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THE Speculators Thread pt 2 (merged)

Discussions about the economic and financial ramifications of PEAK OIL
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Re: Peak Oil vs. Speculation

Postby thuja » Thu 14 Apr 2011, 15:26:24

Can we all agree that long term the trend for oil prices has been up? And that speculation affects the short term oscilations but that other factors are affecting the long term bullish trend?

And then can we agree that peak oil is one of the main causative factors in that long term (decade long) bullish trend?
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Re: Peak Oil vs. Speculation

Postby dsula » Thu 14 Apr 2011, 15:29:00

$this->bbcode_second_pass_quote('Pops', 'S')peculators run up the price of futures
Producers see profit in postponing sales

Producers see higher price and sell as much as possible as soon as possible. I would think Hugo & Friends need all the money they can get, they don't have the luxury of postponing.
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Re: Peak Oil vs. Speculation

Postby Daniel_Plainview » Thu 14 Apr 2011, 15:39:06

$this->bbcode_second_pass_quote('thuja', 'C')an we all agree that long term the trend for oil prices has been up? And that speculation affects the short term oscilations but that other factors are affecting the long term bullish trend? And then can we agree that peak oil is one of the main causative factors in that long term (decade long) bullish trend?


Such unassailable logic ... perhaps too rational and logical for this particular thread ...
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Re: Peak Oil vs. Speculation

Postby Pops » Thu 14 Apr 2011, 15:47:53

$this->bbcode_second_pass_quote('pstarr', 'Y')ou might be talking about some backwoods operator in Texas running a stripper well.

So you think all producers simply put out everything they have, every day with no thought to what current and future market conditions may be?

In other words, the only people who pay attention to markets are metrosexuals in some Manhattan loft?

$this->bbcode_second_pass_quote('thuja', 'C')an we all agree that long term the trend for oil prices has been up? And that speculation affects the short term oscilations but that other factors are affecting the long term bullish trend?

And then can we agree that peak oil is one of the main causative factors in that long term (decade long) bullish trend?

Sure, limited supply is a given. If there were unlimited spare capacity and no expectation of future constraints, producers would have no incentive to withold production, they could only compete by reducing cost or some other marketing device like vertical integration etc.

P. is afraid we'll forget geology and mos is afraid we'll forget the economics when in reality they are inseparable, two sides of the same coin.
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Re: Peak Oil vs. Speculation

Postby sparky » Fri 15 Apr 2011, 02:34:12

.
For information , there is very little speculation on this index , it's about real deliveries
obviously there is long standing supply problem for the light sweet crude
all the excess production is the heavy stuff

The OPEC basket price
http://www.opec.org/opec_web/en/data_gr ... b=annually
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Re: Peak Oil vs. Speculation

Postby mos6507 » Fri 15 Apr 2011, 07:49:43

$this->bbcode_second_pass_quote('Pops', '
')P. is afraid we'll forget geology and mos is afraid we'll forget the economics when in reality they are inseparable, two sides of the same coin.


Well said. I think pstarr is hung up an attribution or cause and effect. It's the Church Lady syndrome. The second we concede that greed could distort price signals it might cause people to disregard oil price spikes. The reality is the reality and if there are more moving pieces to oil prices than just supply and demand, let's just deal with it instead of trying to pretend it isn't so. I learned my lesson in 08 and won't get fooled into simplifying things ever again.
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Re: Peak Oil vs. Speculation

Postby Pops » Fri 15 Apr 2011, 07:58:34

$this->bbcode_second_pass_quote('sparky', '.')
For information , there is very little speculation on this index , it's about real deliveries


Really? So what is the point of all these trades?
$this->bbcode_second_pass_quote('', 'T')hat's not our present world, though. Today roughly 30% of market participants on the New York Mercantile Exchange (NYMEX) are identifiable hedgers with a legitimate business purpose. That fact and a twenty-fold increase in capital flowing towards commodity futures during the past five years - growing at a rate of $1 billion in contracts per day - point to a remarkable shift in how futures prices get set, by virtue of who's around to set them.

Today the number of paper oil barrels traded daily on NYMEX (and that's just the most regulated exchange) is over three times the number of physical barrels consumed daily worldwide.


Last year:
$this->bbcode_second_pass_quote('', 'L')ONDON, April 14 (Reuters) - A record 2.5 billion barrels of crude oil traded on April 13 on the world's two main futures exchanges, the equivalent of almost 30 times the amount of oil used around the world each day, data showed on Wednesday.
Link

$this->bbcode_second_pass_quote('', 'G')oldman flatly stated in a research note in March 2011 that every million barrels of oil held by speculators contributed an 8- to 10-cent rise in the oil price.
Link
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Re: Peak Oil vs. Speculation

Postby mos6507 » Fri 15 Apr 2011, 14:15:35

$this->bbcode_second_pass_quote('pstarr', '
')You know Mos, it's pretty much completely pointless debating you. Instead of an intelligent response, you muster up another cute aphorisms. :razz: Church Lady? Laughable.


Then debate with Pops. It's not like I'm the only one who feels this way. I'm just exhausted having to repeat myself over and over again, which is why I peg you as a Church Lady type who wants to explain everything as "peak oil".
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Re: Peak Oil vs. Speculation

Postby AdTheNad » Fri 15 Apr 2011, 15:38:16

$this->bbcode_second_pass_quote('pstarr', 'W')hat is the mechanism by which speculation overcomes simple laws of supply/demand and the pricing intermediary?

OK, so speculation can change the price of futures contracts. This is indisputable. This leaves the question, can the futures contracts price change the spot price, and if so how?

If you think the price will rise in the future, you would be tempted to reduce your production and sales now, and sell once the price has increased, thus increasing your turnover. However, the price rise would have to be greater than the cost of letting all the machinery, employee costs etc etc sit idle. Most oil fields are not just a case of sticking a straw in the ground, so the price change would presumably have to be very large to induce this effect. It can not be a case that the oil is extracted and then stored, as the storage does not exist in any quantities that would make a difference. This makes it appear speculation does nothing to the spot price.

On the other hand, could you use the futures price as a bargaining tool when selling oil, thus affecting the spot price? I'm not sure about this, but possibly. I.e. imagine you are in a shop and want to buy some fresh produce (or any other good that can not be stored) and are haggling on the price. If the shop keeper says, this person is offering me more than you are for it in a month time, if you want to buy it from me now perhaps you should increase your bid, then this might in a round about way affect the spot price. I don't think I can expand upon this without knowing more about how these contracts are negotiated.

At the moment I'm leaning towards speculation does nothing to the spot price, but would love to hear some rational to the contrary.
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Re: Peak Oil vs. Speculation

Postby Pops » Fri 15 Apr 2011, 16:08:18

$this->bbcode_second_pass_quote('pstarr', 'I') wonder Pops? Hum? Do ya think that maybe Goldman generates a commission on all trades?

Goldman earns far more trading it's own account:
$this->bbcode_second_pass_quote('', 'B')ut the firm more than made up for the dropoff by trading with its own money. Goldman generated $7.5 billion off its own investments and trades, up 163 percent from 2009.

Just like the earlier article I linked where they are attempting to become PART of the ownership chain so they can continue to buy and sell physical oil.

You are as bad as any corny or tea partier when it comes to chanting your team slogan with your fingers in your ears, you should be a politician!

BTW, You didn't answer my question about whether you think producers are blind to the futures markets and just drill and sell without regard to price, markets, futures, etc?
The legitimate object of government, is to do for a community of people, whatever they need to have done, but can not do, at all, or can not, so well do, for themselves -- in their separate, and individual capacities.
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Re: Peak Oil vs. Speculation

Postby Pops » Fri 15 Apr 2011, 16:20:36

$this->bbcode_second_pass_quote('AdTheNad', ' ')It can not be a case that the oil is extracted and then stored, as the storage does not exist in any quantities that would make a difference. This makes it appear speculation does nothing to the spot price.

There is 7-8 billion barrels of "storage" in the world, about 10% is discretionary - for rent IOW, that doesn't seem inconsequential.
$this->bbcode_second_pass_quote('', ' ')Stocks [stored oil] can also be a way to make money; they represent a profitable investment. Such stocks are truly discretionary stocks. They are built or drawn in response to prices, and particularly in response to the difference between today’s prices and expectations about where prices will be in the future -- the forward price curve. The widespread availability of financial instruments, like futures contracts, has greatly encouraged discretionary stock movements, partly by making the economic signals inherent in the forward price curve easy to see, but especially by reducing the risk of building stocks in a surplus market.

When prices for oil today are lower than prices for oil in the future –- a sign of oversupply -- the market is said to be in contango. If the contango is wide enough to cover the costs of holding stocks, namely storage and working capital, then a company can lock in a profit on the stocks if it, first, sells oil in the futures market while simultaneously putting the same volume of oil into storage in the futures contract’s delivery area, and then, subsequently either delivers the stored oil against the contract or sells the stored oil and buys an offsetting futures contract. Discretionary stockbuilding occurs disproportionately in the U.S. Northeast, particularly around New York, and in Northwest Europe, especially in the Antwerp-Rotterdam-Amsterdam (ARA) area. That is because the world’s two active families of product futures contracts are based on these delivery areas: the NYMEX on New York Harbor and the International Petroleum Exchange on the ARA area.
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The legitimate object of government, is to do for a community of people, whatever they need to have done, but can not do, at all, or can not, so well do, for themselves -- in their separate, and individual capacities.
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Re: Peak Oil vs. Speculation

Postby Pops » Fri 15 Apr 2011, 17:40:19

$this->bbcode_second_pass_quote('pstarr', 'T')here you go again, just like your buddy Mos. Slinging the mud pies.

That's quite a compliment coming from the king of ad homs, thanks.

Hey, since you gave me such a compliment, I'll concede that all those who buy futures contracts; speculators/bankers/traders/producers/refiners/airlines/trucking companies/etc have absolutely no effect on price or supply, that way, you can continue to explain everything via the oil peak of 2005 and know the markets are entirely free and logical and speculation in commodities of any sort whether physical or virtual is simply a healthy way for the system to find true value and any change in oil supply or price is due to geology and geology alone.

How's that?


Anyway, thanks for answering my question, you said:
$this->bbcode_second_pass_quote('', 'P')roducers are not blind to the laws of supply and demand and produce petroleum when the price point instructs them to.

I guess that means that they are always several weeks or months behind the market since they only pay attention to the spot price and disregard those fools like refiners, airlines, etc who hedge their actual cost of business via futures contracts. I would have guessed oil producers would be knee deep in futures like all other big time commodities producers.
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Re: Peak Oil vs. Speculation

Postby americandream » Fri 15 Apr 2011, 17:42:14

$this->bbcode_second_pass_quote('Pops', '')$this->bbcode_second_pass_quote('pstarr', 'I') wonder Pops? Hum? Do ya think that maybe Goldman generates a commission on all trades?

Goldman earns far more trading it's own account:
$this->bbcode_second_pass_quote('', 'B')ut the firm more than made up for the dropoff by trading with its own money. Goldman generated $7.5 billion off its own investments and trades, up 163 percent from 2009.

Just like the earlier article I linked where they are attempting to become PART of the ownership chain so they can continue to buy and sell physical oil.

You are as bad as any corny or tea partier when it comes to chanting your team slogan with your fingers in your ears, you should be a politician!

BTW, You didn't answer my question about whether you think producers are blind to the futures markets and just drill and sell without regard to price, markets, futures, etc?


If the markets were as contrived as you appear to suggest, I would have expected to see a lot more volatility rather than this relentless climb. After all, oil is not the only game in town and can be intervened where it threatens the wider market. Many of the oil producers and bigger money pools are heavily invested in associated markets such as property and business so to suggest that they will relentllessly play one market at the expense of risks to the other markets (causing liquidity upheaval and capital flight) when we have seen the lengths that have been gone to in Japan in order to protect market sentiment, is just plain old absurd.

There is only so much of what I would call a contrivance factor in oil's price and it's here that I can accept the oscillations. But to suggest that market makers will sit back and watch one small sector being relentlessly played without causing some shirts to be lost, is unrealistic.

I suspect that oil is a sector under strain with wholesalers ever mindful of non-fundamental moves. After all, 2008's retracement was explicable and a timely remider to all market players including the commecial funds of the producers, that our reliance on oil is lopsidedly critical.
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Re: Peak Oil vs. Speculation

Postby Pops » Fri 15 Apr 2011, 17:53:31

AD, I have no idea if all the money flowing in and out of the markets make a tenth of a percent difference or 10% or 50%. I'm sure it has some since I've never heard a pat argument made that it has none.

Certainly, the rise since the late '90s is mostly about the fundamentals, I just hate to see absolutes thrown around without a good argument to back them up because either way it surely messes up someones takeaway from PO.com
The legitimate object of government, is to do for a community of people, whatever they need to have done, but can not do, at all, or can not, so well do, for themselves -- in their separate, and individual capacities.
-- Abraham Lincoln, Fragment on Government (July 1, 1854)
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Re: Peak Oil vs. Speculation

Postby rockdoc123 » Fri 15 Apr 2011, 18:13:37

Can I suggest that we look at the oil price graph in terms of 2011$ versus money of the day? I suspect it would be more instructive at to how much real increase there has been.
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