Posted on 09/16/2008 8:38:27 PM PDT by MinorityRepublican
Evaporating access to credit and fears of an economic washout are taking a toll on oil prices, forcing speculators using borrowed money out of the market.
Lehman Brothers Holdings Inc.'s sudden bankruptcy filing and Merrill Lynch & Co.'s pending sale to Bank of America Corp. suggest big banks may be less willing or able to absorb debt to boost trading positions, with implications for the inherently leveraged oil-futures markets. Analysts believe that could have a ripple effect on other speculative investors in the market.
Widespread liquidation of futures contracts compounded fears of faltering oil demand in knocking oil down near $90 a barrel on Tuesday before rebounding to settle at $91.15 on the New York Mercantile Exchange. Some traders faced margin calls, or demands for more cash collateral, in other asset classes, market participants said. In a conference call with analysts, Goldman Sachs Group Inc.'s chief financial officer noted "deleveraging" among its clients, attributing it to "more fear than anything."
The potential for less leverage -- or borrowed money -- at play in the oil-futures market has already helped spark a sharp fall in oil prices, which have lost about 20% of their value this month. The drop has come amid a slew of factors that should support prices, including a production cut by the Organization of Petroleum Exporting Countries, renewed attacks in key crude-oil producer Nigeria and a major knock to gasoline output in the U.S. Gulf Coast in the wake of Hurricane Ike.
The duress suggests investment banks' own proprietary commodities trading could decline as banks think twice about how much debt they take on to fund risky positions. Banks' risk aversion could also drive their clients out of the oil market, which could continue to weigh on prices, with some analysts identifying this year's lows of $86.....
(Excerpt) Read more at online.wsj.com ...
that’s rich!
i mean, the speculators without loaned cash are less rich!
Bummer.
Oil speculators (who stood to gain billions if/when Pelosi could keep oil prices high bu manipulating exploration and legislation) are losing their shirts, skirts, and markets. when the price drops back towards free-market values of 75-95.00/barrel.
Shucks.
Drat.
Darn.
Using borrowed money to bet on Markets is like playing with a loaded weapon.
I thought that oil prices just rose because of supply and demand and that there was no problem with speculators. /s
Not to worry. About the time oil hits $80/bbl, Pelosi and her fat cat Politician buds will finally have a solution to this little oil price “problem, and the price should be back to the $150-200 range where it belongs.
But...but....but....PEAK OIL!!!1!!one!
Unless your a politician, then it's a loaded bottle...
funny you mention that.
i’ve see two conflicting stories recently:
1. oil speculators caused oil prices to go up.
2. oil speculators did not cause oil prices to go up.
;-)
What the writers are missing is ...
The oil speculators (correctly) predicted the IMPACT that Pelosi WILL HAVE on oil (restrictions) and markets, THEREFORE they PROPERLY BOUGHT AND SOLD oil futures prices to rise due to (artificially) restricted supplies.
What they FAILED to predict was Palin’s ability to REMOVE PELOSI from the artificial restriction on oil production.
that’s a good point.
i had not entertained sarah palin’s impact on pelosi’s restricted environment.
seems like the loss of loan capital is also an issue.
I think McCain should get some credit for this.
-ccm
If a boatload of these oil speculators who bought oil high trying to force it higher end up in the ditch, out of business and destitute, then, I, for one will be very, very happy.
Believe the explanation, or don't. Won't make a particle of difference in my life. However, it WILL affect yours, and others so afflicted with a lack of understanding.
Markets are finite. Futures markets are a very small subset of actual physicals markets. However, physicals prices must reflect, or nearly so, prices in futures markets, or else there's a perfect arbitrage available. Thus, when huge amounts of capital come into futures markets on the long side, as here from 2002-early 2008, the price of physicals will rise apace, even ''outrageously''.
This is true on the upside, as of a few months ago, as well as on the downside, as we've seen since 11 July or thereabouts. Much of the excess capital that entered the markets -- not only in crude, but in grains and metals -- has exited the market over the past two months, and, gee -- guess what? -- the markets are declining apace. In fact, they're doing so MUCH faster than they went up.
Either learn to understand the market mechanism, or sit around and be bitter. No skin off my nose, either way.
Remember it was a lead pipe cinch it was going to $200 til President Bush signed the Drilling Bill. You can lose millions in a hurry in the futures markets.
Pray for W, McCuda and Our Troops
Divert yourself instead to the task of explaining this to my miniature poodle: you’ll finish earlier and with better results.
Oh, well.
;^)
And that, m'friend, is why Lehman's is up feces creek, not because of their VERY profitable futures trading.
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