Posted on 04/20/2006 1:17:48 PM PDT by NYer
Capital movements due to fears over a possible US-Iran war, financial speculation or market meltdown are driving crude prices upward.
Milan (AsiaNews) – Capital movements on commodity exchanges, not low supply are pushing oil prices upward. Brent crude has reached US$ 74 a barrel because of lowered refinery use and a backup in crude inventories that has left many a super tanker waiting to unload. Oil storage has become a problem since facilities are full in the Persian Gulf, Europe, the Americas and even Asia. Even Israel, which built huge embargo-busting oil depots to allow the country to survive every contingency, cannot store more oil. The same is true for South Africa which inherited vast oil storing facilities from its former apartheid regime and now readily leases out its terminals in Saldanha Bay through its national oil company PetroSa.
Yet, if US summer demand for gasoline and energy thirst in Asia, especially in China, are likely to punch a hole in supplies, why are large quantities of oil going unsold or not being stored, and prices not dropping? Oil prices are rising because investment funds are pouring liquidity into commodity exchanges trading in oil. This vast flow of capital needs an explanation. There are in fact three possible reasons to account for the situation.
First, it might be a speculative surge that will quickly drop. Secondly, it could be that some financial circles have insider information concerning US government intentions and military options towards Iran—this might explain rising gold prices now at US$ 640 per ounce. Thirdly, it might finally be that many financial groups are investing in commodities like oil to cushion themselves against a possible, 1929-like meltdown of the international financial system. Symptomatic of the danger is the dismal state of General Motors, the major US carmaker, and the potential impact on US financial institutions of further interest rate hikes.
It's called capitalism. Speculators are pricing in the the war against Iran and disruptions in supply. Who can blame them. It takes two to tango in this deal. A buyer and a seller. If the price is getting bid higher, someone believes they can make bank. Nothing more, nothing less. If you don't like free market capitalism, you are understandably mad. Otherwise let the market work. Sadly there is a caveat. the barriers to entry in the oil bidness are pretty high. That makes it harder to move the price. If we sold leases to independent drillers every day the price stays above a set peg, we could fight back against the supply scarers. Because just as the speculators price in the bad stuff that can happen, they'll also have to consider the good. Adding new leases and wells to the outlook can only help.
It's not so much "spec" money as it is indexed money. The large banks are launching giant index and/or quasi-index funds that they are piling their clients into.
Two facts that you're missing. I learned these from the intellectual superiors on another thread.
1. Oil is a totally free market, and none of the players are manipulating or colluding to drive prices higher. It's only supply and demand and that's it.
2. If you are experiencing anything less than orgasmic joy that the CEO of EXXON just parachuted off with $400,000,000, then that means you're a communist. Even if it just makes you mad and you don't want the government to do anything about it.
Hope this helps. I hear legions of them coming to attack you in their intellectually superior way right now.
price gouging should be a temporary phenomenon as new players see money to be mad and jump into the business. Problem is, this industry has become monopolistic. Barriers to entry in order to compete with the Exxons and Shells are really really high. So there's a monopolistic aspect that could be argued. when all the product's spoken for with sales contracts, it's hard to negotiate for a better deal. the only other defense is jacking up interes rates (reducing money supply) and killing the economy and therefore demand. That was the solution in 72.
I'm surprised. It took until post#36. LOL
mysterio, you hooked him. Now, catch and release rules require that you tell him you were kidding.
If it were spec money, speculators would have taken profits by now - and prices would have significantly dropped.
There are other factors: loss of refinery output due to current maintenance, which should be completed by June; the cost of ethanol additives where required; and more overall demand from U. S., China and India.
If it were spec money, speculators would have taken profits by now - and prices would have significantly dropped.
There are other factors: loss of refinery output due to current maintenance, which should be completed by June; the cost of ethanol additives where required; and more overall demand from U. S., China and India.
However, 30 days from now, we will still be quite short of optimum capacity. Absolutely no one will start a new refinery under the current legal and regulatory regime. It's a lose-lose proposition until gov't gets the ecowhackos and the NIMBY crowd out of the way.
There's actually a combination of factors:
a) the war-with-Iran risk premium;
b)the switch to ethanol and spring to summer refining gasoline 'blend' changes (massive waste of oil and lowers gas mileage to boot, but makes the air look cleaner to the unemployed);
c) speculation
Buying commodities to 'hedge' against a financial meltdown is like getting a hairdo to protect you from a gunshot to the head: commodity prices fall faster and further than anything else when there is an economic downtourn.
There's one more factor here that you didn't mention . . . nobody wants to sell oil for U.S. dollars unless they are getting a huge premium on those dollars -- because this nation's financial house is bordering on collapse.
We can be communists together.
It wouldn't, but the market doesn't exist in a time vacuum. The market is looking into the future. Oil is rising because people are buying up that surplus. Think Iran.
Another way to look at this is a Hurricane. It is due to arrive Sunday, so why are all the store shelves emptying out on Thursday? There's not really a food shortage. In fact everyone's pantries are fuller than normal.
Iran is driving this market.
Seems to me that they are looking for any excuse to ratchet up the price artificially. I don't see imminent hostilities with Iran.
The other claims about switching over mixtures, planned maintenance, summer driving coming and so forth happen every year and should not be driving prices to this extreme.
The bonus, if there is one, is Congress might get off it's bum and allow us to open ANWR for drilling.
Putin has said that China has first dibs on Russian oil.
It might look that way from New Jersey but it certainly doesn't appear to be an accurate description of the nation's state.
The Eurozone is both unstable politically and economically: riots in France, Italy on the verge of bankruptcy, mutterings of a coup d'etat in Spain, failed euro constitution, Russians threatening Eastern Europe's energy supplies to win political advantage, millions of alienated Muslims, and the occasional left-wing or fascist nut job flipping matches into the powder keg via political assasination or home-grown terrorism.
Makes the US look like la repubblica serenissima.
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