^good call
^doube or triple leveraged?
Everyone that made money on the commodity run-up is jumping ship. Still no fundamental support so no reason not to take profits. Next move in oil (and copper for that matter) is down.
^ I agree with STL
When have commodities ever traded on fundamentals. Oil going from $100 to $30 with hardly any change in the overall world economy proves that any swing is purely driven by speculators. If you catch the ride early enough you make money but long term it is a losing trade.
Gov’t subsidies pretty much offset any major price swings in the commodities market. Look at oil for example, there is pretty much no correlation between global oil consumption and oil prices. Even oil supply to oil prices has a very low correlation.
how long can we sustain these levels for???
Who’s “we”? America? Forever. Russia? About 18 months, maybe less. SA? They could literally run out of money in a year or two.
So you’re saying that US fracking coming online, the US starting to export oil now, and the Saudis ramming supply down everyone’s throat didn’t have anything to do with lower oil prices?
I wouldn’t say “hardly any change”. Brazil went from IG to HY in that period and is seeing the highest level of defaults since 2008. Things are equally painful in much of the emerging market. Add to that that most pricing occurs on the margin and the fact that US production was ramping up and the Saudi’s pushed production higher and there you go. Same thing happened to the potash market after that oligopoly pushed production to fight market share (which I think was the playbook for oil).
I cover commodities as my job and copper for instance also trades very much on fundamentals (about 8 days of supply kept on hand) and speculator positions are pretty mild when measured against industrial demand. I’m not sure it really makes sense at all to say fundamentals aren’t driving commodity markets.
In that vein, oil has to go up. Supply has to shrink at these levels, and it is…Long multiple midstream firms.
Ofcourse supply and demand will play a role, thats economics 101. I am talking more about the wild swings in oil prices which are mostly driven by speculation. There is absolutely no indicator that suggests that supply will decline anytime soon (in fact we are seeing signs of a double whammy with potential demand declines) yet oil prices jumped 50%. You cannot possibly convince me that the recent increase in prices has ANYTHING to do with supply/demand.
Imagine what would happen to commodity prices if they banned speculators/traders from purchasing any futures contracts. If they implemented a rule that you must take delivery of the product (and somehow show intent to use the product) if you purchase a futures contract for it, you’d see a much more smoother curve across all commodities.
Except for silver, since there isn’t that much silver available. That would be pretty cool to watch actually.
I disagree with ZB. It is the speculators that provide the liquidity to the market thereby allowing effecient price discovery to happen. Without speculators, the market would be more volaitle and perhaps prone to manipulation. People think all speculators are trend pushing market manipulators but many are countertrend traders which take a bite out of market hubris.
I don’t believe that speculators are at fault for the wild swings in oil. Look at it this way: The game has changed in a dramatic and permanent way since the American shale oil boom. The availability and red tape assoicated with the supply of oil has changed in a huge way and now can you blame markets for being confused? I’m sure if it was just hedgers in the market, they would be just as unstable. Just imagine if all the sudden corn could only be grown in Japan (don’t aske me why, just an example). Imagine how crazy the price behaviour would be even though global demand is the same.
The tail definitely wags the dog in most futures markets, but when the demand of something is relatively inelastic, wild swings are inevitable. I would not be for trying to limit participation, but I imagine the number of oil producers hedging when oil fell below $30 was rather limited.
How do speculators provide liquidity to the market? This is the same cockamamie argument used by high frequency traders. They do not provide real liquidity, instead they are providing an illusion of liquidity that is then used by other market participants to further manipulate the prices.
Why would the market be more volatile? You can only manipulate if you are ready to take delivery and then provide proof of using the commodity. For certain precious metals it can be manipulated with just taking delivery, but it will be tougher to provide proof of usage. Ultimately, all physical commodities should be regulated similar to electricity & water. Then you have a smooth upward sloping graph that is highly predictable, stable and less strenuous on the market.
I have to agree with KMD (even though she’s basically regurgitating CFA material). I’d post more, but I just don’t care today. Maybe tomorrow.
ZB…First of all, if commodities were limited to just hedges the market would be very thin and would lead to choppiness and/or manipulation. Pump and dump scams are based on thin markets after all. If a hedger thought they could manipulate the market by obtaining more capacity to receive the commodity, they could possibly do that making your idea to require physical stuff ineffective. As it is now, with speculators adding volume to the market, there is the comfort of always being a buyer or seller to take the others side. Look at any thinly traded market and you will see the result of lack of participants . In order to have the smooth curve you speak of, you need to be to match buyers with sellers first. That is why lack of paticipants causes volatility.Also, new fundamentals are priced in with efficient pullbacks along the way constantly testing the strength of the trend. You have thank the counter trend traders that are cracking the whip on animal spirits at all times. Your view of speculators as the hethens pushing the price all around is flawed. They are just as aware of being caught on the wrong side of a bubble as anyone else. When the price rushes too far from fundamentals, they are the ones pushing it back to earth because they can get caught on the wrong side of things, just the same as hedgers.
Commodities don’t need the comfort of always having a buyer/seller to stay in balance. That’s the whole point of a commoditized product. Its demand is so inelastic in nature that the market should be self sufficient with the current players and we don’t have to insert artifical liquidity to prop it up.
In fact these speculators are bringing technical analysis into a market that should trade on fundamentals and they are the ones causing most of the price fluctuations. Take oil jumping from $28 to $40 a barrel. Can you please explain what fundamental indicators support this increase?