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Oil Futures Traders Are The Problem
Re: Oil Futures Traders Are The Problem
by AdTheNad » Wed 22 Jun 2011, 11:46:47
$this->bbcode_second_pass_quote('pstarr', '')$this->bbcode_second_pass_quote('AdTheNad', 'W')ould you agree that buying, say, brent crude futures, in massive multi billion dollar amounts could push out the price level of those same brent crude futures? I'm not referring to the current brent crude cash price, just the level of the futures.
sounds reasonable.So if an oil company based their prices on a formula that used futures as guide, the oil price would be vulnerable to price manipulation.
From Pops' link:
Most of the crude oil that flows in international trade is priced by formula: a base price, usually based on a market indicator, plus or minus a quality adjustment. A common pricing term sets a base of a spot price published by a particular source or publication. For crude oil sold into the U.S. Gulf Coast, for instance, the base would commonly be the price of West Texas Intermediate crude oil.
In this example, it says West Texas Intermediate crude oil, so is not seemingly applicable, but if it said West Texas Intermediate crude oil futures, it would be.
The effect of this may well be negligible, and I have no idea how many contracts do use futures as a guide in their formula (maybe none?), but it certainly opens up the possibility. In any case, I'm sure the net effect is tiny and doesn't explain the majority of the price of oil, which is obviously supply constraints.
Edit - Having said the above, I guess even with this argument, it is about a specific contract, not the overall spot price. Hmmm.
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Re: Oil Futures Traders Are The Problem
by peripato » Wed 22 Jun 2011, 23:17:46
$this->bbcode_second_pass_quote('pstarr', 'H')ere is more evidence that price is a signal communicated between producers and consumers to guide the production and distribution of oil resources, a a function of supply and demand. The following article and chart from Seeking Alpha was from 2008 during the great run up in price.
From the article:
$this->bbcode_second_pass_quote('Seeking Alpha', 'T')he chart above provides evidence suggesting that speculators and futures trading may have played almost no role in the recent oil spikes. Since January 2007, oil prices have more than doubled from about $58 to $138 per barrel, a 138% increase. During that same time period, the open interest for futures contracts has remainded relatively stable at an average of about 333,000 contracts (see chart). Further, notice during the recent 55% surge in oil prices since last November ($88.60 to $137), open interest has been falling, not rising!
Where's the "excessive: speculation? The data suggest otherwise.
From the article:
$this->bbcode_second_pass_quote('Seeking Alpha', 'T')he chart above provides evidence suggesting that speculators and futures trading may have played almost no role in the recent oil spikes. Since January 2007, oil prices have more than doubled from about $58 to $138 per barrel, a 138% increase. During that same time period, the open interest for futures contracts has remainded relatively stable at an average of about 333,000 contracts (see chart). Further, notice during the recent 55% surge in oil prices since last November ($88.60 to $137), open interest has been falling, not rising!
Where's the "excessive: speculation? The data suggest otherwise.
Amen! And declining open interest? That implies that the "smart money" had already cashed out their positions into the hands of the unsuspecting way before the top in oil was in. Remember, Futures is a Zero Sum Game...
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