2079541,"authorDomain":"truthlover"}
I understand why people want to short a stock they don't own, I just don't understand shorting a stock that the shorter actually owns.
Yes, let's drive the speculator and institutional investors out too! I am pleased you think the rule I recommended might make a difference.
Above you wrote
Indexes, on the other hand, can be totally abused.
Can you say more?
Thanks, TL
{"commentId":2079541,"threadId":"301199","contentId":"1620058","authorDomain":"truthlover"}
- 1 vote
{"commentId":2080233,"authorDomain":"profwork"}
Refineries are unlikely in USA, although Saudis are partnering a proposal. If gasoline consumption has peaked, where is the incentive for a refinery in USA?
Gumwars, you are right that the bottleneck could be refining capacity.
{"commentId":2080233,"threadId":"301199","contentId":"1620058","authorDomain":"profwork"}
- 2 votes
{"commentId":2083243,"authorDomain":"truthlover"}
Good point profwork... and refineries are a bottle next here and often given as the reason for rising processes...
Gumwars, if you have time, would you please answer the two questions above (about shorting shares you own and manipulating indexes)? Thanks.
{"commentId":2083243,"threadId":"301199","contentId":"1620058","authorDomain":"truthlover"}
- 2 votes
{"commentId":2089202,"authorDomain":"gumwars"}
No problem TL.
From my understanding the only way you'd make a profit from legal short selling is by borrowing shares. If you found a $10 stock, for example, and borrowed 100 shares for a total of $1000. Then you sold them on the possibility the stock would fall in value. If the stock fell to $5 and you would buy back the shares you borrowed and turn a $500 profit.
Indexes are constantly manipulated by institutional investors that can purchase in quantities you and I would only dream of. Keep in mind that many institutional investors also have customers that own stocks that the indexes are based on and can (I should say often do) recommend that those customers sell or buy stocks in line with whatever index strategy they are following for the benefit of the company.
Stealing the Market, by Martin Mayer is an excellent source of examples of the aforementioned practices.
I'll check my books for specific examples and get back to you.
{"commentId":2089202,"threadId":"301199","contentId":"1620058","authorDomain":"gumwars"}
- 1 vote
{"commentId":2091862,"authorDomain":"truthlover"}
Thanks, Gumwars. you answered my question about how/whether shorting shares you owned could be profitable:
From my understanding the only way you'd make a profit from legal short selling is by borrowing shares.
I understand the usual way of shorting and how it can be profitable.
Thanks, TL
{"commentId":2091862,"threadId":"301199","contentId":"1620058","authorDomain":"truthlover"}
- 1 vote
{"commentId":2072273,"authorDomain":"louisx"}
It's too bad not too many read these type of public feedback communications. We are doing it to ourselves!!
We want purity in all aspects and will not drill, ship and refine anymore than what is there now. BTW try developing oil from the start today.
In CA we have so many different formulas for gas. Its a mess. All we hear from our "leaders" is that we cannot drill our way out of this. And either case what ever you need will take 5-10 years. We have been hearing the 5-10 year cr@p for the past 35 years. Search for alternate fuels?? .....will take 5-10 years (again). use corn - we dont need food and BTW the crops just failed. Batteries, hydrogen, etc. - sure but not here .. Let the Chinese develop it and make the money. Industry is dirty and may pollute. We dont need jobs or independence. We dont even need steel plants. We have useless money - just pay. Who is getting the payoff??
Sure Mr. money bags defend the world while we are going broke.
We do everything and use every excuse to uplift our enemies.
It's over guys face up. They won the war.
{"commentId":2072273,"threadId":"301199","contentId":"1620058","authorDomain":"louisx"}
- 1 vote
#5 - Sat Jun 28, 2008 10:27 AM EDT{"commentId":2077844,"authorDomain":"truthlover"}
The Clinton and Bush administrations did a great job cutting capital free from regulation and throwing the worker into an unregulated world market. Clinton's push for NAFTA and GATT was the only reason these horrid laws passed, and because of these, as Ross Perot said some years ago, one heard the sucking sound of jobs leaving our economy and we can still hear it.
So much for the "invisible hand."
{"commentId":2077844,"threadId":"301199","contentId":"1620058","authorDomain":"truthlover"}
- 1 vote
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