Posted on 07/14/2008 5:29:38 AM PDT by thackney
SINGAPORE: Investing legend and commodities guru Jim Rogers says crude oil prices have been going up thanks to an unprecedented demand-supply mismatch. He said those who blame speculators for oil price surge do not understand the oil reality in the world.
Talking to Commodity Online, Rogers, who founded the Rogers International Commodity Index, said he has been predicting all these years that oil price would go up because of shortage of supply.
”Some people blame speculation for oil price rise. If it is speculation, when the oil price is too high, the people with oil will drown the speculators. It is just a stupid accusation that speculators are behind the oil rally,” he said.
He asked: “If people have oil, do you think speculators could have driven the prices too high like this?” “No. People are spreading all speculative stories that speculation is driving up oil prices. That is not correct,” the legendary commodities investor and author of such celebrated books such as Hot Commodities and A Bull in China, said.
He said the truth of the matter is that there is so much shortage of oil in the world. “The shortage of oil in physical market is higher than in the futures market. That is the reason for the high crude oil prices,” he said.
”Those who blame speculators for the high oil prices, I would like to remind them that in futures market every time somebody buys oil, every time the speculators buy oil, the speculators also sell the oil,” Rogers, who is now settled in Singapore said.
He said the US government data says that there are more speculators on the sell side than on the buy side in crude oil market these days”.
”Speculators are getting killed these days; they are loosing money heavily these days. They are selling panicky these days. They are right in selling, because there is no oil to hold on. I wish somebody saves the speculators who are selling. The fact is that there is no oil for delivery and they know that they are not sitting on oil,” Rogers added.
I’d like to see a breakdown of where the money goes. Retailers of gasoline and fuel oil are hurting. Refiners are hurting. Oil companies that actually pump oil are doing well but their margins are not spectacular.
So where does all this money from higher petroleum prices end up?
I thought there was no shortage? If there is a shortage, there is no reason we can’t drill our own. That was the entire point of “saving” our own oil. Use up the middle east oil, then when there is a shortage, we’ll have our own to fall back on,right? That is what we were told. So what is the hold up? (Besides stupid Democrats blocking the drilling) And why do we need government approval to drill on land private companies own. Government has too much power!
Gasoline and Diesel Fuel Update
http://tonto.eia.doe.gov/oog/info/gdu/gasdiesel.asp
Note: Taxes here are only taxes at the pump. Lots of government collection from Royalties, Lease Payment, Fees and Taxes are embedded in those other percentages as well.
Not to offend but that doesn’t begin to answer the question. Certainly not with percentages.
Can you be more clear what your question actually is?
This article is a good start, but there certainly needs to be much more to the explanation. As speculation goes, I find it hard to believe that crude oil is any different than Platinum, Propane, or Plywood. The law of supply and demand, is just as valid as the laws of Physics. Despite the desire of those in Congress to tell us otherwise.
Why is it that stupid actions by seemingly well intentioned political bodies, that produce unintended consequences far beyond the vision of the elected politicians, has to have a whipping boy outside the realm of the guilty? Never mind.
On private land in the Bakken shale in the Dakotas, or the shale deposits in Appalachia, drilling is rampant. It's the Federal controlled offshore area, and Federal lands in Alaska and elsewhere that are off limits. The problem is that it's in the Federally controlled area's off-shore and in Alaska that we have already proven that there is oil.
Let's start with the price of a barrel of crude and work backwards. Of the approximately $140.00 a barrel, how much, in dollar terms, goes to whom? Saudi oil could serve as an example.
The price of a barrel of crude oil doesn’t include refining or local gasoline retailer. It is the raw product prior to these steps.
This is crap! I guess Rogers missed all the articles how large funds such as CALPERS use a loophole to avoid having to declare themselves as "Speculators".
Almost all the big retirement funds are looking to boost their bankrolls by betting on oil.
13 Billion in futures in 02, over 300 billion today yea, they are getting killed alright, capital always runs and increases its investment 2300% in places its losing money... get real.
Just another “ignore the man behind the curtain” story with someone with a vested interest in keeping eyeballs off his prize.
So Rodgers should know this and that none of these trades are listed as CFTC Speculator positions.
Yes, I know.
If we looked at, say, Saudi oil, where does that $140.00 go? How much goes to the Saudis? How much goes to their partner drillers? Where does the rest, if any, go?
Exactly. I am getting so tired of people trying to ignore the fact that there has been a huge influx of institutional investors betting long on oil.
Anyone else receive the email from United, American, etc. coming down hard on speculators being responsible for the price of gas?
For Saudi, there are no partner drillers. Saudi Aramco is 100% owned by the Saudi Government and no other oil companies operate in Saudi Arabia. They do some joint partnership work outside of the KSA like a refinery in Port Arthur, Texas.
Consequently, 100% of the price for their oil goes to them.
By the way, Saudi Aramco produces at least 5 different grades of oil, none are selling at $140 but certainly close to it.
If 100% of the market price of a barrel of Saudi crude, the price to the refiners, is going to the Saudis then the speculators are making nothing.
As I said before, the price of crude oil does not containing any money for the refiner. It is a the price the refiner is paying for the crude oil.
A speculator is not taking delivery of oil. They are buying and selling contracts to purchase/sell oil on the price movements.
Wonder if these are the same guys who tried to boost their bankrolls by betting on ever-increasing house prices. It is my belief that oil's bubble will pop like all the other manias and then the good ole taxpayer will be "volunteered" to save the next bunch of losers.
Yes, I know that. If we know the refiner is paying $140.00 for a barrel of Saudi crude then we can work backwards to see where that $140.00 goes. According to you, it all goes to the Saudis. That leaves no profit for the speculators or anyone else.
A speculator is not taking delivery of oil. They are buying and selling contracts to purchase/sell oil on the price movements.
Yes, I know that. The refiner takes delivery of the oil. If we know that the refiner pays $140.00 for a barrel of Saudi crude then we can work backwards to see where that money goes. If we know how much goes to the Saudis then we know how much is left for speculators, transporters, etc.
A speculator makes (or loses) money buying/selling the contract prior to it being finalized. If a speculator holds the contract until the final date, they are getting a shipment of oil and a bill for the cost of the oil.
There is an easy solution to high oil prices: Drill Here, Drill Now.
Speculation on oil prices will go down based on an future increase in supplies and we as a country will start to get away from foreign dependence on oil. Seems like a simple solution to me.
I wonder if OPEC members are bribing our “public officials” and contributing to environmental group in order to stop America from drilling its own oil? Or maybe I’m just being paranoid.
Oil is no different from any other commodity in this regard. Speculative positions have to be closed out or delivery has to be made(in which case the position wasn’t really that speculative).
In the $140.00 for a barrel of Saudi crude is any additional costs due to speculators. If we know how much of the $140.00 goes to the Saudis then we know how much is left to go to speculators, transporters, etc.
Yes, I know that.
If a delivered barrel of Saudi crude is $140.00 then that $140.00 includes any costs due to speculators. So, how much goes to speculators? To get an idea we must subtract any known costs such as how much goes to the Saudis. So, how much does go to the Saudis?
"Hey, how'd y'all make out today?"
The simple answer is: all of it goes to the Saudis. Seculation is a zero sum game.
You can’t blame speculators. It’s a monopoly. Give oil an competitor if you want the price to go down.
No profit is made? Makes me wonder why they bother.
Both parties are free to negotiate other terms, but if agreement cannot be reached, the contract is for the seller to delivery to Oklahoma.
For either party of the contract at closing to be a “pure” speculator, it will require the speculator to have another contract with a producer or consumer.
For example:
A speculator can make money by purchasing a contract at $135 and selling it at $140. But this can also work in reverse and they can and do lose sometimes.
But there is no percentage or fee associated with a speculator buy/selling oil. They take their chances along with the initial seller and ultimate buyer when entering into the contracts.
If Saudi Aramco sells a contract for $140, they get $140 dollars and they pay cost to deliver.
By the way, Saudi oil blends are all too high in sulfur to meet the NYMEX contract specification that is always quoted as the price of "oil". They are not considered in the included contract variations as substitutes with pre-agreed discounts.
So the government found out there was oil, purchased (or siezed) the land to guarantee us oil, at least in their justification at the time, and now hold us hostage to high oil prices.
I know the Democrats are creating a bad situation to try to gain power, it makes me sick other people can’t see it.
Some make profit, some lose money. Basically for everyone buying thinking prices are going up there is somebody selling thinking prices are going down.
There is no guarantees that speculating commodities is a going to turn a profit. Think of the gambling in Vegas. In the long run, the house wins or goes out of business. Never been a real shortage of gamblers showing up to try and win.
Certainly there are plenty of purchases to complete contracts that don't apply above. If someone speculated that oil was going up when it moved down in the period before the contract due date, they are going to have to purchase another contract to supply they oil, even if purchased for a loss.
There may be other methods to completing the contract or getting out of it. I pinged a couple other who would no more than I.
From what you are saying, there is little reason to be an oil speculator other than to bid up prices in behalf of parties of assured benefit.
The people I know who some would consider speculators are trying to watch news and reports and buy/sell before the market catches up with the movement that was going to happen without them. If they are correct, they add no price to the market but start the reaction a little sooner.
You know, none of this answers my initial question. If we know that a barrel of oil has been delivered for $140.00 then we should be able to work back to see where the money has gone.
In a zero-sum game, no capital ever enters or exits the game, once begun.
Good point.
Only if you have a way to determine the average previous purchase prices of the contracts completed today. And track who bought and sold them. And the oil traded on the NYMEX is not all the oil we use in the US. Most of the oil we use doesn't meet those contract specification.
Get lost you idiot!!!!
It was always Federal land, back from the time the Western States and Alaska were admitted to the Union, though there are some that argue it was unconstitutional for the Feds to own land not being used for a public purpose.
And the off-shore areas are Federally (and state, to some extent) controlled, as no private ownership extends that far out.
I don't think the idea of an oil reserve was ever used to block drilling. It was always an environment protection issue.
The oil reserve is a different Democratic scam. We used to have as a national oil reserve the entire Teapot Dome oil well setup. But Al Gore managed to resurrect that scandal by selling it to Occidental Petroleum (was called the Naval Reserve, I believe). Now we pay folks to pump oil up one well and down into another, without any real idea of how much of the oil we pumped down can be brought back up.
With a little creative horizontal drilling, I suppose you could get paid to do a circular fountain of oil.
The loophole allows investment banks (Goldman, e.g.) when acting as agents for clients (CALPERS, e.g.) to be classified as ''commercial traders'', i.e. hedgers. This classification, in turn, allows the investment bank to ignore the position limits set by any/all American exchanges. The banks develop an ''index product'' (or two, or three, or ...) for CALPERS and other pension funds and university endowments, by buying futures and ''swapping'' them to the funds in various proportions.
However, it is entirely inaccurate to call this practice a form of speculation. It isn't. Speculators buy and sell various mkts at various times. CALPERS and the funds do not; they ONLY buy, and hold effectively forever.
This practice is manipulation, and it is deliberate. Futures mkts are, in size, a tiny fraction of the physical mkts for which they are analogues. The infusion of $X billion dollars into a futures mkt over Y years, on the long side only, can have no effect other than pushing price higher. The funds, being perfectly well aware of this result of their application of capital, are by definition manipulators.
And the Regress and CFTC know this to be true, yet do nothing (and will, IMNNHO, continue to do nothing) to correct the situation. It takes EXACTLY ONE CFTC RULING to clean up this manipulation, yet all that that punk Lukken (temp. head of CFTC) can do is to whine about his agency's lack of funding.
They're all hat and no cattle, and the American economy and the American citizen are paying hugely for their fecklessness and incompetence.
Jim Rodgers must know all of this and so that makes him just a lying, disinformation shill.
But if we know a barrel of Saudi oil was delivered for $140.00 and we know how much of that $140.00 went to the Saudis then we know how much went elsewhere. It is that 'elsewhere' that is the source of all speculation about speculators, Bilderbergers, whatever. I believe we can take the mystery out of this thing with a simple analysis of where the money has gone for a known delivered barrel of oil.
What in my comments is idiotic?
In his defense, I will note only that Rogers has been advocating the purchase of physical commodities for at least a decade. He's not a new boy to the party at all, as are numerous pension funds and university endowments.
Note also that the widely-reviled ''hedge funds'' are not part of this manipulation. Oh, they're long crude certainly, but hedge funds must at some point BOOK their profits...or the bonuses (in most cases) won't be paid.
You won’t accept answers to your questions and keep pressuri g people trying to hear something that doesn’t exist.
You’re an idiot!
If Saudi Aramco sold a contract for $140 a barrel, they received $140 and were responsible for any cost required to produce and transport the oil.
If a speculator bought a contract 2 years ago from Saudi Aramco for $70 a barrel and sold it yesterday for $140, how do you expect to track that?
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