What if spiking oil prices were driven primarily by speculation NOT supply/demand?

[Jhhnn]

Originally posted by: tvarad
Jhnnn:

"At this point, we've abused our position as the world's reserve currency, created liquidity in excess of demand, so we get to pay the price. It's a global version of screwing up a wet dream, thanks to trade and investment policies that favor american capitalists offshoring production, creating huge balance of trade deficits even as capitalists have reaped huge profits from the process..."

And what exactly do you call what China did by pegging it's currency to the dollar (along with a few other countries) to keep it artificially low, thus making the value of it's exports cheaper? The U.S. has it's faults but it has been shouting itself hoarse for over a decade that China is causing world imbalances with this approach but since it's the nail that sticks out, the U.S. is the one that's getting a hammering.

Words are cheap, tvarad- it's deeds that count. American investment in China has been huge and ongoing, with the currency imbalance only promoting more. The Chinese know this, and welcome it, recognizing that protestations to the contrary are mere lip service. Nobody in the American political establishment is going to do anything to the detriment of the Capitalist class, the political donor class, who have and will continue to benefit tremendously. Investment in China continues to be a very attractive arrangement, in no small part due to the currency imbalance itself. Chinese assets are a bargain, very attractively priced.

It's the *Global Economy*, remember? Within that context, none of the world's capitalists will show any real allegiance to anything other than their own self interest, which, increasingly, has nothing to do with the welfare of the states in which they claim citizenship. Their assets are measured in a basket of currencies, and shifts in relative value are just opportunities to make more money... Borders and patriotic sentiments are only opportunities for exploitation, not anything of intrinsic value...

 

[LegendKiller]

Originally posted by: piasabird
A large part of the problem is I have been watching what Oil Executives have been saying. One thing they have been stating is that we have to import refined gasoline because we do not have enough refining capacity in the United States to Refine gasoline from crude Oil.

We have Oil in and along the shorelines of the USA, but Oil Companies are prohibited form drilling and building refineries because the US Government allow environmentalists from prohibiting development and building refineries by filing law suits which make everyone else in the country suffer and pay more for Gasoline. It is time to start changing laws in favor of business and development and for the public good.

If this were true then we'd see a long-term increase in oil, not short-term spikes such as this. Oil doubled in 12 months and has increased 50% in 5. That has nothing to do with refining.

 

[DealMonkey]

Originally posted by: piasabird
A large part of the problem is I have been watching what Oil Executives have been saying. One thing they have been stating is that we have to import refined gasoline because we do not have enough refining capacity in the United States to Refine gasoline from crude Oil.

We have Oil in and along the shorelines of the USA, but Oil Companies are prohibited form drilling and building refineries because the US Government allow environmentalists from prohibiting development and building refineries by filing law suits which make everyone else in the country suffer and pay more for Gasoline. It is time to start changing laws in favor of business and development and for the public good.

That is the biggest load of crap I've heard yet in this thread. We DO drill along U.S. coastlines and just about everywhere it makes practical sense to do so. Check out the oil drilling rigs just off our gulf coast alone:

http://online.wsj.com/public/r..._OIL09212005204640.gif

I know first-hand that the California coast is dotted with offshore oil platforms. They're literally everywhere except for marine protected areas like Monterey Bay, etc.

Back on land, just about every state produces some oil:

http://www1.eere.energy.gov/ve...ages/facts/fotw439.jpg

So now what? ANWAR? You've been watching too many petroleum association PSA ads on TV.

 

[LegendKiller]

Originally posted by: Jiggz
You obviously missed the OP's point of discussion. It's not about our usage or extravagant lifestyle but the illegal manipulation of energy prices. Are you just willing to abruptly change your life style because some investors are illegally manipulating prices? Are you going to give up your luxury in life while the investors are raking billions of dollars illegally?

Had it not for the manipulation and the high cost of energy is naturally caused by supply and demand, I'm quite sure American will be quick to adapt to ensure they minimized consumption.

If the price of electricity goes up the roof because of price manipulation, are you also going to give up using electric lights and use oil lamps instead? What about heating oil, are you going to start using fire wood? And it the Environmentalist Nazi's gets to your door step and tell you not to burn wood, are you just going to buy more blankets?

I'm not saying we are not willing to change our life style, of course we do but only with true and non-misleading reasons!

I wouldn't call it manipulation, no more than the .bombs and housing was manipulation.

I would call it over-investment and bubbling.

 

[ebaycj]

Originally posted by: dahunan

Originally posted by: DealMonkey

Originally posted by: palehorse

Topic Title: What if spiking oil prices were driven primarily by speculation NOT supply/demand?

uhh, hasn't it already been well established that this exactly what is happening!?

Perhaps, but the oil company PSAs exclusively refer to increased demand in China and India and not a peep about potential manipulation or speculation run rampant. Of course, oil companies benefit from the manipulation and don't even have to get their hands dirty.

Furthermore, if unregulated futures trading in the energy market are primarily responsible for spiking oil prices, could we now point the finger at Congressional Republicans, who in 2000 set the stage for this abuse?

If so, Americans now have someone to blame.

Would Oil companies purposely use a team of speculative traders to run the price of their goods/resources sky high with an oil man as president?

I personally know one of these speculative traders who works (EDIT: trades oil futures contracts) for a large oil company. Want to guess what his bonus was for last year? 125% of his salary.

 

[zephyrprime]

This current bubble is just another financial bubble in a series of bubbles and I'm surprised that so few have realized it. The .com bubble, the housing bubble, and now the oi/commodities bubble are caused by the same people and money (wallstreet). It's no different now than in the 1920's except now we have an accomodating Fed that has allowed the bubbles to roll on instead of bursting with devastating force as happened in 1929. Eventually, this will all come to a head.

 

[Arkaign]

Originally posted by: fallout man
Who cares?

I invested heavily in the energy and defense industries on the cheap. I'm now making huge bucks!

My soul is dead and hollow.

I may cry tears of blood at night, but at least I can freely afford to buy new fine linens every two days so that the hookers don't get too weirded-out by the stains.

lol

 

[CycloWizard]

Originally posted by: DealMonkey
The entire gist of this thread is that the situation is NOT a simple supply/demand problem. As for regulation, yes I think we should reverse the retarded decision that Congressional Republicans made back in 2000, and regulate the energy futures market just like the SEC regulates the stock market. If, after doing so, energy prices continue to rise due to ACTUAL supply and demand issues, then I agree with you, let's allow that to happen.

The entire gist of this thread is wrong then. It's completely obvious that demand allows for the current price point, otherwise the current price point would not be the current price point because people wouldn't be paying that much. What is so hard to understand about that?

Originally posted by: Jiggz
You obviously missed the OP's point of discussion. It's not about our usage or extravagant lifestyle but the illegal manipulation of energy prices. Are you just willing to abruptly change your life style because some investors are illegally manipulating prices? Are you going to give up your luxury in life while the investors are raking billions of dollars illegally?

Had it not for the manipulation and the high cost of energy is naturally caused by supply and demand, I'm quite sure American will be quick to adapt to ensure they minimized consumption.

If the price of electricity goes up the roof because of price manipulation, are you also going to give up using electric lights and use oil lamps instead? What about heating oil, are you going to start using fire wood? And it the Environmentalist Nazi's gets to your door step and tell you not to burn wood, are you just going to buy more blankets?

I'm not saying we are not willing to change our life style, of course we do but only with true and non-misleading reasons!

I will assume that this is also directed at me. The same answer applies: if the prices were manipulated, so what? We still either choose to pay them or not pay them. If we refuse, then the prices must come back down until people are willing to pay them. The bottom line, again, is that the current price is ALWAYS dictated by our willingness to pay it. You said it yourself again: "Are you just willing to abruptly change your life style because some investors are illegally manipulating prices?" I did. So can you. So can everyone. If people choose not to, then obviously demand is high enough to warrant what people are paying. Only now is demand starting to subside ever so slightly, and this little bit might be due to price manipulation. Of course, this will remedy itself in short order as demand decreases accordingly. Why is the government always the solution to everything?

 

[blackangst1]

Lets say oil companies are manipulating the market (lol).

Why do we assume it's illegal? what fed statute are they violating?

 

[DealMonkey]

Originally posted by: CycloWizard

Originally posted by: DealMonkey
The entire gist of this thread is that the situation is NOT a simple supply/demand problem. As for regulation, yes I think we should reverse the retarded decision that Congressional Republicans made back in 2000, and regulate the energy futures market just like the SEC regulates the stock market. If, after doing so, energy prices continue to rise due to ACTUAL supply and demand issues, then I agree with you, let's allow that to happen.

The entire gist of this thread is wrong then. It's completely obvious that demand allows for the current price point, otherwise the current price point would not be the current price point because people wouldn't be paying that much. What is so hard to understand about that?

Gas demand has dropped according to various reports:

http://www.sun-sentinel.com/bu...bmay21,0,2253865.story

U.S. gasoline demand fell 6.8 percent last week, a sign record pump prices are prompting drivers to spend less time on the road, a report from MasterCard Inc. showed Tuesday.

Consumers purchased an average 9.14 million barrels of gasoline a day in the week ended May 16, down from 9.8 million a year earlier, MasterCard, the second-biggest credit-card company, said in its weekly SpendingPulse report. Demand for the motor fuel rose 0.5 percent from the previous week. Gasoline demand compared with a year earlier has dropped in 14 of the past 17 reports from MasterCard.

The report from MasterCard was assembled by MasterCard Advisors, the company's consulting arm, and is based on credit-card swipes and cash and check payments at about 140,000 U.S. gasoline stations.

So if it's such a simple system, with only supply and demand driving prices as you've suggested, why isn't the $/gal dropping alongside weakening demand?

 

[DealMonkey]

Originally posted by: blackangst1
Lets say oil companies are manipulating the market (lol).

Why do we assume it's illegal? what fed statute are they violating?

The CFTC typically brings civil suits against companies or individuals that manipulate, however the DoJ can be brought in to file criminal fraud charges as these cases warrant it.

 

[blackangst1]

Originally posted by: DealMonkey

Originally posted by: blackangst1
Lets say oil companies are manipulating the market (lol).

Why do we assume it's illegal? what fed statute are they violating?

The CFTC typically brings civil suits against companies or individuals that manipulate, however the DoJ can be brought in to file criminal fraud charges as these cases warrant it.

OK...I havent seen any evidence this is happening...have you?

 

[DealMonkey]

Originally posted by: blackangst1

Originally posted by: DealMonkey

Originally posted by: blackangst1
Lets say oil companies are manipulating the market (lol).

Why do we assume it's illegal? what fed statute are they violating?

The CFTC typically brings civil suits against companies or individuals that manipulate, however the DoJ can be brought in to file criminal fraud charges as these cases warrant it.

OK...I havent seen any evidence this is happening...have you?

Only 6 months ago, BP got a nice slap on the wrists, to the tune of $303M to settle charges.

http://www.cftc.gov/newsroom/e...es/2007/pr5405-07.html

I suspect current and ongoing investigations will result in similar cases.

 

[blackangst1]

Well we'll see.

 

[CycloWizard]

Originally posted by: DealMonkey
So if it's such a simple system, with only supply and demand driving prices as you've suggested, why isn't the $/gal dropping alongside weakening demand?

I already explained that in the rest of my previous post. Price per gallon has been dropping, at least here in MO. There are also dynamics to the process. Price is always a lagging indicator of supply and/or demand, since it takes time for information to propagate through the market.

 

[DealMonkey]

Originally posted by: CycloWizard

Originally posted by: DealMonkey
So if it's such a simple system, with only supply and demand driving prices as you've suggested, why isn't the $/gal dropping alongside weakening demand?

I already explained that in the rest of my previous post. Price per gallon has been dropping, at least here in MO. There are also dynamics to the process. Price is always a lagging indicator of supply and/or demand, since it takes time for information to propagate through the market.

I'm sorry, but I simply do not believe you. There is plenty of evidence that speculation in energy futures is driving the price point much moreso than supply/demand. I get your point about consumers being "willing" to pay the price points and thus the energy companies can get away with it, however I don't think it's an honest point given that many individuals, businesses and organizations are simply too reliant on energy and there aren't sufficient alternative sources for energy to turn to. If we truly had more of a choice, and sufficient competition existed, we could indeed stop buying gas and instead purchase hyrogen as just an example, then perhaps your point would be more valid. But for the vast majority of Americans, there simply is no other choice. They either fuel their cars with gas, or they park them and then deal with the fiscal impact of not being able to get to work, etc.

Furthermore, you're making overly simplistic arguments about consumers and corporations being able to turn on a dime and make drastic changes to their energy consumption. Sure, it's easy for you as a single individual living in an apartment and working within walking distance to work to be able alter your lifestyle to adjust, but what about a large trucking company? Their continued existence DEPENDS on reasonable energy costs. Same with the airlines, and on and on and on. Just because you can do it, doesn't mean the entire U.S. economy can make a u-turn regarding energy usage overnight.

 

[JS80]

Originally posted by: LegendKiller

Originally posted by: Jiggz
You obviously missed the OP's point of discussion. It's not about our usage or extravagant lifestyle but the illegal manipulation of energy prices. Are you just willing to abruptly change your life style because some investors are illegally manipulating prices? Are you going to give up your luxury in life while the investors are raking billions of dollars illegally?

Had it not for the manipulation and the high cost of energy is naturally caused by supply and demand, I'm quite sure American will be quick to adapt to ensure they minimized consumption.

If the price of electricity goes up the roof because of price manipulation, are you also going to give up using electric lights and use oil lamps instead? What about heating oil, are you going to start using fire wood? And it the Environmentalist Nazi's gets to your door step and tell you not to burn wood, are you just going to buy more blankets?

I'm not saying we are not willing to change our life style, of course we do but only with true and non-misleading reasons!

I wouldn't call it manipulation, no more than the .bombs and housing was manipulation.

I would call it over-investment and bubbling.

The thing that worries me most right now about this oil spike is that the OPEC countries are seeing how much the world is actually willing to pay for Oil (like they did in the 70s). Even if speculative leveraged trading of oil futures is banned, theoretically OPEC nations can pump money into the futures market themselves and sustain the bubbly price that the world is paying for (that is, unlike the .bomb where there was no earnings or real assets backing the stock prices, there is a real barrel of oil someone is buying).

LK, your thoughts on this?

 

[Fern]

What if spiking oil prices were driven primarily by speculation NOT supply/demand?

IMO, theroetically impossible.

Without a supply/demand problem why would anybody specualte?

If supply exceeded demand, speculators would not be interested because they would be losing money. To much supply and not enough demand, speculators couldn't resell and would be faced with (gasp) taking delivery. It's the supply/demand situation that attracts them in the 1st place.

There is another attraction for speculators IMO - a hedge against falling the $ value. By parking dollar denominated capital in oil you avoid risks/costs of ($) currency devaluation.

Suppy/demand is part of the rising costs. Speculation and $ currecny devaluation also contribute.

Even if you take away $ devaluation and $peculators, we'll have high oil prices.

Fern

 

[JeffreyLebowski]

Originally posted by: CycloWizard
All well and good, but the bottom line is that people are still buying oil. Thus, the equilibrium price had not yet been found and whatever "manipulation" went on has only now exceeded that equilibrium point. The market will correct itself given a little time, as usual.

They buy because they have no choice, not because they want to. Supply and demand works when pricing ipods and tv's. Things like oil and food are bought because we need them to live. We need food for obvious reasons, but we need fuel to get to and from work to pay for everything.
Speculation has driven the price up, not supply/demand.

 

[Sheik Yerbouti]

Originally posted by: JeffreyLebowski

Originally posted by: CycloWizard
All well and good, but the bottom line is that people are still buying oil. Thus, the equilibrium price had not yet been found and whatever "manipulation" went on has only now exceeded that equilibrium point. The market will correct itself given a little time, as usual.

They buy because they have no choice, not because they want to. Supply and demand works when pricing ipods and tv's. Things like oil and food are bought because we need them to live. We need food for obvious reasons, but we need fuel to get to and from work to pay for everything.
Speculation has driven the price up, not supply/demand.

Well said, unfortunately, oil in all it's forms has become a basic need, like shelter, food, etc. I don't need an ipod, I don't need a tv, but I need oil to make gas to get me to work. Technically I don't have to work, but to survive I guess I do.
I don't believe it's supply and demand, I can't see how it would be, because the price goes up before the demand occurs, like on memorial day weekend.

 

[miketheidiot]

Originally posted by: CADsortaGUY

Originally posted by: palehorse

Topic Title: What if spiking oil prices were driven primarily by speculation NOT supply/demand?

uhh, hasn't it already been well established that this exactly what is happening!?

Sure...to a point but it didn't come from nowhere. The fundamentals of supply/demand triggered it(which is part of the point I was trying to get people to realize in my OPEC thread).

While I don't think supply/demand is responsible for $130bbl oil it may be responsible for the initial jump past 50-60-70 bll and then speculation run rampant took over. Atleast that's my perception of what happened.

hats roughly accurate, though i think specualtion was a minor contributor over the last 5-6 years, it didn't become the primary mover until about this time last year, which just happens to coincide with investors fleeing the mutual fund market.

 

[miketheidiot]

Originally posted by: BrownTown
Its nice to blame speculation and all, but that doesn't change the fact that supply and demand are at the bottom of this. Maybe without speculation the prices wouldn't be AS HIGH, but the fact of the matter is that demand is going up and our reserves are rapidly running out. Reducing specualtion might keep the price down for a few months or a year, but as much as it might pain people to hear, this increase in oil prices isn't some conspiracy, the world is running out of oil, and oil is NEVER getting less expensive, and in a few years it won't jsut be the price that people worry about, it will be whether they can even get oil at any price.

the way i understand it, we are simply running out of oil that pumps itself. In the future we will need to produce oil from more expensive sources such as tar-sands, bio, shale, and other more difficult sources. There is not going to be a sudden evaporation of the worlds supply of oil. sure it might fall be 20% over our lifetimes, but thats really not a big deal.

 

[JS80]

Originally posted by: Fern

What if spiking oil prices were driven primarily by speculation NOT supply/demand?

IMO, theroetically impossible.

Without a supply/demand problem why would anybody specualte?

If supply exceeded demand, speculators would not be interested because they would be losing money. To much supply and not enough demand, speculators couldn't resell and would be faced with (gasp) taking delivery. It's the supply/demand situation that attracts them in the 1st place.

There is another attraction for speculators IMO - a hedge against falling the $ value. By parking dollar denominated capital in oil you avoid risks/costs of ($) currency devaluation.

Suppy/demand is part of the rising costs. Speculation and $ currecny devaluation also contribute.

Even if you take away $ devaluation and $peculators, we'll have high oil prices.

Fern

Speculation can indeed occur WITHOUT a supply/demand problem. Most paper that is traded is based on FUTURE outlook, so if there is a report coming out next month and traders today think there will be a shortage, futures prices will spike. Let's say the report shows that supply is healthy, futures prices come back down. So what was the result? There was no fundamental change in supply/demand yet prices spiked temporarily purely because of speculators.

The problem today is the nature of the futures market. There is too much leverage (I think like 10x) and traders do not have to ever take delivery of the commodity. All gains/losses are settled daily through cash. Plus if a trader is underwater and cannot pay back the clearing institution acts as collector.

Another problem is the fact that oil is being purchased at these prices. There is a tangible asset tied to these prices. The dot coms that failed had no earnings so it was effectively like trading expensive pieces of paper. The housing bubble, even with real estate to "back" the CDOs, "burst" because of the lack of buyers of homes at the high prices (elastic demand). The oil situation is unique because oil keeps getting purchased at bubble prices and it doesn't seem like it's going to stop.

Remember in the 1970s the oil nations realized that they were undercharging for their oil? They realized oil demand was inelastic so they could charge whatever they wanted in order to maximize their income. This is a repeat of that.

 

[miketheidiot]

Originally posted by: piasabird
A large part of the problem is I have been watching what Oil Executives have been saying. One thing they have been stating is that we have to import refined gasoline because we do not have enough refining capacity in the United States to Refine gasoline from crude Oil.

We have Oil in and along the shorelines of the USA, but Oil Companies are prohibited form drilling and building refineries because the US Government allow environmentalists from prohibiting development and building refineries by filing law suits which make everyone else in the country suffer and pay more for Gasoline. It is time to start changing laws in favor of business and development and for the public good.

the us is at recent lows for refinery utilization, and the amount of oil available domestically is trivial at best.

 

[dmcowen674]

Originally posted by: ebaycj

Originally posted by: dahunan

Originally posted by: DealMonkey

Originally posted by: palehorse

Topic Title: What if spiking oil prices were driven primarily by speculation NOT supply/demand?

uhh, hasn't it already been well established that this exactly what is happening!?

Perhaps, but the oil company PSAs exclusively refer to increased demand in China and India and not a peep about potential manipulation or speculation run rampant. Of course, oil companies benefit from the manipulation and don't even have to get their hands dirty.

Furthermore, if unregulated futures trading in the energy market are primarily responsible for spiking oil prices, could we now point the finger at Congressional Republicans, who in 2000 set the stage for this abuse?

If so, Americans now have someone to blame.

Would Oil companies purposely use a team of speculative traders to run the price of their goods/resources sky high with an oil man as president?

I personally know one of these speculative traders who works (EDIT: trades oil futures contracts) for a large oil company.

Want to guess what his bonus was for last year? 125% of his salary.

He should be in jail, period.