[Hughj]

http://www.thepeoplesview.net/2011/05/c ... -sues.html

[Novus]

Still grasping at straws I see.

[Daniel_Plainview]

http://www.thepeoplesview.net/2011/05/corporatist-obama-administration-sues.html

[Hughj]

http://money.cnn.com/magazines/fortune/ ... /index.htm

[Pops]

Not so fast. You can't simply dismiss this as cornie fluff. For an analogy: the fact that merchants profiteered by selling fresh eggs to miners for $3 each during the gold rush doesn't disprove the existence of an egg shortage, quite the opposite.

I'm surprised we haven't seen this posted here, at least I haven't. This isn't just some denier fluff, although Hugh meant it as such, this is the CFTC suing people for manipulating an obviously constrained market. I know, the party line is that futures aren't contracts but I showed in another thread that the futures markets are the price discovery vehicle for those contracts so they do have a direct impact on contract prices.

Here from the NYT article:

The suit says that in early 2008 they tried to hoard nearly two-thirds of the available supply of a crucial American market for crude oil, then abruptly dumped it and improperly pocketed $50 million.

Obviously the 500% rise in oil price over the last 10 years is not entirely due to speculators. OTOH, on a board such as this where a majority rail against capitalists I can't understand the refusal to admit capital will game the markets for profit.

Really, the worst result from the PO perspective is that manipulation causes people like Hugh to deny there is an underlying supply constraint and not change their behavior.

[Hughj]

At issue here is a 500 percent rise in 3 months, not 10 years. Over the previous 10 years,
oil prices were flat at about 30 bucks.

Hugh

[vision-master]

At issue here is a 500 percent rise in 3 months, not 10 years.

Say what?

[Pops]

At issue here is a 500 percent rise in 3 months, not 10 years. Over the previous 10 years,
oil prices were flat at about 30 bucks.

Hugh

You don't mean that oil was flat at $30 for 10 years prior to '08 do you?

[Hughj]

Does anybody remember the Hunt brothers? (Isn't history wonderful... makes the future so much
more predictable.)

Hugh

[Pops]

I know, the party line is that futures aren't contracts but I showed in another thread that the futures markets are the price discovery vehicle for those contracts so they do have a direct impact on contract prices.

I don't disagree. But what does it have to do with spot prices/actual money exchanged at the hub/delivery point?

You really are stuck on that, I discovered and posted this explanation it in both the 10 rules and speculation threads and you never refuted it, you didn't even respond, just dropped the argument.

1. Most physical oil is sold on contract using a pricing formula, not on the spot market

2. The pricing formula is based on a "price indicator" like the spot or futures market to discover the "True" price, with adjustments made from there for grade differences, location factors, etc.

3. The spot market became very "thin" and easily manipulated because there was so little actual oil trading hands there, so

4. Many contract pricing formulas now are now based on the futures market price


This EIA page backs up this explanation

There is another page from the CBOT or somewhere with similar info, I linked it in the other threads.

The real issue is a finite earth, over population, and depleting natural capital.

The only way to convince people to move toward using less energy is a painfully high price. The speculation and resultant volatility that the current rules allow lets people like Hugh blame the speculators for the high prices and hope for the next decades-long dip to $22/bbl, instead of facing facts of depletion.

[Pops]

(Isn't history wonderful... makes the future so much
more predictable.)

Hugh

Yea, it does. I got the feeling that your history is going to be pretty predictable.

[Hughj]

In 2008, traders taking delivery of their oil were chartering tankers to sit off-shore, full of
crude, awaiting the imminent price rise as available oil fell. Storage in Cushing was totally
at capacity, yet prices continued to rise to $147 per barrel. Three months later, when there
was no place left to store crude, prices plummetted to 44 bucks. Once again, this is historical
fact, not my opinion. I don't need the commodities regulators to pee on my leg and call it
rain.

Hugh

[kublikhan]

Lets assume for the moment that you are 100% correct Hughj. Speculators pumped up the price of oil to $147, then pushed it back down to $44. I am still curious how coincide this view with the fact that new oil coming on line is coming from increasing expensive places like deep water drilling, tar sands, etc. Pops posted this in your $22 thread yesterday and you ducked it. How do you expect oil to fall to $22 when much of the new oil being drilled needs oil prices substantially higher to be economical? Many of these projects need $70+ oil to keep the pumps working. I don't see how you can claim it's all the fault of speculators and oil is going back to $22 when they need at least $70+ just to be economical.

Are you going to address my point that $22 oil can no longer meet demand so more expensive substitutes are required - raising the price of ALL oil to that of the most expensive barrel?

Though deepwater was once prohibitively expensive, high oil prices during 2007 and the first half of 2008 made the economics of deepwater drilling feasible. Oil's collapse during the 2008 Financial Crisis has killed the margins of many in the industry, but demand for deepwater rigs is still high. Tied into long term contracts, companies continue to drill despite falling profits. Even then, new deepwater projects continue to be opened, as prices are expected to rebound in the long term because of rising global demand for energy.

Gould also emphasized the need for higher oil prices, which would help make less conventional oil sources, such as deepwater or oilsands, more economical. Gould stated that he believes ultra deepwater, oil shales, oil in arctic areas, and oil derived from other liquids remain economical and attractive to investors at $70 or more per barrel. However, this economic benchmark price has the potential of rising depending on the outcome of government taxation and regulations following BP’s 2010 spill in the Gulf of Mexico.

Deepwater Oil Exploration

[Hughj]

K - I offer 2008 as evidence of futures trading gone wild. Happening again now to a lesser
extent. Happened in 1990 when it fell to 10 bucks, bankrupting the oldest oil company in
America. OPEC did it in 1973. What oil costs is irrelevant to traders, they just do their
thing and we all pay.

Hugh