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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.
We are taking it in the...
We sure get a lot of conflicting messages about the oil situation. Just yesterday I heard refineries were still below normal because of Katrina. And lower because of switching to spring/summer fuel mix. I have a hard time keeping up.:)
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.
Why would an oversupply result in crude prices going up?
Or the hedge funds decided to make commodities a new place to park part of their dough.
Will it be a permanent policy or temporary?
I think he meant "despite"
I suspect that part of the price rise is a massive amount of spec money coming in from somewhere. Prices usually rise this time of year (it is shut down time for the refineries), but this is a bit nuts. Storage is getting limited.
It is because they say we don't know what tomorrow will bring. The price to replenish the stocks inevitably will be higher.
How much did this puke get at retirement? Several hunderd million?
If this just occurred to you, you've missed your Weekly Reader. Last Monday's inventory report also reported over one million open interest contracts for crude, 2 oil and gasoline. The Funds are involved in a very big way.
Maybe it depends on which refineries are involved.
Huh? Less demand be refineries would cause prices to fall.
be=by
Good question. I have no clue.
I think the market is anticipating a shortage due to an Iranian War - something that is inevitable, failing a popular revolution - which is unlikely to succeed without our active involvement.
Perhaps the rise in oil prices is collateral to the change in Russian, Chinese, and Indian economies towards more capitalism.
Well, there goes the supply and demand argument. Despite the libs screaming about the oil companies, it's fairly obviously we are getting stuck by the oil traders. Is there any kind of watchdog activity on these shadowy figures?
Standard Oil all over again, just now its Hedge Fund and Futures Traders bleeding the public dry.
Not really. There is a lot of spec money involved, and commodity prices don't follow supply and demand curves all the time. Part of it is that everyone expects the price to rise, so it does. Doesn't matter if they are looking for tank space to store the crude, the price will still rise.
When was the last time you filled up your car at the local refinery?
Well glad to see folks are catching on.. been trying to tell people for at least 6 months that energy futures traders are raping em... but the "market is god" types just kept shouting me down.
Of course, but that the author stated that less use by refineries is causing prices to rise, among other things. That doesn't make sense.
Yea, its supply and demand... supply is so high we can't even store it, and demand is dropping and the price keeps going up... yea, that's classic supply and demand... NOT.
Its called futures trading profiteering, pure and simple. Only difference between whats going on now in the oil futures market and what was going on with tech stocks in 99 is that Oil is an inelastic product.
These folks who think markets are not manipulated or incapable of being influenced or manipulated by forces beyond "supply and demand" and are free from corruption are just abject fools.
The simple approach would be to raise margin requirements thereby increasing the cost and risk of commodities and futures speculation.
When was the last time a company netted 34,000,000,000 ?
Answer: Never.
BTTT
It's not so much the hedge funds. A speculator who buys futures because he thinks prices are going to rise is not doing anything wrong... if he turns out to have been wrong, and prices did not go up, then he is going to lose money.
The problem is that the run up in commodity prices caused by real demand has resulted in Wall Street introducing all sorts of commodity index products that people are pouring money into. These funds have to buy futures, because that is there mandate... it is in essence a bubble just like the internet in 1999.
Sure, unfortunately they are oil investors, or shills.
Because they are not keeping up the same income levels. Charge more to make up for what you are not getting. Remember a few years ago when the gasoline usage dropped over several months because of high prices -- less fuel usage threatens their profit projections, regardless of fuel availability.
There is an even simpler approach: start shorting crude oil futures.
This price is, from a supply/demand curve, completely nuts--as are beliefs that we're going to go to war with Iran any time in the next 3-5 years.
So, in short, it is a speculative bubble, and one that is overdue to be popped.
Remember that in shorting oil, Soros' pain is your gain!
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Total B$, or were you not around when the OPEC Cartel was established?
These embargo's used to be considered acts of war. But the mandated control
of production let US refineries raise their prices. They loved it.
pssst...Have you not heard on this board that capitalists are incapable of greed..no collusion..all legal like.
Collusion? There's no collusion! You don't sound very happy that gas is $3+ per gallon! I'm sorry, that means you are a commie. I mean, come one, you can choose not to buy gas. Unless you want to have a job or buy anything that was treansported.
But it is a totally free market. The industry shills here repeat it like a mantra, so it must be true.
Yeah, we should just give up. Shouting will never cure a terminal case of economic ignorance.
I've tried it on Democrats and it doesn't work on them either.
Of course it doesn't. The energy sector is nuts most of the time, and it is getting nuttier now.
I would love to see where the spec money is coming from.
Mysterio was being sarcastic.
That theory is spot on when prices are rising. But I, and I'd bet one or two other people, notice that the theory breaks
down somewhat, when replacement costs go down...
Guess those pricing people don't understand the art of pricing. Then again, maybe they do.
"...Why would an oversupply result in crude prices going up?..."
Price gouging by those involved.
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.
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