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#38178 - 07/02/08 01:03 PM Re: Prime example of the Oil price circus. [Re: Smike]
Smike Offline
Carpal Tunnel

Registered: 05/01/01
Posts: 3143
Loc: in your backyard
So in further attempt to understand the reason for the spike, I found this:

Atlanta hedge fund manager Michael Masters told a House subcommittee in June.

"When a trader sends a buy order to the exchange floor or presses the 'buy' key on their trading terminal, if he or she is attempting to buy more contracts than are currently offered for sale at the market price, then the market price will rise,"

I also found this:

“He points out that the amount invested in commodities index products has risen from $13 billion to $260 billion in five years, a fact he thinks is key to understanding oil prices.”

Source: http://money.cnn.com/2008/07/01/magazine...sion=2008070205


So if the same amount of oil is flowing through the supply / demand pipeline (Again there is no known storage in the supply in any part of the world, but yes a tight supply / demand in current conditions) and you have an influx of $240+ billion attempting to trade on that same amount, how could that factor alone not be a large part of price increase?

Want would happen to the price today if a large part of the influx of cash were removed? (With no change to supply - demand)

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#38262 - 07/05/08 01:46 AM Re: Prime example of the Oil price circus. [Re: Smike]
Dillbag Offline
old hand

Registered: 05/02/06
Posts: 1130
Loc: "The Town"
Smike... Isn't your job interesting enough that you only have time to play meteorologist? Now you're playing economist too?

You need more to do!
_________________________
...anethum graveolens cucumis sativus!

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#38295 - 07/07/08 02:25 PM Re: Prime example of the Oil price circus. [Re: Dillbag]
Smike Offline
Carpal Tunnel

Registered: 05/01/01
Posts: 3143
Loc: in your backyard
I was looking for a political cartoon to post here but came up with none \:\/

Work is overrated, and its corporate vacation season...

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#38674 - 07/25/08 02:15 PM Re: Prime example of the Oil price circus. [Re: Smike]
Smike Offline
Carpal Tunnel

Registered: 05/01/01
Posts: 3143
Loc: in your backyard
Most sensible article I've read on this so far:

http://money.cnn.com/2008/07/07/news/economy/oil_prins.fortune/index.htm?postversion=2008070811

"Supply and demand of the physical product, by and large, has remained fairly stable. In 2005, global oil production was 84.6 million barrels per day, and consumption was 83.6 million. Today, those numbers are 86.5 million and 86.4 million. That slight tightening hardly justifies the tripled price"

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#38676 - 07/25/08 06:00 PM Re: Prime example of the Oil price circus. [Re: Smike]
mworking Offline
old hand

Registered: 05/26/04
Posts: 764
I agree with the article about what should change.

But the %change in the amount of oil available for trade after demand was satisfied in the numbers above is numbers above is -%90 in terms of percent change!!!

So I agree we should to remove opacity from trading, I disagree with the premise that "The question Congress and regulators should be focusing on isn't who is driving prices, but how prices are being driven.

I'd give better than even odds the controlling speculators are directly in the oil business and not retirement funds or airlines etc. Why? Cause it is a business they know and they stand to profit by far the most. There is something in it for "all" of them. Higher profit on the original product. Profit on selling and reselling the same product.

Gaining access to US oil fields shouldn't be disregarded.
Who wants to drill where to "solve our oil problem"?

We need to remove trading opacity only to gain proof, not to use common sense.


Edited by mworking (07/25/08 06:09 PM)

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#38677 - 07/25/08 06:50 PM Re: Prime example of the Oil price circus. [Re: mworking]
pedestrian Offline
Pooh-Bah

Registered: 08/05/02
Posts: 2244
Loc: a heavily fortified bunker!
mworking, no, I don't think so. There are two types of people who buy oil futures contracts:

1) Those who take physical possession of the commodity
2) Those who don't.

Obviously oil produces are in the former category. But the fact of the matter is that essentially all of the players in category 1) are buying futures not in order to speculate, but in order to hedge their inventories against future price volatility. That's like buying an insurance policy. On average it costs money to insure yourself against risk. The producers who are hedging more aggressively, more often than not are passing on fewer earnings to their shareholders. A prime example would be Pengrowth Energy Trust's first quarter results this year, which ended up being a loss because of mark-to-market writedowns related to their futures contracts holdings. That's right, oil prices climbed to a record high, and at the same time, these guys were losing money on their futures. It's not as simple as saying that people buying futures are fleecing the rest of us.

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#38679 - 07/25/08 08:08 PM Re: Prime example of the Oil price circus. [Re: pedestrian]
irisharehere Offline
Site Supporter

Registered: 12/06/01
Posts: 1658
Loc: Danbury CT
exactly.....for every person who buys a futures contract, there's a willing seller, who is happy to get a price guarentee. Why should the government get in the way? Are they going to decide who is a speculator, and who is hedging for commercial purposes?

If they decide to only allow hedging for commercial purposes, you know the kind of insanity that will inflict on markets? Airlines will be worth buying, just to use their "hedging" capability! Delta Airlines will become an energy hedge fund that flys a few planes on the side..........

And for everyone who's moaning about how "regular folk" are getting screwed by the high cost of gas, and oil companies, and speculators, get off your ass and do something about it......like buying into a long-energy ETF......or if you think its a bubble, quit pontificating from the sidelines, and get into a short-ETF


Just don't tell me that more government regulation is the answer.......should I have to clear all my trades with some jackass in DC? Maybe it's your pension fund I'm making money for, huh?



Jaysus, I've become a raving right-winger!!!!!!! Time to get the hell out of here for the weekend before I get any worse!


Edited by irisharehere (07/25/08 08:08 PM)
_________________________
I didn't spend nine years in Evil Graduate School to be called "Mr Irish", thank you!

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#38680 - 07/25/08 09:14 PM Re: Prime example of the Oil price circus. [Re: irisharehere]
pedestrian Offline
Pooh-Bah

Registered: 08/05/02
Posts: 2244
Loc: a heavily fortified bunker!
Exactly. hadn't thought that way about Delta good point. Incidentally, I just bought shares in IXC. Although I do expect that prices will continue to ease in the short run, they will be back up in the long run. For oil consumers, there are places to run but there is nowhere to hide.

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#38682 - 07/27/08 02:03 AM Re: Prime example of the Oil price circus. [Re: pedestrian]
Dillbag Offline
old hand

Registered: 05/02/06
Posts: 1130
Loc: "The Town"
You know... Without the accent the iris hare almost makes sense!
_________________________
...anethum graveolens cucumis sativus!

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#38701 - 07/28/08 01:52 PM Re: Prime example of the Oil price circus. [Re: Dillbag]
Smike Offline
Carpal Tunnel

Registered: 05/01/01
Posts: 3143
Loc: in your backyard
Peter:
Any regulation what so ever is always met with some negative tone from anyone on the trading side. The name of the game is “Transparency” Which from pretty much all that I’ve read is severely lacking in the oil commodities market. If everyone is screaming were not the problem, then they should have no issue with regulations that make what they are doing visible. I agree with your points on the fundamentals of how the market ‘should’ be working, but no one really knows the true nature of the market.


So Peter can you explain what has driven the oil trading market from 13 billion to 260 billion over the last 5 years and what affect this has on price? So if you take roughly the same pie (supply) and bring in some 20x the amount of cash from people to trade on that, what do you think is going to happen to the price?

Its not supply and demand of the actual oil so much as supply and demand of the contracts IMHO.

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