Any proper forecast of where we are going has to acknowledge where we have been and where we are now. That is supply & demand analysis as well as all the information contained in today's price.
There are many who think all the information about peak oil depletion is already contained in the price today. The so-called efficient market theorists. You can argue about that, but that is also the reality. If the world and therefore the market took peak oil depletion seriously at the moment then we would be at $100 not $50.
Otherwise you fall into the camp and you are a behavioral theorist and you think the market has its signals wrong and more information about the ramifications of peak oil depletion would send physical markets and therefore futures markets soaring.
I do not think it is acceptable to state that the markets will be manipulated by the powers that be. They can certainly distort price signals but they cannot create oil for example. Technically that information is in the price as well.
So I think it is very hard to speak about the ramifications of peak oil depletion without looking at the supply & demand fundamentals as well as the price today. Or as The Economist wrote in a Special Report on Economic Models on July 15th, 2006, when it comes to forecasting, "until you understand everything, you can understand nothing."
In other words whether you are using a macroeconomic model or computable general equilibrium model (CGE) the output of the model is wholly dependent on the assumptions the modeler inputs into the equations of the model itself.
If the forecaster does not believe any viable alternative exists to petroleum based on EROEI data then this is what the output of his model will prove. But are the assumptions accurate and do they represent reality or the programmer’s perception of reality?
This forum has to be about educating ourselves as well as the general public about the economic ramifications of peak oil depletions, but that is hard to do without a roadmap, and any future path should be vigorously debated. No one has a monopoly on the shape of the world as it will really be in 2030 or 2050.
PeakOil is You
Mr Bill speaks out
Re: Off-topic posts in this forum must cease
by MrBill » Mon 22 Jan 2007, 07:29:08
The organized state is a wonderful invention whereby everyone can live at someone else's expense.
-
MrBill - Expert
- Posts: 5630
- Joined: Thu 15 Sep 2005, 03:00:00
- Location: Eurasia
Re: Off-topic posts in this forum must cease
by max_power29 » Tue 23 Jan 2007, 07:04:48
$this->bbcode_second_pass_quote('MrBill', '
')
I do not think it is acceptable to state that the markets will be manipulated by the powers that be. They can certainly distort price signals but they cannot create oil for example. Technically that information is in the price as well.
')
I do not think it is acceptable to state that the markets will be manipulated by the powers that be. They can certainly distort price signals but they cannot create oil for example. Technically that information is in the price as well.
They sure as hell create "paper" oil as well as a myriad of other commodities including gold and silver all the time. you of all people should know this. These paper barrels are surely factored into lowering prices. "They" can and do create oil because the traders treat the paper as real.
-
max_power29 - Tar Sands
- Posts: 883
- Joined: Wed 23 Mar 2005, 04:00:00
- Location: Orygun
Re: Off-topic posts in this forum must cease
by Aaron » Tue 23 Jan 2007, 12:01:59
$this->bbcode_second_pass_quote('max_power29', '')$this->bbcode_second_pass_quote('MrBill', '
')
I do not think it is acceptable to state that the markets will be manipulated by the powers that be. They can certainly distort price signals but they cannot create oil for example. Technically that information is in the price as well.
')
I do not think it is acceptable to state that the markets will be manipulated by the powers that be. They can certainly distort price signals but they cannot create oil for example. Technically that information is in the price as well.
They sure as hell create "paper" oil as well as a myriad of other commodities including gold and silver all the time. you of all people should know this. These paper barrels are surely factored into lowering prices. "They" can and do create oil because the traders treat the paper as real.
Agreed
The problem is, of course, that not only is economics bankrupt, but it has always been nothing more than politics in disguise... economics is a form of brain damage.
Hazel Henderson
Hazel Henderson
-
Aaron - Resting in Peace
- Posts: 5998
- Joined: Thu 15 Apr 2004, 03:00:00
- Location: Houston
Re: Off-topic posts in this forum must cease
by MrBill » Thu 25 Jan 2007, 10:51:19
$this->bbcode_second_pass_quote('Aaron', '')$this->bbcode_second_pass_quote('max_power29', '')$this->bbcode_second_pass_quote('MrBill', '
')
I do not think it is acceptable to state that the markets will be manipulated by the powers that be. They can certainly distort price signals but they cannot create oil for example. Technically that information is in the price as well.
')
I do not think it is acceptable to state that the markets will be manipulated by the powers that be. They can certainly distort price signals but they cannot create oil for example. Technically that information is in the price as well.
They sure as hell create "paper" oil as well as a myriad of other commodities including gold and silver all the time. you of all people should know this. These paper barrels are surely factored into lowering prices. "They" can and do create oil because the traders treat the paper as real.
Agreed
First of all, I do not know who THEY are? The fabled plunge protection team? Why go through the bother? When prices rose in the afterwake of Katerina/Rita all it took was an announcement that the US government would release barrels of crude from its SPR to bring prices down. They did with moral suasion what they would be hard pressed to accomplish clandestinely.
Second, there is no fixed supply of futures contracts to match supply or demand. They are created by players entering into contract with anyone else 'almost' adinfinitum. But they are all based on the underlying price of a commodity like oil.
Many cancel one another out. So need only concern ourselves about the net amount of open contracts. If too many bought paper expecting physical delivery then there would be a short squeeze at the expiry of the contract. Anyone short would have to either buy back their short by buying futures or by purchasing physical oil to deliver against their contract. As all contracts traded on the exchange are traded by members of the exchange delivery is guaranteed by the clearing house of the exchange and every member of the exchange.
Yes, there have been cases of short squeezes where there was not enough physical to deliver. Copper on the LME for example. Then the exchange has to charge financial penalties for non-delivery. So not only is someone losing money from being short and the price is higher, but they are paying penalties as well until they can make good on their short position. I fail to see how this is somehow good for the short player and therefore a short-coming of the system itself?
However, forget crude oil for a moment. When I used to trade cargoes of such things like feed peas and lentils there were long lists of back to back trades starting up to 1-2 years before delivery date, before the peas or lentils were even planted. The same cargo for delivery the first two weeks in December CIF ARA traded over and over again as grain dealers speculated about the end demand and the final price at time of delivery sometime in the distant future.
What happened to all those failed trades? They were not failed. Contracts passed from seller to buyer to seller to buyer until the final seller and the last buyer were identified. All other contracts cancelled themselves out. They were not null and void. They had financial implications for all those in the chain. But only the final seller made delivery and only the last buyer took delivery.
Why am I boring you? Because it matters. I wanted to print a list of all the various futures contracts traded on the CME, CBOT and ICE, but my electronic trading system will not let me copy & paste, and they're too many to count. Hundreds of various paper contracts based on the physical underlying. Some are for physical delivery. Others are for cash settlement. But they all represent claims against real assets whos price can be readily determined.
All the participants have agreed to trade fungible contracts whos specifications are known as well as having a transparent price discovery method and a final settlement mechanism. They are not playing with poker chips for beer money. These are real contracts. At least some of these traders know what it is that they are doing and why?
If someone is producing paper longs, selling them to keep prices low, but does not have the physical product to deliver then they are going to get royally squeezed come delivery. Unless they buy back the short before the contracts termination, thereby reversing their short and adding to buying demand that should cause the market to go higher.
Just as we saw with hedge funds and ETFs adding to paper demand during the rally last summer that saw prices go up to $78.40 in the crude on the back of fears of supply interuptions from geo-political risks even as the physical traders showed there were no immediate supply risks and all available storage for crude oil from storage tanks, to pipelines to floating vessels was full to capacity.
This allowed the physical players with the real knowledge of what is and what is not happening in the real market for crude and products to aggressively sell into those rising prices from weak or paper longs. Is that fair? Well, all those hedge funds and ETFs hoped to get rich the easy way. So I guess we are all over 21 and considered adults and responsible for our investment choices.
Just like everyone else, I knew that markets were over-supplied and still the price was reaching new heights and clearly over-bought. But with speculation of sanctions against Iran and other supply worries the key was when to start selling. Here I suspect those in the know. Those whos sphere of influence straddles the world of investment banking and US foreign policy. The concerted selling we saw and the total lack of buyers must have come from a clear signal that an invasion or attack on Iran was not in the cards. I do not believe billions of dollars were risked without the situation being clarified first.
But again, you do not need to synthetically create paper contracts or use the services of a plunge protection team if all you need is a few Ivy League college roommate buddies calling one another up and saying,
"Hey, you guys planning to invade Iran or allow the Israelis to attack them for you?"
"Nope, dude. Talked about it, but its not on. Why?"
"Oh, I dunno, thought crude was a little high today and was wondering if now was time to spank it?"
"Cool. So how are Meg and the kids?"
do you? There has to be some reason why Goldie Sachs Directors like to work almost pro bono in Washington, and I am sure it is not the weather?
In any case, no use preaching to the believers or trying to convert anyone. Sure, a lot of stuff happens. Not all of it is clean or right. A lot of it is pretty much like asking the foxes to guard the chicken coop.
Bottom-line. A market short crude will be in backwardation with immediate demand for delivery. A well-supplied market will likely be a contango at full-carry. The futures market at the moment is in contango for the moment, but then inverts into a backwardation market in the longer dates out to five years.
In this light I do not think it is pricing in either post peak oil decline in the next five years. Nor is there enough speculative demand in the longer dates to absorb producer hedging. But if you believe in medium term shortages caused by production declines then the longer end of the curve is where you should be buying your paper barrels. And then wait for the short squeeze to take delivery of physical crude.
The organized state is a wonderful invention whereby everyone can live at someone else's expense.
