do investors push up the price of oil? i would think yes, but i have heard no, it comes down to the supply and demand of crude not the futures. what do you guys think of the bill sen. liberman is proposing?
Absolutely. Oil at $130 with demand decreasing. . . Commodities markets are much smaller than the equity markets and can move up just as quickly as they can move down as money flows in and out. Not saying speculators are the only culprits here. . . but they do make a difference.
i would be interested in analysing the oil prices in constant $ terms!!!
I think oil exceeded its all time inflation adjusted prices @ $120.
an interview with Arjun Murti, Goldman Sachs energy analyst in Barron’s last week: Barron’s: “There’s been a lot of discussion about speculators driving up the commodity prices.” Arjun: “Oil markets are driven by fundamentals. Our response to the notion that it is merely a bubble is that you are still seeing no supply growth. If the price isn’t real, where is the supply?”
if you want oil independence, let oil go to $300, $400, $500 or whatever, at some price engineers/academics will stop trying to make a slick iphone but rather divert all there resources to finding alternative sources. it’s a great way to fight terrorism
I agree that the demand side of the equation exceeds supply which means sustained high prices but $130 appears to be extreme and likely due to more money going to the asset class by institutional investors seeking inflationary hedges and diversification benefits. I think $100+ oil is here to stay. . . $130+ is hopefully not.
I friend of mine has a theory that the U.S. is intentionally building reserves and not drilling in Alaska, the Gulf and in other places so that it can suck the Middle East dry and dominate the oil market for the rest of time. I thouhgt that was pretty funny.
JustPass Wrote: ------------------------------------------------------- > I friend of mine has a theory that the U.S. is > intentionally building reserves and not drilling > in Alaska, the Gulf and in other places so that it > can suck the Middle East dry and dominate the oil > market for the rest of time. I thouhgt that was > pretty funny. i would hope US is building reserves (and keeping supply on their turf) b/c if another world war breaks out, the tanks/jets/battleships/etc are useless without fuel.
boston Wrote: ------------------------------------------------------- > an interview with Arjun Murti, Goldman Sachs > energy analyst in Barron’s last week: > > Barron’s: “There’s been a lot of discussion about > speculators driving up the commodity prices.” > > Arjun: “Oil markets are driven by fundamentals. > Our response to the notion that it is merely a > bubble is that you are still seeing no supply > growth. If the price isn’t real, where is the > supply?” No surprise a shill from GS would say that. They were the guys who were pumping housing and RMBS while they were shorting the sh!t out of RMBS. The statement that the markets are driven by “fundamentals” is absolutely retarded. The same can be true of any market, yet why do we have bigger and “better” bubbles in the last decade? His type of idiocy is why people despise bankers. They see us pumping and dumping while they are the ones who take the real hit. This time it’s even worse than before. Tech stocks didn’t hurt anybody except for investors or tech workers. Housing hurt a lot more people, oil is hurting the whole world. If people find out that there was any manipulation you’re going to see action far more harsh than Glass Steagall.
MFE Wrote: ------------------------------------------------------- > JustPass Wrote: > -------------------------------------------------- > ----- > > I friend of mine has a theory that the U.S. is > > intentionally building reserves and not > drilling > > in Alaska, the Gulf and in other places so that > it > > can suck the Middle East dry and dominate the > oil > > market for the rest of time. I thouhgt that > was > > pretty funny. > > > i would hope US is building reserves (and keeping > supply on their turf) b/c if another world war > breaks out, the tanks/jets/battleships/etc are > useless without fuel. My men can eat their belts but my tanks gotta have gas.
Why does $130 “appear to be extreme?” It’s largely a fundamentally justifiable number, give/take maybe $20/bbl (depending on who you ask)…that’s a bit of relative thinking, no? The first time we hit $78, that was “extreme” b/c $40 was in recent memory. In 2010 at $250 (arguably), that will seem “extreme” vs. the good old days when you could buy at a relative steal of $130. There is definitely no net demand destruction, and seems to be little actual demand destruction either - maybe a softer summer driving/flying season will shake out come this Fall, but that’s just the US - largest consumer yes, but not the only driver. Hopefully the elimination of gasoline subsidies in India/China/Venezuela et al will also help, but the cultural shift away from pride in car ownership will be a long time coming (that’s the fault of the Americans anyways). If people have to spend 25% of discretionary on their car in those countries, a lot of them will make the sacrifices to do so.
L3 Buckaroo Wrote: ------------------------------------------------------- > Why does $130 “appear to be extreme?” GS is now predicting that these high levels are unsustainable and prices may fall to $75 http://www.rediff.com/money/2008/jun/11infla.htm
How can one think that a large amount of money flowing into oil futures would not increase the price of oil futures, and then flow through to increasing the price of oil in the spot market. You have pensions now diversifying into alternatives, you have mutual funds that now track indices such as the S&P diversified trends indicator, and commodity mutual funds, all of this new demand flows into commodity futures somehow or another.
L3 Buckaroo Wrote: ------------------------------------------------------- > Why does $130 “appear to be extreme?” It’s largely > a fundamentally justifiable number, give/take > maybe $20/bbl (depending on who you ask)…that’s > a bit of relative thinking, no? The first time we > hit $78, that was “extreme” b/c $40 was in recent > memory. In 2010 at $250 (arguably), that will seem > “extreme” vs. the good old days when you could buy > at a relative steal of $130. > > There is definitely no net demand destruction, and > seems to be little actual demand destruction > either - maybe a softer summer driving/flying > season will shake out come this Fall, but that’s > just the US - largest consumer yes, but not the > only driver. Hopefully the elimination of gasoline > subsidies in India/China/Venezuela et al will also > help, but the cultural shift away from pride in > car ownership will be a long time coming (that’s > the fault of the Americans anyways). If people > have to spend 25% of discretionary on their car in > those countries, a lot of them will make the > sacrifices to do so. There was no fundamental shift in the last 12 months to justify a doubling of the price. It’s not like the market suddenly woke up in July and said “Holy sh!t, oil should be worth double because so much in the world changed in the last 24 hours!” which followed a ramp-up that history has never seen before. This isn’t a shift in fundamentals occurring in the last 12 months, it’s a shift in capital, with it flooding out of housing and debt markets overall, to commodities, driving up prices. Is it so hard to get this?
+/- $20. . . a pretty wide dispersion. My belief is that risk remains to the downside.
Can someone explain how speculators could push the price up for more than a few months? If there really were a lot of speculators having a meaningful impact wouldn’t you see the price of the front month contract take a dive in the days before expiration as speculators close their positions in order to avoid delivery and roll them over to the next month? (The price at expiration would be without any speculative impact because the supply and demand of people taking/receiving delivery would match) I’ve looked at the price of oil before expiration for the last few months compared to other contracts and I see no evidence of this. I understand that speculators could push the price up in the very short term (a few weeks) like anything else but I just don’t see how it is possible over the longer term.
I agree with you cfamd. That’s the one thing that is difficult to quantify.
cfamd Wrote: ------------------------------------------------------- > Can someone explain how speculators could push the > price up for more than a few months? If there > really were a lot of speculators having a > meaningful impact wouldn’t you see the price of > the front month contract take a dive in the days > before expiration as speculators close their > positions in order to avoid delivery and roll them > over to the next month? (The price at expiration > would be without any speculative impact because > the supply and demand of people taking/receiving > delivery would match) I’ve looked at the price of > oil before expiration for the last few months > compared to other contracts and I see no evidence > of this. I understand that speculators could push > the price up in the very short term (a few weeks) > like anything else but I just don’t see how it is > possible over the longer term. I could be wrong, but the timing of the “rolls” might not really be just before settlement. Not to mention the continual upward pressure of everybody laying on longs will keep pushing prices up. If you think prices will keep going up you’ll take a short to offset your prior long, while taking another long, albeit at a higher price, for another roll.
The last three days of the spot month have contract restrictions (3000 contracts which may sound like a lot but isn’t) so waiting until the last moment isn’t so good. You don’t take a short to offset your long (which would make the open interest increase); you close out your long position and roll it into a new month (thus keeping total open interest the same). Futures markets are really fundamentally different from equity markets in every which way. Futures markets are about trading risk and are just a really lousy base for a speculative bubble.