Posted on 03/07/2011 11:04:39 AM PST by Signalman
Big traders are betting the ranch that oil prices will keep rising, testing the pain threshold of an economy that is not exactly setting records as is.
Large noncommercial speculators – firms that play the futures markets without taking delivery – added to their long position in West Texas Intermediate crude by 50,200 contracts last week, according to Commodity Futures Trading Commission data.
The surge of speculative money into the oil futures pits shows that big financial players are expecting the price of WTI crude to surge well above the recent $105 or so seen last week. If they are right, it will bring $4 gasoline a step closer.
That will not be good news for most consumers, though it could help some big energy traders score big paydays, thank goodness. You would hate to see the talent fail to get its due.
"It does not get any clearer which way Wall Street is trying to take oil," says Stephen Schork, who writes the Schork Report energy markets newsletter in Villanova, Pa.
Schork notes that speculators now own nearly six times as many barrels of oil – 268,622 futures contracts representing nearly 269 million barrels – as can be stored at the WTI trading hub in Cushing, Okla. And since the CFTC numbers released Friday only go through last Tuesday, they likely underestimate the degree of speculative fervor building in the energy markets.
Olivier Jakob, who covers energy markets for Petromatrix in Zug, Switzerland, estimates that traders added 40,000 to 50,000 crude contracts to their long positions in the second half of last week. That would take them up to seven times the Cushing capacity, a level he calls "extraordinary."
(Excerpt) Read more at finance.fortune.cnn.com ...
Commodities markets exist for the purpose of allowing hedgers to lay off risk onto speculators. In much the same way that Stock and Bond markets exist to bring together capital looking to make a profit and companies that need access to said capital.
Speculators, properly viewed, are not the problem, they are part of the solution.
I’m sorry but you are in error. The vast majority of capital used for speculating is placed by capitalists.
Energy reserves have nothing to do with the spot price of energy or energy futures. Speculators inhibit price volatility over time. I like them very much, they are not villians. The villians are those inhibiting production in the USA and offshore. And even they aren’t hurting us that badly long term. Energy in the ground costs nothing to store and is quite safe there. It will be produced at a higher profit margin some day.
1. Nobody owes you gasoline at a price you prefer.
2. The price you pay at the pump would average higher over time without speculators.
3. Speculators don’t control the price of gasoline.
There used to be position limits in place to damper the effects of speculators (see post 17). And for good reason - to prevent what we have seen over the last 3-4 years in commodities markets.
2. The price you pay at the pump would average higher over time without speculators.
Bullcrap. Do you think oil companies like trying to figure out the viability of a project with the wild gyrations in oil prices we have seen as of late? Speculators don't produce or manufacture jack. All they do is claim they add liquidity - and last I checked, we have TOO MUCH liquidity over as of late.
3. Speculators don’t control the price of gasoline.
No, but when they help jack the price of oil up to $148/bbl, guess what? THE PRICE OF GAS GOES UP.
Any other worthless banalities you wish to add here?
How you can say that with a straight face, given the extreme price volatility of oil over the last three years, is beyond rational comprehension.
Oh, and those capitalists you are praising? Add the word 'crony' to them and get back to me. I greatly appreciate real capitalists who make things (or actually produce oil or copper or other products) and get rich doing it. But the investment banks have turned into parasites, driving up the costs of living for everyone and then turning to the government for a bailout when they guess wrong.
If the price of oil has been artificially driven up by speculators (your thesis) what then is preventing someone from selling futures at the artificially high price and delivering against the futures contract with physical product that is not worth the price you claim has been distorted by speculators? (and thus making a killing)?
“Any other worthless banalities you wish to add here?”
Yes. They may be worthless to you, but they allow financial independence for me. The govt does what the govt does and my job is to work around what they do and make money. Waiting for perfect govt is a waste of time. You deal with the govt you have, not the govt you wish for.
My goal is to make money without working, other than with my brain. That’s what I do, and I make part of my income in the energy investment field. I also ‘work’ in real estate. Guess what, there’s been a lot of money made in real estate during this crash. I made money during the last one in the 80’s too. That’s how I got my start.
I use current market conditions to my advantage. The price I pay at the pump has no relevance as I make much more through investing in energy during spikes than I could ever spend at the pump. Price movements, whether they be up or down, are good. A stable price would make investing boring and profits low.
Those who can’t afford to invest are the ones hurt by higher prices. But it doesn’t take much investment capital to outrun gas prices through proper investing.
You have more power at your disposal than you might think. I started with $5,000 at 30 and retired from daily work at 60.
Show me where OPEC or any other producer will ignore the spot price of oil when it is to their advantage.
The government we have will be the ruination of this country. A few simple changes, basically reverting things legally back to the way they were about 15 years ago, would work wonders.
A stable price would make investing boring and profits low.
For someone looking to skim money off the markets, yes. For those who actually MAKE something, no.
And that is your entire problem here. If everyone did what you did, guess what? There would be no oil, no buildings, no food. Someone has to get out and actually make and mine and grow actual things so you can play the gyrations. You attitude hinders those who actually produce. You just consume.
Which, quite frankly, is the mindset of a parasite. You may have the last word.
Are they putting gas in all those Buicks in China? Oh my! What happens to the price of oil if China tanks because the price of oil is too high? I’ll draw the Xs on the sidewalk for the speculaters to aim for when they start jumping.
CMA2000 is arguably the single worst piece of legislation to come out of the Regress since Medicare in 1965. Orders of magnitude worse than the re-writing of the CRA rules by Andrew Cuomo in spring of 1995.
The problem has been, recently, that goobermint changed the rules in 2000 to allow certain big specs, specifically investment banks and certain "hedge" funds, to be CLASSIFIED AS HEDGERS instead of specs. This is arrant nonsense, and by definition has created markets that are by no means operating under ordinary ('normal', if you like) conditions. Comparing post-2000 physical futures mkts to pre-1997 mkts is identical with comparing apples to crosscut saws.
Thanks for taking the time to reply and clarify my post.
I’d appreciate any comments.
It seemed that the markets were working well for years then along came Phil Gramm and Clinton. Except for 1987 and LTC we’ve had financial and commodity markets that were fairly orderly and worked well for decades. Investors had trust and that benefited the markets and greater good.
Then we threw away what worked and we ended up with too big to fail entities and a commodities market gone wild. Now we have a system that many investors really don’t trust. The fast money people believe that instability, volatility and profits mean more than overall confidence. Wild axxed speculation may provide profits but it can lead to bubbles and much worse.
The financial markets with all that money sloshing around are not much different from the drug markets in Mexico and Columbia where the money taints and touches everything including government. When that happens nothing is ever done for the greater good, nor is the outcome going to be positive for most.
Gramm is also the poster boy for the aphorism, "If all the economists in the world were laid end-to-end, there would be a couple of dozen supremely bored hookers."
Just btw, the decades-old notion of a drug-cartel-infested Colombia is these days pretty much false to fact. The last two administrations were VERY vigourous in eliminating them; for example, the city of Medellin, of late infamy, is almost completely cartel-free these days. Of course, the Colombian government's methods were not those recommended by Blackstone. Effectively, they offered the narcotraficantes the following choice: quit dealing (period!), leave Colombia, or die. Undemocratic, perhaps, but VERY effective.
FReegards!
I create jobs and provide affordable housing for people, so I’m hardly a parasite. When you decide to end your victimhood freepmail me and I’ll brainstorm with you to help you however I can. You are too smart to go on like this. Good luck with your endeavors.
“The government we have will be the ruination of this country. A few simple changes, basically reverting things legally back to the way they were about 15 years ago, would work wonders.”
Right. I’ve said that for 30 years. We agree there. I went ahead with my plans anyway, luckily.
Commodies exchanges developed to give some level of certainty between producers and manufacturing consumers of commodities. There was speculation around the margins, and the occasional lunatics such as the Hunts trying to corner a market, but the primary purpose was still to allow producers and consumers to lock in prices at the time the materials would be ready to sell and buy, so they could plan accordingly.
But ever since 2000 and the CFMA, that worthwhile relationship has been overwhelmed by speculative positions - during the oil bubble of 2008, it was estimated that some 85 percent of the futures contracts were held by speculators. And now that bubble malaise has spread to just about every sector of commodities - so it cannot be just about shortages in one sector or Obama's idiocy in not allowing robust development of energy resources. Something this broad-based is reflective of very large trends.
In a way, it is the inevitable results of central banks policies - if you pump that much money into circulation, shrewd people will figure out how to make a buck from it, or at least hedge against the devaluation that can come forth from such.
And that is my point - the system now rewards those who hedge and speculate - at the expense of producers, manufacturers and consumers.
I am sure you are much more shrewd that I am. And I can't blame you for hedging and investing when government sets up the masses to get hosed - you are looking at the cards the government is dealing in this rigged casino and figuring out how to make something with the hand that is dealt.
But once again, this isn't what makes for a healthy economy or a healthy country. I am not pleading victimhood for myself, I have my own way of hedging - I drive about 10-20 miles a month, so the price of gas doesn't impact me that much directly - I am simply concerned that the commodities bubbles are causing global damage - and the root causes need to be addressed.
“I am simply concerned that the commodities bubbles are causing global damage - and the root causes need to be addressed.”
Bubbles do cause damage, but they also self-correct. In the process, opportunities are created. Freedom is messy and imperfect. It is preferable to the alternative, imo.
Freegards.
To some poor sot in the third world, waiting three months for the correction to happen could well mean starvation.
In the process, opportunities are created. Freedom is messy and imperfect. It is preferable to the alternative, imo.
We have had a chain of bubbles, fueled by excessive liquidity and poor regulation - either too much (CRA) or too little (credit default swaps). As has been noted here and on other threads, it doesn't take a lot of cash to manipulate commodities, given the low margin requirements. Sanity could be restored by sane margin requirements and position limits such as in place on NYMEX.
What we are seeing is not about freedom, it is about brinksmanship in markets - activities akin to those that nearly brought down the global economy. And that is where we disagree. This isn't capitalism as I know it. In capitalism, you assume the risks to get the rewards. In this system, the investment banks get the rewards AND then get taxpayers to hedge their risks. That is wrong.
It certainly looks like the media is ONCE AGAIN causing conservatives to attack the wrong boogy man - this time BIG SPECULATOR.
Sure, you can get short-term run-ups by people speculating long, but supply and demand will ALWAYS win out in the end, and those run-ups will come down just as fast...as did happen in 2008.
In the end, the ONLY thing that matters is SUPPLY AND DEMAND and if there is enough supply, prices simply CANNOT stay high, no matter what BIG SPECULATOR, BIG OIL, or BIG GOVERNMENT wants (unless they tax it more). That simple.
Your theory fails to account for the fact that commodities are up across the board, across the globe. That cannot be explained by supply and demand alone, and especially in a weak economy - just as the runup in the price of silver in the early eighties was caused by the Hunt brother's speculation.
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