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Don't blame the speculators (There is no oil bubble)
The Economist ^ | Jul 3, 2008 | Economist

Posted on 07/09/2008 8:35:21 PM PDT by curiosity

ALTHOUGH the price of oil continues to hit new records, it has in one respect been a quiet week on the oil markets. America’s lawmakers are celebrating Independence Day by taking a few days off. That has led to a brief interruption in the torrent of proposals aimed at curbing speculation.

Ten different bills on the subject are in the works in Congress. Before the House of Representatives shut up shop, it approved one by a vote of 402-19. America’s politicians are not the only ones to have fingered speculators for the feverish rise in the price of oil and other raw materials. Italy’s finance minister believes that there is a “magnum of speculative champagne” included in the price of each barrel. Austria wants the European Union to impose a tax on speculation. Saudi Arabia and other big oil producers routinely blame the price on frothy markets, rather than idle wells.

The accusers point to the link between the volume of transactions on the futures markets and the price of oil. Since 2004 the near tripling of trading in oil on the New York Mercantile Exchange (NYMEX), the world’s biggest market for the stuff, has neatly coincided with a tripling in the price.

What is more, investing in oil has become something of a fad. Commodities traders and hedge funds with long experience have been joined by less expert sorts, including pension funds and individuals. All this, the theory runs, is contributing to a bubble in commodities. The rush of punters betting on higher prices is begetting a self-fulfilling prophecy: it is the tide of new investment, rather than inadequate supply or irrepressible demand, that is pushing the price of oil ever higher.

Follow the oil, not the futures

This reasoning holds obvious appeal for those looking for a scapegoat. But there is little evidence to support it. For one thing, the surge in investment in oil futures is not that large relative to the global trade in oil. Barclays Capital, an investment bank, calculates that “index funds”, which have especially exercised the politicians because they always bet on rising prices, account for only 12% of the outstanding contracts on NYMEX and have a value equivalent to just 2% of the world’s yearly oil consumption.

More importantly, neither index funds nor other speculators ever buy any physical oil. Instead, they buy futures and options which they settle with a cash payment when they fall due. In essence, these are bets on which way the oil price will move. Since the real currency of such contracts is cash, rather than barrels of crude, there is no limit to the number of bets that can be made. And since no oil is ever held back from the market, these bets do not affect the price of oil any more than bets on a football match affect the result.

The market for nickel provides a good illustration of this. Speculative investment in the metal has been growing steadily over the past year, yet its price has fallen by half. By the same token, the prices of several commodities that are not traded on any exchanges, such as iron ore and rice, have been rising almost as fast as that of oil.

Speculators do play an important role in setting the price of oil and other raw materials. But they do so based on their expectations of future trends in supply and demand, not on whims. If they had somehow managed to push prices to unjustified heights, then demand would contract, leaving unsold pools of oil.

The futures market does sometimes signal that prices are likely to rise, which might prompt speculators to hoard oil in anticipation. But it is not signalling that at the moment, and there is no sign of hoarding. In the absence of rising stocks, it is hard to argue that the oil markets have lost their grip on reality.

Some claim that oil producers are in effect hoarding oil below the ground. But there is also little sign of that, either among companies or countries: all big exporters bar Saudi Arabia are pumping as fast as they can.

It takes two to contango

Despite their dismal reputation, the oil speculators provide a vital service. They help airlines and other big oil consumers to hedge against rising prices, and so to reduce risk—a massive boon amid the economic turmoil. By the same token, they provide oil producers with more predictable future revenues, and so allow them to expand more confidently and borrow more cheaply. That, in turn, should help to lower the price of oil in the long run. Any attempt to curtail speculation, by contrast, is likely to make life harder for firms and oil more expensive.


TOPICS: Business/Economy; Government; News/Current Events
KEYWORDS: bubble; contango; energy; energyprices; oil; oilbubble; speculators
Navigation: use the links below to view more comments.
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1 posted on 07/09/2008 8:35:22 PM PDT by curiosity
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To: rurgan; dirtboy; jveritas; RegulatorCountry; Prokopton; HamiltonJay; colorado tanker
There is no bubble, people. High oil prices are here to stay. Get used to it.
2 posted on 07/09/2008 8:37:31 PM PDT by curiosity
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To: curiosity
Follow the oil, not the futures

Bull Excrement

3 posted on 07/09/2008 8:41:48 PM PDT by ATOMIC_PUNK (Read the Constitution to your children make them understand what Freedom is all about !)
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To: curiosity
You are walking on dangerous ground here at FR but you are 100% Correct.

High Oil Prices Are Here to Stay.

It is likely that we never see $100.00 oil but rather $175.00 to $200.00 oil within the next 24 months.

4 posted on 07/09/2008 8:45:39 PM PDT by trumandogz ("He is erratic. He is hotheaded. He loses his temper and it worries me." Sen Cochran on McCain)
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To: curiosity

A lot of people like to promulgate the “Peak Oil” myth to justify current oil prices.

I am certain that we reached “Peak Real Estate” more than a few years back, and do recall a lot people saying real estate was not a bubble.


5 posted on 07/09/2008 8:48:08 PM PDT by bluefish (NoBama! Because Commies Suck)
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To: ATOMIC_PUNK
Read the Constitution to your children make them understand what Freedom is all about

I read my children Animal Farm when they were pre-schoolers and then talked about it through out their lives. They learned about Freedom and politics that way.

6 posted on 07/09/2008 8:52:31 PM PDT by Zevonismymuse
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To: bluefish

My doctorate is not in economics, but I do have a couple of degrees in that field and the argument that futures speculation was driving the recent price increases was never coherent to me. I have not heard anything on the side of those who want to claim that it is speculators ginning this which amounts to much more than wishful thinking and hand waving. Granted this is the standard for politicians and they are in desperate need of a scapegoat - but that still doesn’t make the case.


7 posted on 07/09/2008 8:52:49 PM PDT by Wally_Kalbacken
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To: curiosity

Maria Cantwell, unfortunately my senator from Washington state, is now pushing some bill trying to scapegoat speculators.
She has been one of the biggest opponents to new drilling in the US for years. She is also one of the biggest receivers of campaign contributions by the Sierra Club.
She was even quoted saying something along the lines that that any overshore drilling in Washington state would be done over her dead body. She’s constantly butting into Alaska’s politics as well trying to block any new drilling there as well.


8 posted on 07/09/2008 8:54:16 PM PDT by Proud_USA_Republican (We're going to take things away from you on behalf of the common good. - Hillary Clinton)
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To: curiosity
We will agree to disagree on this topic, professor, that high energy prices are here to stay. You have taken the affirmative, I shall take the negative, quite cheerfully.

And, a bit later on, we will have a conversation about the workings of mkts, whether manipulated -- as they obviously are just now -- or not.

May I commend to your attention the study of the ''open interest'' in the various futures exchanges: NYMEX, SIMEX, and DUBEX (ICE/IPE can't be studied right now -- they don't present OI figures)? Just a thought. Look it up, professor, over the past 3 days...you might just learn something.

FReegards!

9 posted on 07/09/2008 8:54:45 PM PDT by SAJ
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To: curiosity
And since no oil is ever held back from the market, these bets do not affect the price of oil

Despite their dismal reputation, the oil speculators provide a vital service. They help airlines and other big oil consumers to hedge against rising prices, and so to reduce risk—a massive boon amid the economic turmoil. By the same token, they provide oil producers with more predictable future revenues, and so allow them to expand more confidently and borrow more cheaply. That, in turn, should help to lower the price of oil in the long run.

First oil speculators have no effect on oil prices, then oil speculators do have an effect on oil prices; before I buy "The Economist" theory they need to determine which position they are taking.

10 posted on 07/09/2008 8:55:00 PM PDT by Libertarianize the GOP (Make all taxes truly voluntary)
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To: Wally_Kalbacken
...this is the standard for politicians and they are in desperate need of a scapegoat...

My doctorate is in economics and I agree with you 100%. Others on this forum have stated that $175/bb is here to stay. I think that may be true in the long run, but I think that long run is only as far away as Congress's willingness to make new supplies available now. There is no reason that we have to accept $175/bb oil now and into the forseeable future. At current prices, remote drilling (ANWR), deep water drilling (OCS), and shale oil and tar sands (most of which is federal land holdings) are all economically viable and we will see those sources tapped. However, there will be no movement to ease the problem until after Nov. In the meantime, the public needs to beat on Congress for a real explanation of why we aren't drilling when we know there's oil to be had. This bullsh@# about not coming on line for 10 years and even if it did, it wouldn't make a difference is simply political nonsense. With a 9% approval rating, you'd think they'd try to do something good for the American consumer...but, no. They have their political agenda and you and I will pay the price. Their behavior is disgusting.

11 posted on 07/09/2008 9:06:36 PM PDT by econjack (Some people are as dumb as soup.)
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To: ATOMIC_PUNK
Bull Excrement

BS is right...

12 posted on 07/09/2008 9:13:25 PM PDT by Niteflyr ("If you’re drawing flak, you know you're over the target".)
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To: trumandogz
Only because types like you wish it. There is plenty of supply - both long and short term. You and others like you who are pushing peak oil theory will kill the economy and break the back of this nation. I am sure you are more than tickled.
13 posted on 07/09/2008 9:18:29 PM PDT by BoBToMatoE
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To: BoBToMatoE
There is plenty of supply - both long and short term

That is a fact...and just now the headline is: "In open letter, 12 U.S. airlines call on Congress to curb excessive speculation that they say drives up oil and fuel prices, slamming the airline industry."

more here>

14 posted on 07/09/2008 9:40:48 PM PDT by Niteflyr ("If you’re drawing flak, you know you're over the target".)
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To: Niteflyr
oooppppsss.....

http://money.cnn.com/2008/07/09/news/companies/airlines_speculation_letter/index.htm

15 posted on 07/09/2008 9:41:53 PM PDT by Niteflyr ("If you’re drawing flak, you know you're over the target".)
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To: curiosity

...agreed. We can do better without clinging to wishful thinking about cheap freight fuel and continuation of the recent trade paradigm.


16 posted on 07/09/2008 9:48:43 PM PDT by familyop (cbt. engr. (cbt), NG, '89-'96, Duncan Hunter or no-vote)
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To: BoBToMatoE

There are even idiots that claim we have already peaked...inspite of the fact that production (as shown here by the IEA) is still increasing! Kind of like the global warming crowd that ignores global temperatures showing that the earth is actually cooling. Insanity....

http://bp2.blogger.com/_fl4GqRfOC9Q/SGnDq54csLI/AAAAAAAAAOY/NmEcpoODaJI/s1600-h/IEASupply.jpg


17 posted on 07/09/2008 9:50:45 PM PDT by tatown (How to piss off a liberal: Work hard and be happy!)
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To: trumandogz
High Oil Prices Are Here to Stay.

Maybe, maybe not.

The problem with all of this prediction stuff is that it is impossible to predict the future.

The price of oil is a perfect example. The problem is that we have too many variables. The other problem is that oil is a fungible commodity whose price direction is largely driven by the last units sold. Demand, supply, distribution (refineries), taxes, speculation, depreciation of the dollar, etc. all play a major role in determining the price and many of them are completely independent variables.

Merely increasing domestic production will do nothing to affect the price of gas if world wide demand keeps increasing. What it will do though is help maintain the value of the dollar. The problem is that we are shelling out more than 700 billion a year for oil, it is the trade deficit coming back to bite us.

For what it is worth (nothing) I think that the price of oil has peaked for at least the next year or so. I fully expect the price to fall below $100 as the Chinese end their oil subsidies and as demand falls in response to the high prices. The main problem I have with that prediction though is that the Fed seems determined to continue manufacturing money to keep the financial institutions solvent. If the Fed doesn't keep pumping out the money we would in all likely hood be facing the prospect of deflation and a depression.

18 posted on 07/09/2008 9:57:22 PM PDT by LeGrande
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To: curiosity
These aren't the droids you're looking for.
19 posted on 07/09/2008 10:11:17 PM PDT by PeaceBeWithYou (De Oppresso Liber! (50 million and counting in Afganistan and Iraq))
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To: curiosity

This was previously posted here:
http://www.freerepublic.com/focus/f-news/2040579/posts

It was worth posting again. Anyone interested in this topic would likely find the comments on the earlier version interesting and even enlightening.


20 posted on 07/09/2008 10:19:26 PM PDT by USFRIENDINVICTORIA
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To: SAJ
"May I commend to your attention the study of the ''open interest'' in the various futures exchanges: NYMEX"

I'll bite

"The New York Mercantile Exchange, Inc., a subsidiary of NYMEX Holdings, Inc. , announced today that its crude oil futures contract reached record open interest levels for the third consecutive day."

What am I learning, or not as a matter of fact.

yitbos

21 posted on 07/09/2008 10:25:12 PM PDT by bruinbirdman ("Those who control language control minds." - Ayn Rand)
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To: curiosity
"Speculators now account for about 70% of all benchmark crude trading on the New York Mercantile Exchange, up from 37% in 2000, said Rep. Bart Stupak, D-Mich., chairman of the investigations subcommittee. Stupak introduced a bill on Friday that would limit index speculation."

Is this true?

22 posted on 07/09/2008 10:34:09 PM PDT by NoLibZone (All Democrats must be rationed fuel to reduce their hypocrisy about global warming.)
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To: curiosity

Total and complete BS.


23 posted on 07/09/2008 10:40:02 PM PDT by packrat35 (If mccain is the answer-it must have been a REALLY stupid question)
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To: bluefish

You’re right, even as it was cratering on the way down, they continued to push real estate as “something they ain’t making any more of”.

Before that, they claimed that companies weren’t influencing the electric market in California.


24 posted on 07/09/2008 10:42:18 PM PDT by packrat35 (If mccain is the answer-it must have been a REALLY stupid question)
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To: curiosity

BAH! I heard all this about the housing bubble. “There is no bubble,” they said. “Supply and demand,” they said. “There aren’t enough flippers to control the market,” they said. “Home prices only go up,” they said. Bullcrap. It was all bullcrap, and now you are ready to believe the same thing about oil.

Please explain to me WHY oil is up 48% year-to-date alone? Increasing demand? Bullcrap. Oil futures are forward looking and we haven’t even begun to see the world demand destruction caused by these leap-frogging oil prices.

I’ll never remember to say “I told you so”. Take note and remind me when the oil bubble bursts and it becomes obvious to everybody and his brother.

Never mind. The people who told me the NASDAQ was correctly priced because it was a “new economy” and “profits don’t matter” never bothered to come back and eat crow. The people who said there was no housing bubble never bothered to come back and eat crow. Now why would the same type of gullible fools who believe there is no oil bubble be any more likely to eat crow when they are proven as wrong as the previous fools.

No, never mind. You needn’t bother. But I am still waiting for that explanation how issues of supply and demand alone have caused a 48% increase in oil cost year-to-date. I’ll give 20% of that to a collapsing dollar. I also know that the FED must eventually Volker the funds rate and that will strengthen the dollar, IMMEDIATELY lowering the dollar price of oil by 20%.

Now what is the other 28% year-to-date cost rise due to?


25 posted on 07/09/2008 10:58:49 PM PDT by Freedom_Is_Not_Free
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To: USFRIENDINVICTORIA
I'm so sorry. I did a search on the title and it didn't come up. Not sure why. Again, I apologize for the double post.
26 posted on 07/09/2008 11:09:21 PM PDT by curiosity
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To: AdmSmith; Berosus; Convert from ECUSA; dervish; Ernest_at_the_Beach; Fred Nerks; george76; ...

The Bum Rap on Biofuels
American Thinker | 5-13-08 | Herbert Meyer
Posted on 05/14/2008 3:59:06 AM PDT by Renfield
http://www.freerepublic.com/focus/f-news/2015711/posts

Campaign to vilify ethanol revealed
ethanol producer Magazine | May 16, 2008 | By Kris Bevill
Posted on 05/17/2008 9:22:13 AM PDT by Kevin J waldroup
http://www.freerepublic.com/focus/f-news/2017389/posts


27 posted on 07/09/2008 11:15:44 PM PDT by SunkenCiv (https://secure.freerepublic.com/donate/_________________________Profile updated Friday, May 30, 2008)
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To: Freedom_Is_Not_Free
BAH! I heard all this about the housing bubble. “There is no bubble,” they said. “Supply and demand,” they said. “There aren’t enough flippers to control the market,” they said. “Home prices only go up,” they said. Bullcrap.

Just because housing was a bubble doesn't mean oil is a bubble.

It was all bullcrap, and now you are ready to believe the same thing about oil.

Like you, I called the housing bubble. I moved to Seattle in 2006. Even though I could afford to buy, I chose to rent, and continue to rent, because I realized there was a bubble.

That's because there was data supporting the bubble hypothesis for housing: rents out of line with prices (much cheaper to rent, even without the tax deduction), flippers buying up virtually all new units coming online, etc.

There's zero data to back up the idea that there's an oil bubble.

Please explain to me WHY oil is up 48% year-to-date alone? Increasing demand?

That, and declining production in existing fields, and fewer than expected new finds in exploration.

Bullcrap. Oil futures are forward looking and we haven’t even begun to see the world demand destruction caused by these leap-frogging oil prices.

Both futures and spot prices are high. Futures prices are actually low compared to spot prices right now; there's a sizeable net convenience yield. Inventories are lower than usual for the summer. All the indicators point to a shift in fundamentals as the underlying cause.

If futures speculation were driving the current price, there would be a rise in inventories and futures prices and the net convenience yield would be negative. That's just not what the data show.

Never mind. The people who told me the NASDAQ was correctly priced because it was a “new economy” and “profits don’t matter” never bothered to come back and eat crow.

Unlike with the tech bubble, all the traditional fundamental indicators point to the conclusion current prices are rational: low inventories, high net convenience yield, few new fields coming on line, declining production in existing fields. There's nothing new here. Just good old fashioned analysis.

It's the bubble crowd who's waving their hands and claming everything has changed because of the supposedly evil speculators.

Now why would the same type of gullible fools who believe there is no oil bubble be any more likely to eat crow when they are proven as wrong as the previous fools.

We'll see who eats crow (hint: it's going to be you).

28 posted on 07/09/2008 11:25:50 PM PDT by curiosity
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To: ATOMIC_PUNK
Bull Excrement

Okay. Then please tell me how exactly speculation in futures can lead to a spot price runup without causing a rise in physical inventory.

Also, please explain how a bubble is consistent with the fact that futures prices are actually low compared to spot prices, there being a sizeably positive net convenience yield.

29 posted on 07/09/2008 11:27:15 PM PDT by curiosity
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To: NoLibZone
Is this true?

Don't know. But even if it were true, I don't see how it's relevant.

30 posted on 07/09/2008 11:28:19 PM PDT by curiosity
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To: Proud_USA_Republican
Maria Cantwell, unfortunately my senator from Washington state

The really unfortunate part is that she is the smarter of the two senators from Washington.

31 posted on 07/09/2008 11:30:46 PM PDT by USNBandit (sarcasm engaged at all times)
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To: packrat35
Before that, they claimed that companies weren’t influencing the electric market in California.

That's got to be one of the stupidest analogies I have ever heard.

A huge chunk of both generation capacity and the energy trading market were controlled by one company, which gave it sizeable market power.

None of the "evil" speculators supposedly driving up the oil price controls even 1% of the global oil market.

Just because one market can be easily manipulated does not mean another one can be as well.

32 posted on 07/09/2008 11:32:15 PM PDT by curiosity
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To: Niteflyr
"12 U.S. airlines call on Congress to curb excessive speculation that they say drives up oil and fuel prices,"

That's right! There's absolutely no way airline CEO's could possibly attempt to blame someone else, like the evil speculators, for their failure to properly hedge their fuel price risk! No, not a chance. These men need to be taken at their word! /sarcasm

33 posted on 07/09/2008 11:36:33 PM PDT by curiosity
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To: curiosity
The analogy is valid because people here on FR, just like you were swearing that no market manipulation was going on. Just like you are swearing that nothing is going on now. Rank utter BS.
34 posted on 07/09/2008 11:39:25 PM PDT by packrat35 (If mccain is the answer-it must have been a REALLY stupid question)
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To: econjack
At current prices, remote drilling (ANWR), deep water drilling (OCS), and shale oil and tar sands (most of which is federal land holdings) are all economically viable and we will see those sources tapped.

I agree with you, dear colleague, that we need to open up these resources, but we also have to be realistic about their impact on current prices. From the numbers I've seen, ANWR and the OCS aren't going to increase global supply by more than 3%. While that's nothing to sneeze at, and will help some, we shouldn't kid ourselves into think its some kind of panacea. Long-run oil demand elasticity is estimated to be around 0.4. So even if we increase supply by a generous 5%, that's only going to decrease the price by about 5%/0.4 = 12.5%. Nothing to sneeze at, but not all that impressive, either.

As to Rocky Mountain shale, while developing at least some of it may be just barely positive NPV right now, with oil price volatility being what it is, the option value of waiting for prices to move up is probably too high for any company to seriously undertake any large scale development right now. Hence even if we do start leasing it (as I believe we should), it will be quite some time before anyone chooses to start producing from it. Hence shale oil is likely only to help in a very long run.

What sayest thou?

35 posted on 07/09/2008 11:53:37 PM PDT by curiosity
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To: curiosity

btrl


36 posted on 07/09/2008 11:55:57 PM PDT by TigersEye (Berlin '36 Olympics for murdering regimes Beijing '08)
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To: packrat35
So what evidence do you have that there is manipulation going on?

Just because some markets were manipulated in the past (and, FYI, I never denied the eletricity markets were being manipulated), doesn't mean this market is being manipulated now.

37 posted on 07/09/2008 11:56:00 PM PDT by curiosity
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To: TigersEye
Forgive my ignorance, but what does "btrl" mean?

I googled it, and all I could come up with was "better than real life" and "British Telecom Research Laboratories."

Somehow I doubt you meant either. Would you care to explain it to me?

38 posted on 07/10/2008 12:13:06 AM PDT by curiosity
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To: curiosity

Sorry for the confusion. It’s an old FR acronym for ‘bump to read later.’


39 posted on 07/10/2008 12:26:43 AM PDT by TigersEye (Berlin '36 Olympics for murdering regimes Beijing '08)
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To: Freedom_Is_Not_Free; curiosity; econjack; LeGrande
Just to stir the pot, look at this article from Harper's which I just posted to FR on bubble formation.

Cheers!

40 posted on 07/10/2008 12:42:45 AM PDT by grey_whiskers (The opinions are solely those of the author and are subject to change without notice.)
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To: curiosity
If the runup is due to demand, why the increased volatility on a day-to-day basis?

It'd be a good double-check whichever way, to look at the average daily or weekly price changes (as a percentage of daily price) over the past 20 - 30 years, and to compare that to the average price itself.

If the *normalized* volatility remains in a constant range even while the price has gone up 48% in a year, that's well and good.

But if the (read the word again!) *normalized* volatility has increased just at the same time that the price has skyrocketed, that indicates something other than supply vs. end-user demand at work.

Cheers!

41 posted on 07/10/2008 12:46:33 AM PDT by grey_whiskers (The opinions are solely those of the author and are subject to change without notice.)
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To: curiosity

Just received this one today:

AN OPEN LETTER
TO ALL AIRLINE CUSTOMERS
From 12 Airline CEOs.

Hello {Mr. Airline Customer},
Our country is facing a possible sharp economic downturn because of skyrocketing oil and fuel prices, but by pulling together, we can all do something to help now.

For airlines, ultra-expensive fuel means thousands of lost jobs and severe reductions in air service to both large and small communities. To the broader economy, oil prices mean slower activity and widespread economic pain. This pain can be alleviated, and that is why we are taking the extraordinary step of writing this joint letter to our customers.

Since high oil prices are partly a response to normal market forces, the nation needs to focus on increased energy supplies and conservation. However, there is another side to this story because normal market forces are being dangerously amplified by poorly regulated market speculation.

Twenty years ago, 21 percent of oil contracts were purchased by speculators who trade oil on paper with no intention of ever taking delivery. Today, oil speculators purchase 66 percent of all oil futures contracts, and that reflects just the transactions that are known. Speculators buy up large amounts of oil and then sell it to each other again and again. A barrel of oil may trade 20-plus times before it is delivered and used; the price goes up with each trade and consumers pick up the final tab. Some market experts estimate that current prices reflect as much as $30 to $60 per barrel in unnecessary speculative costs.

Over seventy years ago, Congress established regulations to control excessive, largely unchecked market speculation and manipulation. However, over the past two decades, these regulatory limits have been weakened or removed. We believe that restoring and enforcing these limits, along with several other modest measures, will provide more disclosure, transparency and sound market oversight. Together, these reforms will help cool the over-heated oil market and permit the economy to prosper.

The nation needs to pull together to reform the oil markets and solve this growing problem.

We need your help. Get more information and contact Congress by visiting www.StopOilSpeculationNow.com.


42 posted on 07/10/2008 1:18:18 AM PDT by meadsjn (Socialists promote neighbors selling out their neighbors; Free Traitors promote just the opposite.)
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To: bluefish
During the NASDAQ bubble of 1998-2000, new IPO's were being created daily to soak up the speculative demand.

During the housing bubble of 2002-2005, new spec homes were being thrown up by the millions.

Where's the new oil being pumped to meet the so-called bubble demand of 2008?. There isn't any. And you can't blame Harry Reid or Al Gore for the fact that there are no existing oilfields outside the US which show significant volume increases over the last couple of years.

43 posted on 07/10/2008 5:37:34 AM PDT by Notary Sojac (My grandkids will ask-Was there really a time when I could get on a plane without removing my shoes?)
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To: Notary Sojac
Where's the new oil being pumped to meet the so-called bubble demand of 2008?. There isn't any

Oh, it's coming - every drilling rig in the world is running right now.

44 posted on 07/10/2008 6:26:54 AM PDT by dirtboy
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To: curiosity
I agree. Still, since price expectations is one determinant of demand, I think that will shift the demand curve if an announcement of opening up ANWR, OCS, and federal lands to drilling is made. That could have a significant impact by itself without any supply shifts because of increased output. The impact will probably be most felt on the speculators, but also on large consumers (e.g., airlines) who have been hedging their bets in the futures market. Also, most people would be tickled pink to see a $.50 (12.5%) drop in price for a gallon of gasoline. It may be small, but it's still better than a poke in the eye with a sharp stick. For people who drive a lot (e.g., sales people, marketing reps, truck drivers, etc.) it could mean hundreds of dollars each month. Plus it also means that countries that support terrorism get less on each barrel, too.

In short, I really don't care if price only drops a half percent, that's better than nothing. Unfortunately, Congress could care less about us and they won't allow anything that makes us happy take place until after Nov. I say: Throw the bums out!

45 posted on 07/10/2008 6:39:09 AM PDT by econjack (Some people are as dumb as soup.)
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To: ATOMIC_PUNK

bttt

Follow the oil, not the futures


46 posted on 07/10/2008 6:46:31 AM PDT by george76 (Ward Churchill : Fake Indian, Fake Scholarship, and Fake Art)
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To: curiosity

bttt

Despite their dismal reputation, the oil speculators provide a vital service


47 posted on 07/10/2008 6:46:55 AM PDT by george76 (Ward Churchill : Fake Indian, Fake Scholarship, and Fake Art)
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To: grey_whiskers
Man, I really hate articles like this. What they do is come up with some catchy phrase, like "bubble formation", and then go back in history and selectively pick out a number of examples that fit their "theory" to give it some credence. You can always spot such BS articles because they concentrate on the past and have very little on what the theory predicts. This relatively long article has one paragraph at the end that says anything about what will happen, and that doesn't fit what he said earlier all that well.

It makes for some fun "Golly, Gee!" reading, but Harper's magazine is probably not where you're going to find any hardcore economic thoughts.

48 posted on 07/10/2008 6:54:21 AM PDT by econjack (Some people are as dumb as soup.)
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To: curiosity

Hhahahah.... I heard the same thing about housing prices and tech stocks.... oh and as a child I recall a similar thing too “Ignore the man behind the curtain”.


49 posted on 07/10/2008 7:07:57 AM PDT by HamiltonJay
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To: meadsjn
Oh, perfect! Let's have the gov't get more involved in the market and put regulations into effect that will become obsolete before they take effect. Even if they were effective, they would simply create a new market in some place where the US laws are not in effect. Like it or not, speculators do perform a function in the market.

If you really want to hurt speculators, Congress would be more effective if they would secretly set forces in motion that would dump about half of the Strategic Petroleum Reserves on the market overnight. Then, as the gov't is dumping the reserves on the market, have both parties hold a joint news conference and announce what they are doing as it is happening. The spot price of oil would go into the dumper. Speculators would take it in the shorts all the way down. When the new (lower) equilibrium spot price is sensed, the gov't jumps in and uses its ill-gotten profits to refill the SPR. While the spot price would go back up somewhat, it probably would increase due to the very real increase in demand from new markets like China and India rather than speculators who would likely be licking their wounds somewhere.

Obviously, our Congress doesn't have the stones to do such a thing, but I'd sure prefer that to more gov't intervention in the market place. I'd much rather see the gov't use the market than try to change the market through ill-conceived regulation.

50 posted on 07/10/2008 7:09:32 AM PDT by econjack (Some people are as dumb as soup.)
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