Stop The Scapegoating Of Oil Speculators And Give Them Good Reason To Go Short

IBD Editorials ^ | July 8, 2008 | Walter E. Williams

[TChris]

BS, demand is not HIGHER THAN SUPPLY.

That's because increasing prices cause demand to decrease. That's how a free market works.

Demand is increasing, despite increasing prices, so prices will increase further. ( See here, here, and here )

Not sure what cooked books your refering to, but when you pull up to your local gas station and can’t get gas, or when you see plants closing because they can’t get the raw materials they need derived from oil then you can play that consumption demand has outstripped supply.

Well, that's not the whole story.

When domestic demand exceeds domestic supply (not necessarily crude, but refined consumer products) then products are imported to meet the demand. True, demand has not outstripped all supply, but prices will clearly rise as more expensive supplies are needed to meet it.

The only crap going on right now is complete speculative greed, we are not running out of oil, we are not at peak oil.. we are nowhere near some oil crisis. We are just seeing another fiscal bubble driven by greed. Want to see it end? Simple, require 50-75% margins on futures trades, and require that the terminal where trades are placed be regulated by the laws of the country they reside in, you’ll see this thing pop overnight.

So you're joining hands with the Leftists on this one, huh? The answer to the problem is More Government^TM!

Tax the eeeeevil rich people!

*sheesh* Leave the class warfare thing to the Socialists, please?

Do you remember the last time the government tried to fix a problem with gas prices? Does the name Jimmy Carter ring a bell?

Go pick up a bottle of motor oil, and check the price, its risen over the last 5 years, but it hasn’t tripled, same with asphault[sic], same with plastics.

This is what's called comparing apples and oranges.

The demand for motor oil, asphalt and plastics isn't related to the demand for fuel (Diesel and gasoline). In fact, this observation is just more proof that it is market supply and demand which are driving the price increases! The prices of those other products have remained constant because the demand for them is remaining more or less constant.

All you have going on here is a greed tax...

Now that's just downright dishonest of you.

It's you who called for the government to meddle in this market, and it's the government who can levy taxes. Price fluctuation because of market forces (yes, including hedge funds, etc.) isn't a tax, and it shouldn't be called a tax.

...being levied by hedge funds and others who have created this bubble, pure and simple. You can bring as much supply as you want online and it won’t change this because its not a function of supply and demand, its a function of greed and fear.

Greed and fear of.... what?

All the greed and fear in the world can't magically make the actual supply and demand data change, which it does. If you care to look for the actual measurements of the market supply and demand, they're easy enough to find.

...but that doesn't make as good of an emotional rant, does it?

See, that's the whole problem with liberty: Some people are going to do things you don't like. Please don't be one of those who feel that this means those people have too much liberty, and need the government to set them straight.

What ever you may find or imagine is wrong with the condition of the petroleum industry, I absolutely guarantee you that increased government involvement will always make it worse.

[HamiltonJay]

Hahahahahahaha You claim to be justifying the “market forces” but then question “fear and greed”? You know nothing about how the core of our financial system works if you don’t understand fear and greed. Go spend a few days on wall street.

Supply has not been outstripped by demand, and you and all the other sky is falling folks can keep repeating this lie all you want, you are just feeding into the fear that is allowing the greed.. Nice of you to continue to do it BTW, saves those folks from having to do it. Perception and reality are not remotely linked in the world of finance, and sadly to too many on the street as well. If you can create the perception of a problem, you can create the opportunity for greed to flourish, and that is all that has been going on for the last few years with oil.

My solution does not increase government, it is the GOVERNMENT in the first place that allows the trading of futures, up until 1978 trading of energy was ILLEGAL, and we have seen over the last few years exactly why.. Perhaps you heard of a little company called ENRON? Requireing higher margins is not a tax, government gets no part of the money, just forces those who wish to buy a position to put some money up to do it. You are showing some insane naivetie and some really really bad ideological blinders by your little diatribe.

Hahahahahahahahaha... Let me tell you a little fact, you really need to understand... US CONSUMPTION OF OIL has DECREASED significantly and has been year over year for quite a while. Worldwide demand has been and will continue to increase at about a 1% rate a year as it always has. IF oil is in short supply, and demand were outstripping supply, all products based on oil would have to shoot up in price.. those that need to to make such products would have to slow or halt production because they could not get the raw materials they need. You can’t claim market forces in one hand and then deny them in the other.

If Oil demand is not keeping up with supply, then all oil based products, not just gasoline would be shooting through the roof. They aren’t, and they aren’t for several reasons, but the single biggest one is not that demand is constant, because whether demand is constant or increasing doesn’t matter if the supply of the raw materials is lacking, the price goes up, period.

Here’s some dirty little facts, 1) oil companies don’t pay futures prices for the oil they pull out of the ground. Exxon is not now, nor will they tommorrow be paying the futures price for their oil. 2) There is no shortage of oil, when oil truly becomes a scarcity, you won’t be able to go into your super market and see nearly everything in there packaged in oil based plastics and in grand supply, you also wont be able to pull up to a gas station and find that they actually have gas in their tanks.

All you have going on here is a speculative bubble, pure and simple. The basic fundamentals of oil have not changed significantly over the last 5 years, they aren’t going to change significantly over the next 5 either... the only thing that has changed is that you’ve seen a 2500% increase in speculative futures trading.

When we truly run out of oil, trust me, you’ll know it, and what we have going on right now has NOTHING to do with lack of oil, and everything to do with speculative manipulations.

[HamiltonJay]

should read.. If oil supply is not keeping up with demand.

[HamiltonJay]

The only thing going on right now, is that an entire generation is learning why anti-trust laws were created in the first place. A century or so ago it was Standard Oil doing this crap, today its a group of hedge funds.. its the same crap being played by the same type of folks.

Only difference is today there are far too many people so ideologically indoctrinated by both sides of the political isle and a completely inept and incompetent public education system, that the folks doing it can much more easily play each group against each other and keep on screwing everyone.

[jveritas]

Only difference is today there are far too many people so ideologically indoctrinated by both sides of the political isle

Exactly true. On our side we have those who live in a bubble and cannot simply accept the facts that the current trend of Oil Speculation is not what the Free Market economy is supposed to be and that attacking the irrational oil speculations is not an attack on the free market economy. In fact putting an end to this crazy oil speculations is to protect the fundamentals and basics of our free market capitalist economy.

[TChris]

Hahahahahahaha You claim to be justifying the “market forces” but then question “fear and greed”?

No, I was pointing out that your "fear and greed" argument does nothing to explain away basic supply and demand forces.

Now you're trying to turn my argument on its head. It's you who continue to claim that today's prices have nothing to do with supply and demand. But even "fear and greed" work within the same market forces that drive everything else.

You know nothing about how the core of our financial system works if you don’t understand fear and greed. Go spend a few days on wall street.

Again, you're fighting a straw man here.

There's nothing to suggest that I "don't understand fear and greed." My claim is that "fear and greed" don't magically make supply and demand irrelevant. In fact, I believe you could say "fear and greed" are just different labels for "supply and demand". Both are factors that can have an effect on supply, demand or both.

Supply has not been outstripped by demand...

I have already addressed this, but you choose to ignore my response.

...and you and all the other sky is falling folks can keep repeating this lie all you want...

Did you even read my post? I didn't claim that demand has "outstripped" supply.

The fact is that supply is constrained, that is, it's not free to increase as needed, and demand continues to increase rapidly.

...you are just feeding into the fear that is allowing the greed..

Putting your negative labels on things won't change the basic facts.

Fear doesn't "allow" greed. There are plenty of fearless, greedy people too. :-)

Where are you coming up with this crap?

Nice of you to continue to do it BTW, saves those folks from having to do it.

???

Perception and reality are not remotely linked in the world of finance, and sadly to too many on the street as well.

OK, with Perception out, and Reality out, just what does the "world of finance" use? Witchcraft?

If you can create the perception of a problem, you can create the opportunity for greed to flourish, and that is all that has been going on for the last few years with oil.

Ahh, so it is a conspiracy! I knew it!

[RightWhale]

Doing so will definitely lower the spot price of corn.

The assertion is invalid. Removing futures contracts would return the market to a condition of wild fluctuation in spot prices.

[RightWhale]

Don’t know about steep decline, but how do we know this is Peak Oil?

---

http://money.cnn.com/2008/07/10/news/international/opec_report.ap/index.htm

VIENNA (AP) — World energy needs will spike by more than 50% by 2030 but adequate oil reserves, conservation and new methods of recovery mean supply will keep pace with demand, the Organization of Petroleum Exporting Countries said Thursday.
. . .

The report projected oil demand to rise by 29 million barrels a day from 2006 through 2030 to reach a daily 113 million barrels a day - a drop of 4 million barrels a day over its predictions last year, “due in part to the higher oil price assumption” - expectations that pricey petroleum is here to stay.

New recovery methods to boost supply

A large part of that projected demand will be met by new recovery and production procedures, meaning total demand for “conventional crude” - oil pumped from wells and other methods using present day technology - will not exceed 82 million barrels a day by 2030, said OPEC.
. . .

---

82 million bpd demand would equal production by 2030 and assumes something less alarming than a steep decline and the overstatement does not buttress the case.

[rurgan]

You state you are an average joe...and 12 CEO's of major airlines today in an open letter to Congress called for them to curb excessive speculation that is driving up oil prices...let me ask you this... since you seem to know more than these CEO's do....why aren't you more successful?

I know more about specific topics than do those CEO's. I am a computer programmer in the private Education industry. so I doubt those CEO's know how to program sockets better than I do for example. So the CEO's don't know more about everything including running the economy than I do.I don't know how to run their business though. All this confusion and disagreement on what is causing the high oil prices is precisely why Hayek said that an individual can never run or fully understand how a market works. Humans are not that smart. And that's why it seems nobody understands how the market works. Hayek argued that no one individual, or even group of well-informed individuals, could ever have enough knowledge to plan a market. Hayek said that knowledge was localized, meaning every individual has the best knowledge about their specific place, condition, needs and resources, but no one had enough knowledge about anyone else’s to make decisions for them
So those calling for idiot, unaccountable government regulators to regulate the market more are just crippling the economy further.

And I'm not done yet .Who knows if I can make it big? I believe it's the amount of work you put into it, taking action, persistence, motivation and energy not what you know or how smart you are .

[rurgan]

You state you are an average joe...and 12 CEO's of major airlines today in an open letter to Congress called for them to curb excessive speculation that is driving up oil prices...let me ask you this... since you seem to know more than these CEO's do....why aren't you more successful?

I know more about specific topics than do those CEO's. I am a computer programmer in the private Education industry. so I doubt those CEO's know how to program sockets better than I do for example. So the CEO's don't know more about everything including running the economy than I do.I don't know how to run their business though. All this confusion and disagreement on what is causing the high oil prices is precisely why Hayek said that an individual can never run or fully understand how a market works. Humans are not that smart. And that's why it seems nobody understands how the market works. Hayek argued that no one individual, or even group of well-informed individuals, could ever have enough knowledge to plan a market. Hayek said that knowledge was localized, meaning every individual has the best knowledge about their specific place, condition, needs and resources, but no one had enough knowledge about anyone else’s to make decisions for them
So those calling for idiot, unaccountable government regulators to regulate the market more are just crippling the economy further.

And I'm not done yet .Who knows if I can make it big? I believe that the keys to success are the amount of work you put into it, taking action, persistence, motivation and energy not what you know or how smart you are .

I mean knowledge is important but if you are lazy and don't put that knowledge to use in productive ways then it's useless.

[rurgan]

BS, demand is not HIGHER THAN SUPPLY

Demand IS higher than supply and has been for several years. Have you HamiltonJay or jveritas looked at the graphs below?

The following graphs of world oil supply and demand clearly show that world oil supply has not met world oil demand for several years. Demand has been greater than supply.This , the most basic law of economics, the law of supply and demand should put an end to all this scapegoating of the speculators (the free market), hopefully.

Proof that demand has not met supply for several years

We have enough oil in the ground , in oil shale , in coal to oil, etc. But democrats have not let us get to that oil and they won't unless the American people make them. How can we have enough oil production/supply when for decades Democrats have said no to more oil drilling, no to more nuclear power plants, no to more refineries, no to drilling in ANWR, no to drilling in the OCS, no to oil shale, no to coal to oil liquefaction, no to coal mining, no to coal power plants, etc. etc. and so on ad infinitum? I ask everyone this question but I ask especailly jveritas or HamiltonJay to answer that question.

[rurgan]

And I’m not done yet .Who knows if I can make it big? I believe that still anyone with average intelligence, ability, and knowledge can make it big if they are willing to work hard enough. I believe that the keys to success are the amount of work you put into it, taking action, constant infinite drive, wanting it bad enough, focusing on that one goal of making more money, priority setting, goal setting, time management, focus, persistence, motivation,to keep trying different things after failures, and unending energy not what you know or how smart you are.

I mean knowledge, talent and intelligence are important but if you are lazy and don’t put that knowledge or ability to use in productive ways and in the correct ways then they are useless.

[ctdonath2]

prices based not on supply and demand but on "hunches".

Those "hunches" are rooted in financial realities. Supply-and-demand still applies, every bubble will burst, and corrections will bring the fluke back in line.

[Prokopton]

Those "hunches" are rooted in financial realities

Sure, just like all those "financial realities" that supported those wise decisions of the great and powerful mortgage bankers.

[ctdonath2]

My use of “rooted” does not mean “smart”, “solid”, or “good”; the idea was “connected to natural laws”.

The creative mortgaging of late was also rooted in the financial realities of supply and demand, and subsequently were corrected to where they naturally should be.

As such: the “hunches” driving oil speculation will eventually reach an untenable position, and a correction will occur - a correction which will have wide-ranging consequences, hopefully including a remarkable drop in prices to more natural levels. Much money will be lost in the process, and many risk-takers will learn the definition of “risk” the hard way.

[B Knotts]

Could it be that actually demand has been much higher than world oil supply in the last few years?

No, it hasn't been, and isn't now. Next theory?

[jveritas]

I already addressed your charts and told you that they prove my point. In previous previous quarters in previous years according to these charts demand was higher than supply but yet oil price was half and sometimes less than half of what it is now.

One more point to make, we can accurately calculate the real supply but the demand numbers can have a lot of fuzzy math.

Regarding drilling for oil in the US inland and offshore I am 100% for it. I am more convinced now than ever that even if Congress approve domestic drilling oil prices WILL NOT come down because the speculators will then give the excuse that it is going to take years for actual production. The proof for this is that two weeks ago Saudi Arabia announced an ACTUAL AND IMMEDIATE INCREASE of 500,000 barrel of oil a day in their output but yet the speculators pushed the price 10 dollars up. Having said all that I want drilling NOW.