Posted on 05/14/2008 9:04:06 AM PDT by khnyny
"One of the things I think is very important to realize is that the growth in the world oil consumption is not that strong." —David Kelly, chief market strategist, J.P. Morgan Funds; The Washington Post, May 4, 2008
"...There is substantial evidence that the large amount of speculation in the current market has significantly increased [oil] prices." —U.S. Senate Staff Report, The Role of Market Speculation in Rising Oil and Gas Prices, June 27, 2006
On May 13, the price of a barrel of oil briefly hit a record of $126.98 on the New York Mercantile Exchange The reason was ostensibly that Iran was cutting oil production. But there is no gas shortage. So why are prices still going up?
In late April the American Association of Petroleum Geologists held its annual invitation-only conference in Dallas for, as my source put it, "the bigwigs" of the energy industry. During this meeting, influential and knowledgeable CEOs reached the consensus that "oil prices will likely soon drop dramatically and the long-term price increases will be in natural gas." Of course, despite the pedigrees of those in attendance, their forming a consensus on the direction of energy prices does not mean that it's written in stone or is even going to happen. The group is clearly bullish on natural gas. But petroleum keeps getting more expensive.
The energy executives' prediction about the future price for crude oil had sound backing. Just a few days earlier, Lehman Brothers (LEH) investment bank had said that this current oil pricing boom was quickly coming to an end. Michael Waldron, the bank's chief oil strategist, was quoted in Britain's Daily Telegraph on Apr. 24 as saying: "[Oil supply] is outpacing demand growth." Waldron added, "Inventories have been building since the beginning of the year. The Saudi Khursaniya...
(Excerpt) Read more at businessweek.com ...
Commodities have often been the refuge for investors who have lost money on equities or fixed-income investments. Moreover, the commodities rush today is not limited to oil; now we also have runaway food and feed prices. Could it be that all the financial losses on subprime mortgages, plus the anticipation that the option ARM mortgages about to reset could be an even bigger problem, combined with the huge losses in securities last year, are why investment money today is flooding into often unregulated commodities, where the demand pricing of the final goods is inelastic?
Consider this: You may not buy gasoline or even eat today, but by next Monday you'll probably have to do both, no matter what it costs. Basically, besides enabling the Fed to bail out Wall Street and our banks again, every time you gas up or eat you may be paying investors to cover other financial losses. We know that investors can't control their losses on mortgages, securities, or bad loans. But, demonstrably, if not restrained they can drive up the price of goods that we can't get out of buying. Odds are, that's what's really been going on.
~Snip~
That should be chiseled in stone and rolled through Congress.
Read this artice I posted here not too long ago.
www.freerepublic.com/focus/f-news/2008545/posts
Unless they are bashing Bush. Otherwise, they don't decry the high price of gas, they LOVE it. They want to add more to it. Their goal is to drive everyone back into high-density cities and live in a mass-transit utopia. Problem is, most people don't want that.
So that, IMO, is why the liberal media has not been willing to dig into the role of hedge funds and speculation - and the role of speculators is hardly idle chatter (recall the collapse of Amaranth in 2006 when the price of oil plunged for a few months).
The media, when it likes what is happening, has no desire to uncover it - even if working stiffs are getting hosed by it.
I think there is some cause and effect going on here.
1) Feds lower interest rates and increase money supply.
2)Investors run to commodities to hedge against losses due to declining value of dollar.
3) Price of commodities goes up for reason unrelated to the natural forces of supply and demand.
The same thing is happening in other commodities, such as wheat.
He seems to suggest that the real reason for high price rises in oil are due to huge investors and institutions hedging their shaky corporate holdings’ value by buying long positions in commodities futures, especially oil.
I know enough about commodities futures trading to know that, if that is the main or only reason for these high prices, then they can come plummeting down much more rapidly than they went up. If so, this is good news. People who play that game (i.e., falsely contriving high prices by furious buying) always lose.
Ping for lunch.
Manipulation by the IMF.
You said what I tried to say in the very next post, only you said it concisely and effectively. Bravo.
There is substantial evidence that the large amount of speculation in the current market has significantly increased [oil] prices.”
I didn’t miss their point or yours, the premise is false.
If the premise were true then at higher prices the speculators would dump their holdings.
Besides, specatorsm, see things that some don’t. So knowing that the Fed’s adding to the money supply and lowering interest rates will drive up the price if oil, then the buy oil.
They aren’t the cause of the increase.
There is substantial evidence that the large amount of speculation in the current market has significantly increased [oil] prices.”
I didn’t miss their point or yours, the premise is false.
If the premise were true then at higher prices the speculators would dump their holdings.
Besides, specatorsm, see things that some don’t. So knowing that the Fed’s adding to the money supply and lowering interest rates will drive up the price if oil, then the buy oil.
They aren’t the cause of the increase.
Without the increase in money supply and the low interest rates, wouldn’t speculators have been out of business a long time ago?
Perhaps overspeculation also played a role.
1. Low Dollar
2. Supply and Demand despite ‘economic downturn’
3. Risk premiums
4. Speculators
Not always. It ended up burning the Hunts with their attempt to corner the silver market. However, if you have a few big players (as seems to be the case here), it's kinda like the adage that if you are out hiking and confront a bear, you don't need to outrun the bear, just someone in the group.
Last time the oil bubble popped in 2006, the bear got Amaranth. As long as someone is left holding the bag at the end, a speculator can do quite well for a year or two. That's the entire nature of these commodity bubbles - heck, ANY bubble - when the price gets high enough, the chumps come running in, and you cheerfully let them...
You've made a lot of good points — but, IMHO, stopping the filling of the SPR is just a political and p.r. move.
The world's daily supply and consumption is about 1,200 times more than the amount being put into the SPR. Even allowing for the price inelasticity, the price of gas is unlikely to drop more than a cent, due to stopping the fill-up of the SPR.
In fact, there's a possibility that filling the SPR actually lowers prices — at least in the futures market. The futures market considers all factors that might have a bearing on future oil prices. Risk of a war with Iran is one of those factors. A war with Iran would result in a sudden and severe drop in supply — and a huge spike in prices (at least for a short term). Multiply that possible price spike by the odds of the war occurring & you arrive at a reasonable risk premium. Do that for all possible contingencies, and you arrive at a reasonable risk premium for the future price of oil. With a full SPR, the risk decreases & so too would the risk premium (all else being equal).
This is a pure populist political move — driven by the Democrats for their crass political purposes. If, by chance, the price of oil comes down — Democrats will claim all the credit, and crow loudly about it. If prices stay the same, the Democrats will stay quiet & their partners in the MSM will simply bury the whole thing.
I have even considered the possibility that, lacking a rapid enough response from the government, liberals have taken it into their own hands to drive prices up by playing speculator. After all, if George Soros wanted to drive up the price of gasoline in the US, what better way than to simply bid it up?
Meaning that algore is driving up the price of oil to line his pockets?
Guess that carbon offset thing wasn't working out.
.
Check out the Euro guys. Compare 2004 prices to what they are paying today....
Looks like it it mostly due to the government trashing the dollar to me.
http://www.aaroadwatch.ie/eupetrolprices/default.asp
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