[Pops]

Dallas Fed: Don't Blame Bankers speculators for $147/bbl oil:

Oil market speculation became an especially popular topic when the price of crude tripled over 18 months to a record high $145 per barrel in July 2008. Of particular interest to many is whether speculators drove oil prices beyond what fundamentals would have otherwise justified. We explore this issue over two Economic Letters. In this article, we look at evidence from the physical market for oil and conclude that fundamentals, and not speculation, were behind the dramatic rise and fall in oil prices. In our companion Economic Letter, we examine the futures market.

http://www.dallasfed.org/research/eclet ... l1111.html

[Cloud9]

What we need to blame the bankers for is the quadrillion dollars they created out of thin air when they built a series of casinos consisting of the subprime market, derivatives and a whole host exotic instruments we have never heard of. They were able to finance fantastic lifestyles for themselves as they created earnings by trading these instruments among themselves. Then when they had created the illusion of value in these exotic products, they sold them to us.

The money sloshing around the system created the huge demand the world over for oil. The brick wall of a finite resource exposed the scam. You may build a field of dreams full of mcmansions in the Arizona desert, but when oil gets to $147 a barrel, they will not come.

[Bruce_S]

Dallas Fed: Don't Blame Bankers speculators for $147/bbl oil:

http://www.dallasfed.org/research/eclet ... l1111.html

Interesting that the bankers want this to be said (as though they or their ilk would have credibility on such a self serving answer) and don't even have the balls to say it themselves. From the end of the report:

"Economic Letter is published by the Federal Reserve Bank of Dallas. The views expressed are those of the authors and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System."

"Look ma, we didn't do it! We found a couple people to even write it up that way, and still managed to get the weasel words into it to pretend it wasn't us saying it in case someone finds out our fingers were tipping the scales along the way!".

[Plantagenet]

When global oil supply cannot easily meet rising global oil demand, then the price of oil will rise. This is an inevitable consequence of of world oil production "peaking".

Thats what happened from 2005-2008----good to see the Dallas Fed confirming this.

[Bruce_S]

When global oil supply cannot easily meet rising global oil demand, then the price of oil will rise. This is an inevitable consequence of of world oil production "peaking".

Thats what happened from 2005-2008----good to see the Dallas Fed confirming this.

According to the article, it isn't the Dallas Fed saying it.

[Bruce_S]

"Economic Letter is published by the Federal Reserve Bank of Dallas. The views expressed are those of the authors and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System."

Putting the Seal of the President on an 8X11 sheet of paper doesn't mean it came from the President. The above quote is in the article, no matter who stamped it, with what.

The question I've got is why would the Fed NOT give it their seal of approval?

[GoIllini]

"Economic Letter is published by the Federal Reserve Bank of Dallas. The views expressed are those of the authors and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System."

Putting the Seal of the President on an 8X11 sheet of paper doesn't mean it came from the President. The above quote is in the article, no matter who stamped it, with what.

The question I've got is why would the Fed NOT give it their seal of approval?

It is the same deal with Bernanke's comments if you've watched one of his press conferences. "In all analysis and answers today, I try to reflect the majority views of the fed. However, these answers are my responsibility and may not fully reflect all views." There's a lot of voices at the Fed; also, federal agencies are very political in nature, hence the disclaimers that this could get overridden by the FOMC or another group.

The point of the disclaimer is that these ARE Fed employees, but they don't necessarily speak for the Fed. It is the same way that an oil analyst at Shearson says "I think Gulf Petroleum's a good deal", but may not be officially speaking for the firm. We attribute the view to Shearson, but in reality, it's Shearson's analyst taking that view.

[Bruce_S]

The point of the disclaimer is that these ARE Fed employees, but they don't necessarily speak for the Fed. It is the same way that an oil analyst at Shearson says "I think Gulf Petroleum's a good deal", but may not be officially speaking for the firm. We attribute the view to Shearson, but in reality, it's Shearson's analyst taking that view.

Sure. But there are times when something is an official report from some governmental agency or another, they DON'T put disclaimers like that on it. Some of the science agencies for example. Also, sometimes there is enough difference in the way these things work as to wonder whether or not there are "rogue" elements involved somewhere along the line.

Even at the Bernanke level, as per your quote. The Chairman throws out his interpretation of the majority, which while quite literally is "THE FED" speaking, specifically mentioning that he is offering a majority view (which might lead some to argue that it isn't even HIS view), he takes responsibility for summarizing them correctly, and notes that they don't reflect ALL views. Quite a bit different really than the disclaimer offered on the article in question. There is no claim of reflecting a majority of the views, let alone speaking for the Fed itself. That is a huge amount of distance between the opinion offered (even by the big cheese himself), and it being an "official" opinion it would seem.

[GoIllini]

Well, that kind of a disclaimer is fairly common at the Fed. For instance, take a look at Bernanke's June press conference:

Throughout today’s briefing, my goal will be to reflect the consensus of
the Committee while taking note of the diversity of views, as appropriate. Of course, my
remarks and interpretations are my own responsibility.

http://www.federalreserve.gov/mediacent ... 110622.pdf

In other words, he's basically saying the same thing as these analysts. "We're a federal agency and there's always going to be disagreements. Hence while I'm trying to reflect official Fed policy, it's getting filtered through a human being. It would be political suicide for me to get things wrong and call it Fed Policy, and I'm not going to quite do that."

Look, it would not get printed to the Fed website a Fed employees hadn't done a thorough study. They also probably do not wish to be two 28-year punks in Dallas preventing highly experienced economists on the FOMC from raising rates if they feel speculation IS being driven by low interest rates.

[Bruce_S]

Look, it would not get printed to the Fed website a Fed employees hadn't done a thorough study.

I can agree with that. And, of course, once it makes that level of "approval" it is undoubtedly objective and fair, well researched, peer reviewed and met with nods of approval, with no bias to CYA the boss, or his minions.

[fletch_961]

Everybody knows oil speculators brought crude to ridiculous levels.

With almost 13k post, you will be able to, of-course, be able to show that you were one the "everybody" who knew that oil prices were out of line w/ fundamentals.

This of-course supposes you don't have multiple posts arguing that the high prices were justified.

[GoIllini]

You realize, of course, that I am very sarcastic? Either that, or I have no idea WTF you are talking about.

How about this; I translate my comment for ya' . . .

certain people (unable or unwilling to consider that peak oil has occurred with resulting catastrophic and cascading financial social and military effects) still populate this board with denial horsesh#t that ticks me off.

And then I get sarcastic.

I am trying to understand why you believe Peak Oil has occurred when BP reports oil production has increased:

http://en.wikipedia.org/wiki/File:PU200611_Fig1.png

The real problem is that with millions of Chinese consumers preferring to buy a $3 gallon of gas rather than walk 30 miles, the US and the West may have hit peak consumption as our middle-class gets muscled out of the global resource markets to some extent.

[mad_marten]

Oh boy, somebody cue the "Not this shit again" picture

There is much evidence that this dallas fed guy is lying his A$$ off.

First his own chart 1 shows rapidly falling world GDP intersects rising oil prices between 2007 and 2009. Falling GDP especially by mid-late 2008, would lead one to predict falling oil prices, not exploding ones.

I just got done reading this chapter in Matt Taibbi's Griftopia, and it should be mandatory reading.

He gives pretty damning evidence and a good narrative, but here are some specific figures he gives. Ok people like to blame China's increasing thirst for oil, and that is a factor but cannot solely account for prices in 2008. Between 2003 - 2008 China bought 992 mil barrels of oil. But according to the CFTC, speculators almost bought just as much 918 mil barrels.

Ok, the guy in dallas-fed states that other other commodities went up at the same time as oil, but that is because speculators often bought into a commodities basket. The S&P GSCI and the DOW-AIG went up at the same time. The amount of money invested in commodities rose from $13 bill. in 2003 to $317 bill in 2008 ( an increase of 25x in five years). The average increase of the commodities represented went up 200%, and none decreased.

Citigroup in April 2008 called it a "Tidal Wave of Fund Flow" [in commodities]. Greenwich Associates a month later wrote: "the entry of new financial or speculative investors into global commodities markets is fueling the dramatic run-up in prices." And the top oil analyst at Goldman-Sachs said in 2008 that, "without question the increased fund flow into commodities has boosted prices."

Keep in mind that many of these [new] investors were new institutional investors like retirement funds that got talked into purchasing these commodities funds by the Wall St. investment houses, that was allowed by new roll-backs of regulations pertaining to these.

Finally, Goldman in general disclaimer wrote: "Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients and our proprietary trading desks that reflect opinions that are CONTRARY [emph added] to the opinions reflected in this research. Our asset management are , our proprietary trading desks and investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this research.
We and our affiliates, officers, directors, and employees,excluding equity and credit analysts, will from time to time have long or short positions in, act as principal in, and buy and sell, the securities or derivatives, if any, referred to in this research."

So they can tell people what ever they want, even if internally they think the opposite.

Anyway this is per Griftopia.

Mad

[GoIllini]

You realize, of course, that I am very sarcastic? Either that, or I have no idea WTF you are talking about.

How about this; I translate my comment for ya' . . .

certain people (unable or unwilling to consider that peak oil has occurred with resulting catastrophic and cascading financial social and military effects) still populate this board with denial horsesh#t that ticks me off.

And then I get sarcastic.

I am trying to understand why you believe Peak Oil has occurred when BP reports oil production has increased:

Did you look at the linked image you posted? It's rather difficult to see BP's "reports" among the other 16 trend lines that say we are post peak.

A bit of an embarassment for the bearish folks, eh? Based on 2005 ASPO's numbers, we're in decline, but based on the numbers in reality, we're up!

BP's report is the one that oscillates up and down like production does in reality, rather than follow a smooth curve. And production and reserves have grown since 2007 according to its numbers:

http://www.bp.com/sectiongenericarticle ... Id=7068604
http://www.bp.com/sectiongenericarticle ... Id=7068608

ASPO says we're supposed to be down to 75 mmbpd, but we've increased to 82.

Let's be clear- the picture isn't fantastic- the west's oil consumption has probably peaked, but let's not get ahead of ourselves and say world oil production has peaked.

[Pops]

Let's be clear- the picture isn't fantastic- the west's oil consumption has probably peaked, but let's not get ahead of ourselves and say world oil production has peaked.

So why do you think OECD consumption has peaked? The millions of new PHEVs? Tens of millions of homes running some kind of PV or wind generator? Maybe it's programable thermostats?

Or could it be that this year oil prices are going to average $100 a barrel?

You could drive yourself batty trying to know the day and hour of peak - and what would it matter if the price of oil is already way outside the range the whole shebang was "designed" around.

Take a look at this plot, it's one year average price (wti) and long term average price, both adjusted for inflation:



I bet it isn't hard to tell where the supply problems are located and not coincidentally, where the worst economic conditions since the Great Depression appeared. This year with wti landlocked, Brent is the world benchmark oil price and it will average at least $100/bbl - right now it sets at $111 average for the year, that would be a new record.

So as far as I know there haven't been any embargoes lately and it doesn't look as if we'll get lucky and OPEC will up production dramatically and cut their prices by half like they did back in '80 so the only other option is peak isn't it?

“You've got to ask yourself one question: 'Do I feel lucky?'




http://en.wikipedia.org/wiki/Chronology ... (1970-2005)

[GoIllini]

So why do you think OECD consumption has peaked? The millions of new PHEVs? Tens of millions of homes running some kind of PV or wind generator? Maybe it's programable thermostats?

Or could it be that this year oil prices are going to average $100 a barrel?

Well, all of those are factors- $100 oil being the biggest, but the bottom line is that in order for China and India to consume more, they have to force our consumers out of the market. The $100 barrel oil is the symptom of them forcing us out of the market.

I bet it isn't hard to tell where the supply problems are located and not coincidentally, where the worst economic conditions since the Great Depression appeared. This year with wti landlocked, Brent is the world benchmark oil price and it will average at least $100/bbl - right now it sets at $111 average for the year, that would be a new record.

Sure, but we're hardly experiencing anything unprecedented in the grand scheme of things. 2008 was worse than 1974, better than 1938. In the history of eighth year bear market recessions, 2008 was about average.

So as far as I know there haven't been any embargoes lately and it doesn't look as if we'll get lucky and OPEC will up production dramatically and cut their prices by half like they did back in '80 so the only other option is peak isn't it?

More like peak conventional oil. We've had several peak conventional oils over the years and conventional has shifted from 200 ft. wells to 1000 ft wells primary extraction to land-based secondary and tertiary extraction and now we are boosting our production from sands, shale, and deepwater. Since these require more engineering and capital (not specifically energy per barrel retrieved), the inflation-adjusted cost of pumping them has gone up.

“You've got to ask yourself one question: 'Do I feel lucky?'