Hoarding is exactly what the government is doing right now by filling the SPR, and frankly it's the best thing that could happen. It drives prices up. High prices encourage demand destruction. They also finance new well development. The hoarded oil gives us a buffer to fall back on once shortages become more prevalent. High prices are what we need in order to adapt to what's coming, and the sooner they happen, the better.
Posted: Thu May 15, 2008 9:09 am Post subject: Re: The Oil Nonbubble
threadbear wrote:
davep wrote:
Ok, call me stupid, but how can speculators buying Crude Oil options or futures push up the price of oil?
These people don't actually take delivery of oil, and sell back onto the exchange before expiration (or let the option pass). Therefore, the real oil price is unaffected, as only the same few refiners etc are in the market to buy the physical oil itself.
Feel free to show me I'm stupid...
Dave, Read the Doug Noland link I posted. The more money flowing into the oil market the more money to bid the price up. It's like an auction.
Although I agree that this is one of the ways speculators affect the market, look at the players Noland mentioned: China, India, Brazil. This doesn't look like seculation. It looks more like "demand from emerging markets."
Joined: Jan 14, 2008 Posts: 321 Location: The Yukon
Posted: Thu May 15, 2008 5:06 pm Post subject: Re: The Oil Nonbubble
mididoctors wrote:
FreddyH wrote:
Crude Price has completely detached from its fundamentals which indicate a $70/barrel equilbrium price:
I don't quite understand where the data comes from...
how did you calculate the geopolitical fear speculation graph for instance?
Boris
London
Boris, the combined $6/barrel is the amount Price was spiked up/down by direct Speculator activity. If speculation by non-stakeholders was banned, these specific spikes would be smoothed away.
While the Price is higher by six bucks due to spec activity, it is the Producers that enjoy that gain ... not the speculators.
Indirectly, the media noise surrounding speculation issues is reflected by the "windfall" component of $37/barrel. Again, the vendors are in receipt of this gain.
The split betw geopolitical/weather spec & depletion spec activity is completely arbitrary. It is built on the premise that geo related spec activity has quietly subsided since the Iranian capture of British Marines and Prez Bush's posturing associated with that episode.
60 days of surplus balance of 1.5-mbd would bring the Price back to the Base Line of $70, imho. _________________ www.TrendLines.ca/scenarios.htm Home of the Real Peak Date ... set by geologists (not pundits)
Last edited by FreddyH on Thu May 15, 2008 5:27 pm; edited 1 time in total
Posted: Thu May 15, 2008 5:12 pm Post subject: Re: The Oil Nonbubble
centralstump wrote:
threadbear wrote:
davep wrote:
Ok, call me stupid, but how can speculators buying Crude Oil options or futures push up the price of oil?
These people don't actually take delivery of oil, and sell back onto the exchange before expiration (or let the option pass). Therefore, the real oil price is unaffected, as only the same few refiners etc are in the market to buy the physical oil itself.
Feel free to show me I'm stupid...
Dave, Read the Doug Noland link I posted. The more money flowing into the oil market the more money to bid the price up. It's like an auction.
Although I agree that this is one of the ways speculators affect the market, look at the players Noland mentioned: China, India, Brazil. This doesn't look like seculation. It looks more like "demand from emerging markets."
Noland was specifically addressing their dollar holdings. Has energy consumption in these countries more than doubled in the last year? I think not. Is it up 5 or 10%? Probably. But the drop in demand in the U.S. would seem to offset much of the increase in demand, elsewhere.
NOLAND--"And in just the past year, reserves of Organization of Petroleum Exporting Countries reserves have inflated 42% to $490 billion. To be sure, the world is awash like never before in excess "liquidity" for which to bid up prices of critical tradable resources."
Posted: Thu May 15, 2008 5:17 pm Post subject: Re: The Oil Nonbubble
FreddyH wrote:
mididoctors wrote:
FreddyH wrote:
Crude Price has completely detached from its fundamentals which indicate a $70/barrel equilbrium price:
I don't quite understand where the data comes from...
how did you calculate the geopolitical fear speculation graph for instance?
Boris
London
Boris, the combined $6/barrel is the amount Price was spiked up/down by direct Speculator activity. If speculation by non-stakeholders was banned, these specific spikes would be smoothed away.
While the Price is higher by six bucks due to spec activity, it is the Producers that enjoy that gain ... not the speculators.
Indirectly, the media noise surrounding speculation issues is reflected by the "windfall" component of $37/barrel. Again, the vendors are in receipt of this gain.
The split betw geopolitical/weather spec & depletion spec activity is completely arbitrary.
60 days of surplus balance of 1.5-mbd would bring the Price back to the Base Line of $70, imho.
You're saying that very little of the cost of oil is pushed up by hedge funds etc.. playing the oil futures markets? Further, you add that they aren't enjoying gains? Why would they even bother then?
Joined: Jan 14, 2008 Posts: 321 Location: The Yukon
Posted: Thu May 15, 2008 5:37 pm Post subject: Re: The Oil Nonbubble
threadbear wrote:
FreddyH wrote:
mididoctors wrote:
FreddyH wrote:
Crude Price has completely detached from its fundamentals which indicate a $70/barrel equilbrium price:
I don't quite understand where the data comes from...
how did you calculate the geopolitical fear speculation graph for instance?
Boris
London
Boris, the combined $6/barrel is the amount Price was spiked up/down by direct Speculator activity. If speculation by non-stakeholders was banned, these specific spikes would be smoothed away.
While the Price is higher by six bucks due to spec activity, it is the Producers that enjoy that gain ... not the speculators.
Indirectly, the media noise surrounding speculation issues is reflected by the "windfall" component of $37/barrel. Again, the vendors are in receipt of this gain.
The split betw geopolitical/weather spec & depletion spec activity is completely arbitrary.
60 days of surplus balance of 1.5-mbd would bring the Price back to the Base Line of $70, imho.
You're saying that very little of the cost of oil is pushed up by hedge funds etc.. playing the oil futures markets? Further, you add that they aren't enjoying gains? Why would they even bother then?
Speculation is a zero sum playground. Refineries do not buy oil positions from speculators. Speculators buy from speculators. Only 5% of stakeholders are in the futures/spot marketplace.
Hedge funds and other non-commercial speculators make their money by strategically outplaying neophytes and latecomers in the same venue. These are basically all sidebets to the real contracting. There is only slight difference betw this activity and sports or Elections betting. _________________ www.TrendLines.ca/scenarios.htm Home of the Real Peak Date ... set by geologists (not pundits)
Posted: Thu May 15, 2008 5:40 pm Post subject: Re: The Oil Nonbubble
FreddyH wrote:
mididoctors wrote:
FreddyH wrote:
Crude Price has completely detached from its fundamentals which indicate a $70/barrel equilbrium price:
I don't quite understand where the data comes from...
how did you calculate the geopolitical fear speculation graph for instance?
Boris
London
Boris, the combined $6/barrel is the amount Price was spiked up/down by direct Speculator activity. If speculation by non-stakeholders was banned, these specific spikes would be smoothed away.
While the Price is higher by six bucks due to spec activity, it is the Producers that enjoy that gain ... not the speculators.
Indirectly, the media noise surrounding speculation issues is reflected by the "windfall" component of $37/barrel. Again, the vendors are in receipt of this gain.
The split betw geopolitical/weather spec & depletion spec activity is completely arbitrary. It is built on the premise that geo related spec activity has quietly subsided since the Iranian capture of British Marines and Prez Bush's posturing associated with that episode.
60 days of surplus balance of 1.5-mbd would bring the Price back to the Base Line of $70, imho.
so the graph for geopolitical fear premium is just an opinion expressed as a graphic?
Posted: Thu May 15, 2008 5:48 pm Post subject: Re: The Oil Nonbubble
FreddyH wrote:
threadbear wrote:
FreddyH wrote:
mididoctors wrote:
FreddyH wrote:
Crude Price has completely detached from its fundamentals which indicate a $70/barrel equilbrium price:
I don't quite understand where the data comes from...
how did you calculate the geopolitical fear speculation graph for instance?
Boris
London
Boris, the combined $6/barrel is the amount Price was spiked up/down by direct Speculator activity. If speculation by non-stakeholders was banned, these specific spikes would be smoothed away.
While the Price is higher by six bucks due to spec activity, it is the Producers that enjoy that gain ... not the speculators.
Indirectly, the media noise surrounding speculation issues is reflected by the "windfall" component of $37/barrel. Again, the vendors are in receipt of this gain.
The split betw geopolitical/weather spec & depletion spec activity is completely arbitrary.
60 days of surplus balance of 1.5-mbd would bring the Price back to the Base Line of $70, imho.
You're saying that very little of the cost of oil is pushed up by hedge funds etc.. playing the oil futures markets? Further, you add that they aren't enjoying gains? Why would they even bother then?
Speculation is a zero sum playground. Refineries do not buy oil positions from speculators. Speculators buy from speculators. Only 5% of stakeholders are in the futures/spot marketplace.
Hedge funds and other non-commercial speculators make their money by strategically outplaying neophytes and latecomers in the same venue. These are basically all sidebets to the real contracting. There is only slight difference betw this activity and sports or Elections betting.
you need to explain this again.. I,m not getting it..
surely the difference between the futures/spot market and side betting is a real commodity must exist for each of the trades..
I can keep adding bets but speculation must mean the transfer of a particular contract from X to Y so to speak?
Joined: Jan 14, 2008 Posts: 321 Location: The Yukon
Posted: Thu May 15, 2008 6:24 pm Post subject: Re: The Oil Nonbubble
mididoctors wrote:
FreddyH wrote:
mididoctors wrote:
FreddyH wrote:
Crude Price has completely detached from its fundamentals which indicate a $70/barrel equilbrium price:
I don't quite understand where the data comes from...
how did you calculate the geopolitical fear speculation graph for instance?
Boris
London
Boris, the combined $6/barrel is the amount Price was spiked up/down by direct Speculator activity. If speculation by non-stakeholders was banned, these specific spikes would be smoothed away.
While the Price is higher by six bucks due to spec activity, it is the Producers that enjoy that gain ... not the speculators.
Indirectly, the media noise surrounding speculation issues is reflected by the "windfall" component of $37/barrel. Again, the vendors are in receipt of this gain.
The split betw geopolitical/weather spec & depletion spec activity is completely arbitrary. It is built on the premise that geo related spec activity has quietly subsided since the Iranian capture of British Marines and Prez Bush's posturing associated with that episode.
60 days of surplus balance of 1.5-mbd would bring the Price back to the Base Line of $70, imho.
so the graph for geopolitical fear premium is just an opinion expressed as a graphic?
Boris
London
The six bucks for spec activity is futures-activity based. Yes, the 4 & 2 split is subjective.
WRT futures/spot in general, they are not buying/selling oil. They are betting on where its Price will go in any of several optional time frames. Only 5% actually buy/hedge oil via this venue.
The Contract Price monitoring reflects the actual buying by refineries and other stakeholders. It is historically 6% to 28% below Spot Price:
a) 'cuz nobody buys oil at the Peak Price of the day. Refineries buy on long term contracts and only engage the spot market in localized emergencies and supply/demand mismatches.
b) 'cuz buyers paid between $99/barrel for Mexican heavy crude to $126/barrel for Canadian Extra Light in early May. Contract Price is weighted to the grade/volume purchased in USA incl domestic prod'n & imports. _________________ www.TrendLines.ca/scenarios.htm Home of the Real Peak Date ... set by geologists (not pundits)
Joined: Aug 03, 2006 Posts: 3897 Location: Graceland
Posted: Thu May 15, 2008 6:30 pm Post subject: Re: The Oil Nonbubble
mididoctors wrote:
you need to explain this again.. I,m not getting it..
surely the difference between the futures/spot market and side betting is a real commodity must exist for each of the trades..
I can keep adding bets but speculation must mean the transfer of a particular contract from X to Y so to speak?
or is that wrong?
Boris
London
I'll take a stab:
The oil market may be behaving irrationally right now, but as others have said before, the market can remain irrational longer than you can remain solvent.
Thus, I don't know what the significance is of attempting to subjectively carve out the theoretical irrationality reflected in the price. Even if $70 a barrel is the rational price, what makes anyone think we are on the verge of reverting to some kind of mean of rationality?
If anything, people are going to get more irrational, not less, IMHO. _________________ Our window of opportunity is slowly closing...at the same time, it probably requires a spiral of adversity. In other words, things have to get worse before they can get better.
-M. King Hubbert, 1983
Joined: Feb 20, 2005 Posts: 2523 Location: Uppsala, Sweden
Posted: Thu May 15, 2008 6:44 pm Post subject: Re: The Oil Nonbubble
max_in_wa wrote:
Graeme -- I appreciate both stories. I invest in some energy production companies and the price of oil and natural gas affects my returns.
I've been concerned recently about the run up in the price of oil wondering if it really is speculation as so many seem to want to believe. I remember after Katrina being amazed at how quickly energy prices rose, and dismayed as they cratered for a time afterward. Of course by "cratered" we're talking a price that was half today's price. It's amazing how prices have recovered -- which is why I'm nervous.
In fact -- I'm nervous that prices will rise or fall. If they rise, rather than reap the rewards of my investment, I expect governments to start punishing the evil oil companies. If prices fall, nobody is going to write me a taxpayer funded check for my losses. Maybe I shoulda bought houses.
I also invest in energy stocks so I know the feeling.
I hate the feeling that speculation might have pushed oil far too high in the short term... And that this might come back and bite me in the ass.
On the other hand, I've had some good results from speculation too. PetroChina gained 100 % during the summer I owned it, all the while suffering freakish volatility. So I freaked out and sold it, and at exactly the right time too.
Not that I was a genius to choose the stock, I just bought all the majors and sold PetroChina when it suddenly had a P/E twice as high as all the other majors.
Markets are not rational. _________________ Peak oil is not an energy crisis. It is a liquid fuel crisis.
Joined: Jan 14, 2008 Posts: 321 Location: The Yukon
Posted: Thu May 15, 2008 8:36 pm Post subject: Re: The Oil Nonbubble
BigTex wrote:
Even if $70 a barrel is the rational price, what makes anyone think we are on the verge of reverting to some kind of mean of rationality?
If anything, people are going to get more irrational, not less, IMHO.
Every bubble has its proponents with rationalizations right to the bitter end. To believe the oil price will hold or increase is premised on the belief that demand destruction presently under way (as calculable under economic models) is being offset by new populations within the universe with rising disposable income.
It's a nice theory and has some merit in explaining the secular upward trend. But models can predict the demand destruction created/relinquished by each $5/barrel incremental increase/decrease over an 8 quarter time span. Only 3 qtrs have gone by in the present cycle monitoring $70/barrel pricing and associated recessionary forcing.
Eventually softness with be met with over supply and the 25% correction that i expect will occur.
An appropriate caveat would be the undesirable situation whereby OPEC goes ahead with quota restriction upon recognizing said softness on the horizon. Some of their hothead members have threatened same... _________________ www.TrendLines.ca/scenarios.htm Home of the Real Peak Date ... set by geologists (not pundits)
Joined: Apr 06, 2006 Posts: 2625 Location: 3 miles NW of Champoeg, Republic of Cascadia
Posted: Thu May 15, 2008 9:29 pm Post subject: Re: The Oil Nonbubble
joewp wrote:
Graeme wrote:
There seems little doubt now that there is at least some speculation.
Oh my dog, of course there's speculation, there's always been speculation.
Actually speculation on oil only began in the wake of the 1973 embargo; before that the price was so low/steady there was no point.
mididoctors wrote:
you need to explain this again.. I,m not getting it..
Freddy's saying the futures action is basically irrelevant. My attempt at neat summarization! I provided links to studies that question the role of speculation with regard to oil prices in the Americans to be banned from overseas oil trading thread. Lots of good reads provided here (on either side of the argument) too, thanks all. _________________ Cogito, ergo non satis bibivi
The god damn plane has crashed into the mountain!
Joined: Mar 04, 2005 Posts: 2504 Location: New Zealand
Posted: Thu May 15, 2008 11:26 pm Post subject: Re: The Oil Nonbubble
UBS Now Sees Oil Marching to $156 Yearly Average by 2012
Quote:
Crude oil prices are set to steadily rise over the next four years and will take the earnings of major oil companies along for the ride, UBS told investors Thursday.
The firm now sees crude oil prices averaging $115 a barrel this year and reaching an average of $156 a barrel in 2012.
UBS analyst William Featherston said that it's not speculators who are pushing prices higher, but the long-term fundamentals of demand growing faster than supply. Recently, prices have been pushed higher for a variety of reasons, he said, including critical supply setbacks in non-OPEC countries as well as interruptions in Nigeria, a cut-off of exports from southern Iraq and higher than expected demand outside the U.S.
rigzone _________________ Human history becomes more and more a race between education and catastrophe. H. G. Wells.
Fatih Birol's motto: leave oil before it leaves us.
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