Posted on 10/29/2007 5:05:14 AM PDT by NRG1973
The Financial Sector is still coming to terms with the US Subprime Mortgages induced credit crunch, could again be in the line of fire of a new credit crunch caused by crude oil surging to $100, triggering a similar collapse of hedge funds and put the banking sector under renewed pressure as the crude oil credit crunch contagion spreads.
The reasoning behind this possibility is the enormous derivatives book that runs to over $300 trillions. With key players such as the Bank of International Settlements, (BIS) and JP Morgan and many smaller players such as banks and hedge funds. A collapse amongst a major hedge fund due to failure to meet the obligations against contracts on crude oil not crossing above $100 initiated some time ago could result in a cascade of financial failures as forced selling of assets occurred to meet contract obligations.
It is highly likely that the worlds central banks are very much aware of this possibility and therefore may attempt at forcing crude oil lower via market operations, it is highly likely that these transactions will not be visible to the market and may have the effect of inducing a sharp inexplicable drop in crud oil prices. It is highly likely that such operations would be conducted prior to crude oil crossing above $100. In an attempt at trying to estimate the current value of off the book contracts based on crude oil could amount to more than $4 trillions, which suggests that central banks have already been active in the crude oil market.
(Excerpt) Read more at marketoracle.co.uk ...
The only question is...at what price does more expensive crude oil hurt the economy?
I suspect that the next POTUS is going to have a lot of economic problems because of higher oil prices. Memories of Jimmy Carter?
No.
Boycott JP Morgan.
Boycott hedge funds!
Soooo, we are supposed to foot the bill for 100bbl just so some hedge fund speculators can keep taking my money and making millions?
Golly. Swell.
Such speculation is driven from computer analysis. If one follows oil and gas prices, the futures investors use any little trivial possible excuse, and I mean any possible trivial excuse, to keep to keep the prices artificially high if any thing points at a slight increase in demand or threat to supplies. PERIOD. What a better scenario for OPEC and the extremely rich.....everyone on the planet uses oil and/or the products required to make it (plastic for example) and deliver goods / food.
BTTT!!! A cup of ENRON anyone?
The refining side is getting clobbered, that’s why gasoline is still the same price as when crude was $70. Refiners were making $15-$20 bbl then. They’re making < $3/bbl now.
BTW, look at what has happened to the hosing (housing) industry in the US and the layoffs at the nations top brokerage houses, not to mention the end of the growing season except for cole crops and wheat.
OK, I ain't a real smart fella, but seems to me, there's not a huge demand for construction workers for housing to have to be traveling back and forth to the job site, not to mention a 25% drop in demand for lumber deliveries, wall board, block, concrete, and all the other building supplies needed. So, now, exactly what type of goods has the US consumer goods spiked in demand to offset the extra consumption in gas and diesel? There's 2.1 million brand new homes setting empty (not needing energy for HVAC, etc), not to mention a 25% drop in the sales of both new and older homes, so, no one is renting trucks to move their stuff?
WE ARE BEING LIED TO AND MANIPULATED AS NEVER BEFORE!!!
A hedge fund could fail if oil goes above $100? Impossible! Hedge funds only buy oil contracts, they never sell. When they buy, they make oil go higher, when they sell, the price stays the same......or goes even higher.
Domestic production suffers from being undersold by foreign suppliers, but possibly more so from the active interference of the government, which won't just go away as the market sweetens.
The minuscule crude oil export volumes of the US are ~25% of what they were 7 to 10 years ago.
U.S. Weekly Crude Oil Exports
http://tonto.eia.doe.gov/dnav/pet/hist/wcrexus24.htm
At one tenth of one percent of our oil consumption, they are far from a significant impact. With nearly all of it going to Canada due to location of production and markets, why is this an issue when we import over 500 hundred times as much as we export?
What source of oil do you think is being sold at prices too cheap for it to be produced domestically?
Landed Costs of Imported Crude for Selected Crude Streams
http://tonto.eia.doe.gov/dnav/pet/pet_pri_land2_k_a.htm
The fact that we aren’t pursuing energy independence as a top priority is insane.
We will have a recession, perhaps beginning in 1 year and lasting at least 12-18 months.
The reason is that as the Fed lowers rates to artificially keep mortgage defaults smaller it will prolong the mortgage crisis and it will initiate inflation. Add to that the cost of energy and we will definately have recession.
Retail sales declines are giving a fore-warning of this. Take a look at the price chart for JCPenney for example.
The risk price in a barrel of oil is a sure sign of the risk, high risk factor = high risk as markets are efficient.
That's out of the way. Now, the answer to your question for years has been the Middle East. Their cost of production has always been low because their oil fields don't require the kind of babysitting that ours do in order to produce. Most of their market price has been profit margin, which they could cut at any time to choke off potential competitors.
If you were a domestic supplier, it would not matter to you that you could produce oil somewhat cheaper than the product coming in from the docks, if you live with the knowledge that the instant you spend the money to uncap your wells and start moving oil to market, the Saudis (for instance) could shut you down by merely forgoing a small part of their rapacious profit. So those wells stay capped.
Fast forward to the present. If I can believe what I hear, the ME suppliers cannot keep their production up with the market demand. As soon as that happens for real, they lose control of the price. And that removes the threat to those other suppliers: existing oil field owners, alternative energy entrepreneurs, and such. Of course, there remains the threat of earth-worshiping, corrupt government. The market can't help you with that.
Interesting times.
If the demand is 100 barrels and OPEC can produce 75 barrels for 6 dollars and the rest of the world produces at 30 dollars, the price will never fall below 30.
OPEC is capable of meeting a large share of the world’s oil demand, but are not capable of producing even half of it.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.