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Thursday, May 22. 2008

The oil bubble

It's mostly about oil futures speculation and the Index Speculators. Dino wonders whether they should be regulated, or simply flogged.
Posted by Bird Dog in Hot News & Misc. Short Subjects at 06:50 | Comments (21) | Trackbacks (0)

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Oil my favorite drug. I'm so addicted to it I can't get off it. I'v been in rehab so many times nothing seems to work. I need help, any one got any suggestions?
#1 jappy on 2008-05-22 07:44 (Reply)
Speculators are there to lay off risk on. They take on risk so you don't have to.

If you want to deliver school bus services in September, you don't know what to charge because you don't know what fuel will cost then. So you lock in a price today, laying off that fuel risk on a speculator for September delivery, and charge what makes you a profit with what the fuel contract cost you.

He takes all your risk.

In September, you sell him back the contract at what it's worth then, and buy exactly the fuel that the contract covered with the money.

It's a market.

Everybody knows it will go up and down, but it doesn't matter. There's no more rational computation you can do instead that doesn't lay risk on people who will then be unable to avoid it any longer.

One bad guess by the school bus company, and it's out of business. That's why it wants to lay off risk.
#2 Ron Hardin (Link) on 2008-05-22 07:54 (Reply)
Yes, it's a risk market.
#2.1 BD on 2008-05-22 08:08 (Reply)
Legislative risk has grown to ridiculous proportions in the energy markets. Dramatic reductions in production restrictions will drop the longer term future prices almost at once. Why not be long a scarce resource in the artificial environment created by the geniuses on the left? Prices are doing their job. The regulatory state is nuts, not the markets.
#3 Tom C on 2008-05-22 08:51 (Reply)
those senators grilling the oil execs in DC yesterday all had their prepared high dudgeon statements at the ready, and merely used the witnesses as punctuation marks. Over & over, the execs would offer some factual assessment in response to a question, only to be hit by the sound-bite-savvy hot summary that had nothing whatsoever to do with the exchange.

"Why are prices so volatile?" asks the senator.

"Because 75% of world production is under foreign government control, and this allows cartel pricing" answers Mr. Exec.

"Well, sir, I have to tell you, sir, the AMERICAN PEOPLE are NOT going to STAND for your price GOUGING when they have worries about their house values and JOBS being sent OVERSEAS and the cost of TUITION!" answers the senator.

"Whaaa???" responds Mr. Exec.

((DC is killing us -- killing us -- whip the oil companies the same day they over-ride a presidential veto of that 300 billion farm bill "intended" to help an industry that is already enjoying unprecedented boom times in ag commodity prices))
#4 buddy larsen on 2008-05-22 09:46 (Reply)
Gas prices will rise until you cut back enough to match the supply. End of story. You can't burn oil that doesn't exist unless you're a Democrat.

Consumers control the price.
#5 Ron Hardin (Link) on 2008-05-22 10:34 (Reply)
exactly! There are only two choices, reduce demand (high prices) or increase supply. DC has chosen to restrict production through idiotic regualtion. Stupid is as stupid does.
#5.1 Tom C on 2008-05-22 10:55 (Reply)
I'm all for a war for oil. We, along with the Dutch and Brits found and developed the mideast oil reserves and then they nationalized them. Same with Chavez in Venezula. If it weren't for us Saudi's would still be nomads wandering the desert. Plus the left would finally have a slogan- No War for Oil- than might contain a smigen of truth.
#6 sean on 2008-05-22 11:46 (Reply)
So far the posters have ID'd the problem and a few of the answers. That is good for I am now confident that .000000000000000000000000000000000000001 percent of the population understandstruly D

However when I read an article that compares wheat speculation to oil I get an uneasy feeling..wheat /oil...wheat/oil... sorry about my obvious confusion...why don't we compare womens bust size to rail freight tonnage? or pi to ten digits to laps at Nascar races?

Folks we are in a world of hurt with no remedy for less pain for a minimum of five years and oil projections in the WSJ and other financial publications are even more pessimistic

China is drilling for oil off of our coast yet our government (read Democrats) have made 85% of drilling offshore verboten and don't even think about the ANWAR...it wouldn't make any difference for five to ten years anyway given the length of time it takes to build the site and begin extraction, not to mention refining.

If you're in you late 40' thru early 60's do not expect life to be anywhere close to a Norman Rockwell painting. We are entering a noir period of representative government and headed to the bright golden age of a new hybrid, the Marxist-capitalist bourgeoisie.
#7 Habu on 2008-05-22 11:56 (Reply)
I found it interesting that Sovereign Wealth Funds are amongst the Index Speculators. Many SWF's are held by OPEC members. So, you make a bunch of dough on your oil exports, feed those profits (as an Index Speculator) into futures funds, and keep driving the price of oil up and up.

Clever.
#8 Lesley on 2008-05-22 12:31 (Reply)
Very astute. We are getting our ears boxed off. Huh?

I SAID WE'RE GETTING OUR EARS BOXED OFF.

Thanks sonny, my hearing aid just went on the fritz.
#8.1 Habu on 2008-05-22 16:47 (Reply)
That's why gold is hovering below a thousand bucks -- we're taking the Dollar down as fast as OPEC can take oil up.
#8.1.1 buddy larsen on 2008-05-22 18:39 (Reply)
The oil speculators are just counting on our continued stupidity, nothing more, nothing less. With those damn fool Democrats in Congress these guys are laughing all the way to the bank. Sue OPEC!!!! That's right, get your trial lawyer bum kissers out there earning their keep!!! First meaningful action step to take now: El Presidente declares a national emergency suspending all EPA and other regulatory nonsense so as to allow drilling to commence at once. Then defy Congress to do something about it. Somebody has got to take the lead here- that's the Chief Executive's job. Meanwhile a bear raid in the form of puts is mounted on oil futures and this double barreled blast results in oil futures cracking and taking a dive south.
#9 Green Mtn Punter on 2008-05-22 19:41 (Reply)
...and drop a million SPRU barrels onto the mkt at the same time.
#9.1 buddy larsen on 2008-05-22 22:14 (Reply)
On Rush Today. A while back my illustrious senator Chucky Schummer said that drilling in Alaska would contibute a million gallons a day and only lower the price at the pump a penny a gallon. Yesterday he said that if we get the Saudis to pump a million more gallons a day for us, it would lower the price of gas at the pump 56 cents. How can that be? This is the guy that got a perfect score on the college boards so he's not stupid. Just a lieing snake in the grass.
#10 sean on 2008-05-22 20:20 (Reply)
sean, dunno if it's what you're getting at, but production costs, as well as return on investment, per barrel vary widely, with that barrel's geography, geology, and chemistry. The politics of course, but also the technical ''lift cost'' and the ''sweetness'' (simplified, the fraction that can be ''cracked out'' for gasoline) count.

The Saudi fields have the best of both those, by far -- the cheapest to ''lift'' and the ''sweetest'' too.
#10.1 buddy larsen on 2008-05-23 13:41 (Reply)
Yes, flood the market with oil from the SPRU along with the national emergency declaration to begin drilling immediately, and the bear raid, and together they will break the run up in oil futures and bring the market back to reality. Psychologically it's a home run. Show the world the USA and it's allies will not be held hostage to a bunch of enviornmental extremists and nomads who used to live in tents in the desert. Needs to be done without further adieu. As in TODAY!
#11 Green Mtn Punter on 2008-05-23 08:06 (Reply)
Oh yes, and dust off whatever plans for whichever oil refinery makes the most sense and begin constuction immediately as part of the national emergency delcaration. This means more capacity to process the new supply sending the signal to the Arabs and the rest of the cartel.
#12 Green Mtn Punter on 2008-05-23 08:10 (Reply)
you're right -- thespeculators getting all the political grief are merely buying a financial product because it is appreciating, and holding it for the same reason.

of course, it's the ''holding'' that makes the remaining ''open'' contracts ever more valuable.

a little selling pressure could knock 10% off in a heartbeat, and another 10% more slowly -- to stabilize around $100 for awhile --
#12.1 buddy larsen on 2008-05-23 09:58 (Reply)
Buddy,
I think Schummer was talking about increase in supply on both occassions and how it would effect the cost at the pump. He's probably wrong in both instances, but it annoys me that his statements are only for political purposes.
#13 sean on 2008-05-23 18:46 (Reply)
Here's the transcript from Rush's site concerning Schummer's comments. I made a few errors in listening to the show. I should have said barrels instead of gallons and Schummer said it would reduce cost at the pump 62 cents, not 56 cents.
http://www.rushlimbaugh.com/home/daily/site_052208/content/01125116.guest.html
#14 sean on 2008-05-23 20:15 (Reply)

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