I will believe the Saudis don't see any upcoming problems with Ghawar when they cancel one of their projects due to low oil prices. If they continue to be full steam ahead with increasing their capacity then I think they are aware that Ghawar may not be as robust in 5 years time as they would like us to believe.
Joined: May 02, 2005 Posts: 3524 Location: Oh really?
Posted: Sat Jun 28, 2008 8:15 am Post subject: Speculative Fussing
I guess I don't understand all the fuss over speculation.
Of course the futures market is high. Enough people are convinced that future energy prices will be much higher.
It just seems like we are engaging in a little "shoot the messenger". We don't like the current signal being given, so we attack the machine, not the result.
Speculation is just a forward looking feedback loop, isn't it? Where is it broken, in this case?
Maybe the economics are too much for my addled engineer's brain? _________________ "It's still all about energy!"
Joined: May 02, 2005 Posts: 3524 Location: Oh really?
Posted: Sat Jun 28, 2008 8:26 am Post subject: Re: Speculative Fussing
"It's just speculation driving up the price."
Answer:
"Of course it is! So do you think the speculators are wrong in predicting higher prices in the future?" _________________ "It's still all about energy!"
Joined: Oct 23, 2004 Posts: 5928 Location: New Jersey
Posted: Sat Jun 28, 2008 8:26 am Post subject: Re: Speculative Fussing
I believe if the Iran's nuclear facilities are bombed the price of oil will be $300 at least. Possibly much more, or even not available at any price on a publicly traded market.
It appears however that the US Government and US Congress don't even consider that it's own actions, that support hostility towards Iran, may be contributing much to the atmosphere of higher prices - more than speculators can.
Let's fact it - we can't handle the truth (not counting sites like PO). So the fussing over nothing significant goes on. _________________ It's already over, now it's just a matter of adjusting.
Joined: Aug 26, 2005 Posts: 446 Location: Windy City No Longer
Posted: Sat Jun 28, 2008 10:06 am Post subject: Re: Speculative Fussing
No one ever kvetches about speculation in anything until it affects them adversely.
Cases in point:
dot.com boom
housing bubble
Bear Stearns collapse (blamed partly on speculative shorts)
recently -gold
recently - oil
No one ever complains on the way up (except in oil - which costs everyone except the oil cos.). Thus, they'll now complain about speculation this year. Over the winter the theme will move to conservation, but it'll be awhile (mid-2009) before people REALLY start to think about this differently.
Until then, enjoy the scapegoating! _________________ TANSTAAFL
Posted: Sat Jun 28, 2008 10:07 am Post subject: Re: Speculative Fussing
I believe it is important to remember that each futures contract consists of a buyer and a seller. The contracts are balanced. However many people are long, an equal number are short. Some of the contracts are bona fide hedgers, with those who wish to use the commodity long and those who wish to sell the commodity short.
Thus, Southwest Airlines is a user and would be long on crude oil or some derivative product such as heating oil or gasoline. An oil producer might go short, thus locking in a price for the oil that he will pump.
This is even more common with agricultural products. Using wheat as an example, a farmer might regard the current prices as remarkably high, and so would choose to sell in the futures market. Whatever losses he took on his actual crop production would be offset by gains in the futures contract. A commercial bakery that uses large quantities of wheat might be concerned that the price would increase. Therefore, they would purchase a contract. If wheat went up the losses they would take on purchasing actual wheat and flour would be offset by gains on the contract.
This can be contrasted with speculators. Speculators seek out risk in pursuit of profit. Thus, speculators increase the liquidity and efficiency of markets. The markets permit hedgers to rid themselves of risk, which is eagerly accepted by the speculators. Thus, elimination of speculation would be detrimental to ongoing economic activity by both producers and users of the specified commodities.
That said, it seems unlikely that the majority of the population is fully aware of the particulars of the futures market. Furthermore, speculators make a convenient scapegoat, as has been mentioned. Therefore, I have no doubt that our legislators will proceed to punish the speculators, and by doing so they will disrupt the markets, reduce economic activity, and effectively make everything worse.
Joined: Apr 12, 2007 Posts: 1184 Location: Central NC
Posted: Sat Jun 28, 2008 10:26 am Post subject: Re: Speculative Fussing
I posted somewhere else that picking speculators as the scapegoats has parallels to picking terrorists as scapegoats.
They can be used as an excuse to hang your enemies, go on global witch hunts, reduce our freedoms, plays well with the superstitious and uninformed etc. . . _________________ "The era of procrastination, of half-measures, of soothing and baffling expedients, of delays, is coming to a close. In its place we are entering a period of consequences…"
Sir Winston Churchill
Posted: Fri Jul 04, 2008 1:37 am Post subject: Re: Speculative Fussing
"You lose a real sense of institutional history when you lose somebody who's been through one or two cycles,"
Quote:
Want to buy newspaper stocks? You should see an analyst. Trouble is there aren't many around anymore.
As the valuations of U.S. newspaper publishers plunge and investor interest wanes, the ranks of stock analysts who rate their performance are thinning.
In some ways, there is less need for them as the trend is clear: the U.S. newspaper business is in bad shape and getting worse as readers and advertising dollars flee to the Internet and other new forms of media.
But the void in smart thinking on the publishing sector could exacerbate an already bleak view of the business.
"The fewer analysts you have ... the less information that's distributed, the less appearance there is in the minds of institutional investors," said longtime newspaper analyst John Morton, who runs his own research firm. "And so it diminishes the industry as a whole."
Two years ago, investors could get research from more than a dozen analysts. Now, they are lucky to find half that number. Prudential cut all its sell-side analysts as it exited the research business and other firms have pruned, including Citigroup, Morgan Stanley and UBS.
Not only do you lose valuable liquidity, price discovery and market efficiency when you eliminate speculators, but you often kill the research as well, and that results is less publicly traded information about trends and real value. Do not get me wrong. That is great for guys like me. It opens up all sorts of chances for risk free arbitrage and insider trading. But the public loses.
As an aside I remember paying $30.000+ a year for live data from just Reuters alone some 20-years ago. Now I can practically get the same quality and timeliness of information free over the Internet. And brokerage and commissions have dropped substantially due to electronic trading. Now everyone can be an expert and trade like a professional. That makes market transparency and price discovery that much more efficient. So if prices are high it is probably less to do with speculation and more to do with a well-informed investor base. _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Posted: Fri Jul 04, 2008 8:42 am Post subject: Re: Speculative Fussing
All so true Jack. There's even group of contracts players around that few outside the oil patch know are there. I can't quantify a guess to their impact but I don't think the numbers are insignificant:
A simple example: my company is negotiating a capital loan secured by future production. We've convinced the bank engineers of our future deliverability. The question of future pricing is still on the table. That's where this somewhat invisible player steps in. Company X will offer us a "floor": if we end up selling our production below $100/bbl they'll pay the differential. Thus the banker is assured of the minimum revue needed to cover the loan. If we end up selling at $130/bbl we will split the $30 differential with Company X. Their profit motivation). The split is always negotiable. I haven't seen a floor trade first hand in a while but splits used to be around 50/50.
Needless to say Company X would usually buy future contracts to cover potential loses. Covering an end user like SW Airlines with futures doesn't work as well as for a producer who doesn't have a dog in the purchasing side of the battle. Thus Company X's evolved to provide immediate liquidity for many small producers.
Posted: Mon Jul 07, 2008 1:00 am Post subject: Re: Speculative Fussing
Ditto Rockman. We often borrow against the value of equity puts. We buy the put, sometimes offsetting the cost by selling a call against the underlying stock position (an equity collar), and then borrow against the value of the put. Our counterpart in return sells that put in the open market, so that they know if the price of our stock falls that they have the value of the loan covered. This lowers the cost of our capital without having to sell our underlying position outright. The pundits that want to curb financial innovation would inadvertantly make sure that only those that have money can borrow money re-enforcing the Golden Rule. _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Posted: Mon Jul 07, 2008 2:17 am Post subject: Re: Speculative Fussing
MrBill wrote:
.......The pundits that want to curb financial innovation would inadvertantly make sure that only those that have money can borrow money re-enforcing the Golden Rule.
golden rule == "Those who have the gold makes the rules?"
//
I lost count how many times someone has come onto this website proclaiming the "free market" has failed them and the entire basis of their argument is that prices are high therefore that equals failure.
*facepalm*
Joined: Sep 29, 2004 Posts: 2330 Location: Pennsylvania, USA
Posted: Mon Jul 07, 2008 10:20 am Post subject: Re: Speculative Fussing
Scapegoating speculators is probably the highest form of PO denial I've seen. _________________ "That's the problem with mercy, kid... It just ain't professional" - Fast Eddie, The Color of Money
Posted: Wed Jul 16, 2008 2:05 am Post subject: Re: Speculative Fussing
Interesting interactive chart for anyone that is interested.
Quote:
The S&P 500 index plunged into a bear market on July 9 2008 — more than 20 percent below its record high close of 1,565.15 points on Oct. 9, 2007 — after ceding to the pressure of a housing slump, a credit crisis, record-high oil prices and a weakening economy.
The S&P 500 was officially introduced in 1957 but its value has been extrapolated. Since 1929, whenever the index has fallen into a bear market, it has on average shed 29.4 percent of its value for the duration of the slump, which has averaged just over a year.
The S&P 500’s worst bear market occurred in the early years of the Great Depression and stretched from April 10, 1930, to June 1, 1932.
The following is a recap of the previous 10 bear markets for the S&P 500, using “The Stock Traders Almanac 2008″ data:
source: The 10 most recent bear markets _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
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