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Americans to be banned from overseas oil trading

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Re: Americans to be banned from overseas oil trading

Unread postby Jack » Fri 09 May 2008, 02:05:35

$this->bbcode_second_pass_quote('JohnDenver', 'C')omplete crock of shit. You don't understand how the world oil market functions.


Say, John....

I came across one of your old threads....from September 10, 2004. Here's a quote. YOU wrote it.

$this->bbcode_second_pass_quote('', 'T')hinking about this logically, it is evident that the price of crude oil cannot keep rising forever. At some point, the price of crude oil will reach a maximum, which will never again be exceeded. So here's my question:

In constant 2004 dollars, what is the highest price that will ever be paid for a barrel of crude oil, and in what year will that transaction take place?

FWIW, here's my guess: The peak price will be reached shortly after the production peak in 2010, and will be $90.



Here's a link. LINK

By the way...scroll down a little. You'll see where I made a prediction about the price of oil back then. I think my prediction is still on track.

8)

So tell me again, Bucky, about your deep understanding of the oil markets, won't you please?
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Re: Americans to be banned from overseas oil trading

Unread postby Micki » Fri 09 May 2008, 02:08:26

$this->bbcode_second_pass_quote('', 'S')o you think a govt who will check the heels of my shoes at the airport, can pick through the minutia about my tax situation, can surveil me picking my nose from a satellite several miles up in the sky, should they choose, can't develop IT systems and reregulate to prevent a leviathon like Sachs from breaking the law, by trying to do an end run around it?


Maybe I wasn't clear enough.
The US government can stop American citizens and corporations from trading. But if a company has been inporporated overseas, then it is not an American company. Therefore the rules wouldn't apply to these. i.e. they would not be breaking the law.
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Re: Americans to be banned from overseas oil trading

Unread postby Jack » Fri 09 May 2008, 02:09:26

$this->bbcode_second_pass_quote('JohnDenver', 'T')hat doesn't affect my point in the slightest, however. The current total open interest on NYMEX light crude is about 1.4 million contracts. Since the margin requirement for one contract is about $7000, all of the light crude contracts on the NYMEX can be controlled for about $9 billion. For hedge funds, that is pocket change.

That's why it's very easy for hedge funds and other speculators to jack up the price of oil and other commodities.


By this logic, any entity, government or corporate, could control the price of oil with a few billion dollars.

So - why doesn't the airline industry do so?

Why doesn't the U.S. government do so?

Why doesn't China or India do so?

Perhaps because such attempts at manipulation would have no effect?

:lol:
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Re: Americans to be banned from overseas oil trading

Unread postby smallpoxgirl » Fri 09 May 2008, 02:21:31

$this->bbcode_second_pass_quote('threadbear', 'Y')ou will be wearing mismatched socks, a tinfoil hat and trying to bend spoons with your mind, shortly. :lol:


I blame it all on watching too many of Dukey's youtube videos. :razz:
"We were standing on the edges
Of a thousand burning bridges
Sifting through the ashes every day
What we thought would never end
Now is nothing more than a memory
The way things were before
I lost my way" - OCMS
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Re: Americans to be banned from overseas oil trading

Unread postby Plantagenet » Fri 09 May 2008, 02:43:56

$this->bbcode_second_pass_quote('threadbear', '
')The only thing that has been missing when it comes to reigning in corporate excess and speculation, is political will.


Oh, the dems have plenty of "political will" for things like taxing the oil majors and denying the law of supply and demand plays a role in the high oil prices and for blaming speculators and for voting to ban Americans from trading oil in overseas bourses.

The dems also have the political will to spend billions on subsidizing corn ethanol but their bountiful political will and zeal hasn't stopped that policy from becoming a disaster.

The problem isn't a lack of political will. The problem is a lack of brains.

Obama and CLinton and the dems are just wrong when they claim that Oil prices are high because of "speculators"...Back in the real world the law of supply and demand continues to operate. Oil prices are high because global oil production maxed out in 2005 while global demand has continued to grow. :)
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Re: Americans to be banned from overseas oil trading

Unread postby JohnDenver » Fri 09 May 2008, 04:04:19

$this->bbcode_second_pass_quote('Jack', '')$this->bbcode_second_pass_quote('JohnDenver', 'T')hat doesn't affect my point in the slightest, however. The current total open interest on NYMEX light crude is about 1.4 million contracts. Since the margin requirement for one contract is about $7000, all of the light crude contracts on the NYMEX can be controlled for about $9 billion. For hedge funds, that is pocket change.

That's why it's very easy for hedge funds and other speculators to jack up the price of oil and other commodities.


By this logic, any entity, government or corporate, could control the price of oil with a few billion dollars.

So - why doesn't the airline industry do so?

Why doesn't the U.S. government do so?

Why doesn't China or India do so?

Perhaps because such attempts at manipulation would have no effect?


No, because such attempts at manipulation are illegal, and policed on the NYMEX by the CFTC.

The spike in silver around 1980 (courtesy of the Hunt brothers) gives you a good indication of what happens when that policing breaks down, and speculators run amok in a futures market.
Image
Manipulation is very easy if the cops aren't paying attention.
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Re: Americans to be banned from overseas oil trading

Unread postby Micki » Fri 09 May 2008, 04:11:09

$this->bbcode_second_pass_quote('', 'N')o, because such attempts at manipulation are illegal, and policed on the NYMEX by the CFTC.

Except in the cases when the commodity exchanges dont care (or been told not care) like in metals short positions.

Image

....Dang, why isn't that graph working? Must be protected from hotlinking. Here is a link instead.
Graph link

Ted Butler 5th of May:
$this->bbcode_second_pass_quote('', 'I')n fact, the 8 largest traders in COMEX silver set a new sick record of concentration of 83% once the spreads are removed, up from 82% last week. In other words, the near-record reported net short percentage of 56.6% is understated by almost half again. Forget that no other market has, or has had, such a extreme concentration (save gold), no other market even comes close.

Ted Butler
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Re: Americans to be banned from overseas oil trading

Unread postby jato » Fri 09 May 2008, 05:38:20

Prices need to go high enough to destroy demand. Otherwise the world would experience significant oil shortages when we slide down the slope of oil depletion.

Artificially lower oil prices = less incentive to find and produce oil = steeper oil production curve post peak.
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Re: Americans to be banned from overseas oil trading

Unread postby cube » Fri 09 May 2008, 06:45:47

$this->bbcode_second_pass_quote('JohnDenver', '.')..
Complete crock of shit. You don't understand how the world oil market functions. The price of oil in contracts throughout the world is set by adding a premium or discount to the price of crude on the NYMEX. The function of the futures markets is "price discovery". As of today, open interest on the NYMEX for light sweet crude is 300,000 contracts. Each contract is for 1000 barrels, and thus is worth about $124,000. Current margin requirements are about $7000 per contract, so the amount of money controlling the NYMEX light crude market is about $2.1 billion. That's a spit in the bucket for hedge funds, and shows why oil prices are so easily manipulated/buffeted by large speculators.
...
*gales of laughter* :lol: :lol: :lol:

This is comedy gold. The amount of silliness on this forum knows no limits.
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Re: Americans to be banned from overseas oil trading

Unread postby Jack » Fri 09 May 2008, 06:59:48

$this->bbcode_second_pass_quote('JohnDenver', 'N')o, because such attempts at manipulation are illegal, and policed on the NYMEX by the CFTC.


Let's see now. You were arguing that speculation and manipulation by hedge funds was driving the price of oil up. And now you're arguing that manipulation by others to drive oil down cannot happen because of legal mechanisms.

:lol:

Cube nailed it. The silliness is breathtaking.
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Re: Americans to be banned from overseas oil trading

Unread postby jato » Fri 09 May 2008, 07:22:38

JohnDenver will never get his Space Mirror Economy unless the Gubermint channels oil money into space elevators and robot moon miners.
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Re: Americans to be banned from overseas oil trading

Unread postby TheDude » Fri 09 May 2008, 07:34:01

$this->bbcode_second_pass_quote('Micki', '.')...Dang, why isn't that graph working? Must be protected from hotlinking.


Here ye be:

Image

Just save to your computer, then host at Imageshack or the like.

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Re: Americans to be banned from overseas oil trading

Unread postby JohnDenver » Fri 09 May 2008, 08:16:58

$this->bbcode_second_pass_quote('cube', '')$this->bbcode_second_pass_quote('JohnDenver', '.')..
Complete crock of shit. You don't understand how the world oil market functions. The price of oil in contracts throughout the world is set by adding a premium or discount to the price of crude on the NYMEX. The function of the futures markets is "price discovery". As of today, open interest on the NYMEX for light sweet crude is 300,000 contracts. Each contract is for 1000 barrels, and thus is worth about $124,000. Current margin requirements are about $7000 per contract, so the amount of money controlling the NYMEX light crude market is about $2.1 billion. That's a spit in the bucket for hedge funds, and shows why oil prices are so easily manipulated/buffeted by large speculators.
...
*gales of laughter* :lol: :lol: :lol:

This is comedy gold. The amount of silliness on this forum knows no limits.


Yes, I made a mistake looking up the total open interest, as Vaseline2008 kindly pointed out. The correct figure is roughly 1.4 million contracts.

With that correction, it turns out that the amount of money controlling the entire NYMEX light crude market is about $9 billion. Which shows that it doesn't take a large amount of money to move the price up or down.

Aside from the careless error, my argument is completely solid because I copied it, almost word for word, from Matt Simmons:
$this->bbcode_second_pass_quote('', 'T')he average total open interest in NYMEX crude is about 400,000 contracts. Each contract represents approximately 1,000 barrels of West Texas Intermediate crude oil. Thus, with $17 per barrel as a representative price, the NYMEX market represents $6.8 billion nominal value of crude oil.

However, since commodity contracts are purchased by putting up only $2,025 per contract as margin equity, the $6.8 billion of crude oil is controlled by a total cash investment of only $1.6 billion — $800 million invested long and an offsetting $800 million in short positions.Link(pdf)

I'm pretty sure that the Chairman of the top energy investment bank in the world has a little better grasp of crude futures than you Cube, being as you're just some nickel-and-dime peon daytrader on peakoil.com.

The bottom line is that Jack's position that hedge fund operators can't influence oil prices is a crock of shit, as I said. The NYMEX oil contract is controlled by a very small amount of money, and the NYMEX price governs prices because the NYMEX is used as a benchmark in contracts throughout the world.

Like I said, don't take my word for it. I got this information from Matt Simmons.
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Re: Americans to be banned from overseas oil trading

Unread postby Jack » Fri 09 May 2008, 09:06:59

$this->bbcode_second_pass_quote('JohnDenver', 'T')he bottom line is that Jack's position that hedge fund operators can't influence oil prices is a crock of shit, as I said. The NYMEX oil contract is controlled by a very small amount of money, and the NYMEX price governs prices because the NYMEX is used as a benchmark in contracts throughout the world.


So all those E-V-I-L hedge fund types are going long. They buy a contract. It forces the whole market up.

But when they buy a contract, another party must sell a contract. Thus, for every buyer of a contract, there is a seller.

It balances.

But somehow, someway, the buyers are making the whole oil market go up. But an equal number of sellers aren't making the market go down.

Oh, and John - the futures market is a zero-sum game. For every dollar made on one contract, someone else loses a dollar. So when the E-V-I-L hedge fund operators make a dollar, someone on the other side of the trade loses that same dollar.

Ahh, but who might be on the other side? Speculators, perhaps. But this simply plays one speculator against another. Or maybe those who seek to hedge their usage. But an airline (a user) or a refiner (a user) who wanted to hedge would go long. However, a producer might go short if they thought the price was favorable.

But...that means....the long positions would be in no better position to manipulate the markets than would the short positions.

Alas, that isn't anywhere near as much fun as hitching up one's trousers, turning one's ballcap backwards, and saying "shit" (so everyone recognizes our literary capacity), while blaming everything on faceless, nameless speculators.

Bonus question: If oil is "too high", why doesn't a producer sell contracts on the exchange and lock in a favorable price? Could it possibly be they are well aware that prices are going up even more?

Gratuitous (and completely unnecessary) addendum: I am going to enjoy the die-off. I have a very special salute for the cornucopians.

8)
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Re: Americans to be banned from overseas oil trading

Unread postby cube » Fri 09 May 2008, 09:09:27

to: JohnDenver

That's not what I meant. Speculators do NOT control the oil market. It's a zero-sum game.
Everytime a speculator makes a buck some other speculator must lose the same amount.
Regardless of whether oil goes up or down in price
profits - loss == zero always
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Re: Americans to be banned from overseas oil trading

Unread postby JohnDenver » Fri 09 May 2008, 09:18:01

$this->bbcode_second_pass_quote('Jack', '')$this->bbcode_second_pass_quote('JohnDenver', 'N')o, because such attempts at manipulation are illegal, and policed on the NYMEX by the CFTC.


Let's see now. You were arguing that speculation and manipulation by hedge funds was driving the price of oil up. And now you're arguing that manipulation by others to drive oil down cannot happen because of legal mechanisms.

:lol:

Cube nailed it. The silliness is breathtaking.


There's a difference between manipulation and speculative bubble-mania. Manipulation is where individuals or a small group collude to squeeze or corner a market, and it happens quite frequently. In fact, "The shift to futures market [for crude pricing] was justified by the perceived inadequacies of the spot market which have become vulnerable to manipulation, distortions and squeezes."Source And "Platts introduced its new BFO assessment methodology for establishing Brent values on July 10, 2002 after a series of squeezes on the Brent market in the first half of the year undermined confidence in the benchmark."Source. Or the case of Amaranth: $this->bbcode_second_pass_quote('', 'G')reenberg says the speculation is that Amaranth may have conducted most of its trading away from the Nymex in a bid to "corner" the long contract on natural gas futures.

"If that's the case, it amounts to manipulating the market," says Greenberger. "It has nothing to do with supply and demand. It's playing games in the opaque markets."Source

Enron-style criminals and profiteers are always looking for an opening, and that's why it's important to close the Enron Loophole. In fact, Bart Chilton, one of the current commissioners of the CFTC, urged congress to do so as soon as possible:

$this->bbcode_second_pass_quote('', 'A') Pitfall Called the Enron Loophole
Washington Post
Thursday, October 25, 2007; Page A24

As winter approaches, the issues raised in the Oct. 21 front- page article "Energy Traders Avoid Scrutiny" become timelier.

The exempt-commercial-markets provision in the Commodity Futures Modernization Act -- also called the "Enron loophole" -- has turned out to be the Achilles' heel of the law. It was inserted at the eleventh hour at the behest of Enron's attorneys. There was never a hearing or any open discussion of this provision. The good thing it did was increase competition; for example, it helped foster the incredible growth of the Intercontinental Exchange. But the provision has resulted in some significant unintended consequences that need to be addressed now.

It is very difficult for the Commodity Futures Trading Commission to achieve its mandate of guarding against energy-market manipulation when there are look-alike energy markets (such as the Intercontinental Exchange) operating "in the dark" and not subject to the rules that apply to other risk-management markets. The good government approach to this is not to wait for an economic calamity to occur. The collapse of the hedge fund Amaranth Advisors last year showed us what can happen. So the question should really not be "if" something should be done but how and when. Closing the Enron loophole is something that should be done as soon as possible -- preferably before winter.Source


That said, I'm not claiming that market manipulation is the cause of the last 6 months of feverish price rises in aluminum, barley, coffee, cocoa, copper, corn, cotton, gold, lead, oats, oil, rice, silver, tin, wheat and uranium. I agree with Prof. Hamilton that the cause is essentially financial -- everyone bailing from the dollar and other currencies, and dogpiling into a "dot commodity" bubble. It's clear that futures markets can be distorted by a large inrush or outflow of money, because they are so small.

The solution is to disincentivize the flight into commodities, and get the speculators back into stocks, bonds and real estate, where they belong. Instead of windfall taxes on productive entities like the oil companies, we need windfall taxes on the profits of *non-productive* entities, like commodity speculators. Like I said, I like the idea of beefed up reporting requirements and a 95%+ windfall tax on gains from oil speculation.
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Re: Americans to be banned from overseas oil trading

Unread postby dinopello » Fri 09 May 2008, 09:37:21

I run into this argument all the time about the speculators. The price of oil has been on a steady, more or less constant rise since 2003 (the only "sustained" drop was 6 months at the beginning of '06). I can see how speculator exuberance can make the short-term slope of that increase for brief periods (followed by a dip or correction) but I don't believe a speculator can cause the sustained increase. Unlike gold or silver, you have to take delivery of and use the oil in a fairly short period of time. Is anyone here arguing that the 5 year steady increase is due to speculation ?

BTW, I don't pretend to know much about this type of commodity market/investing. My rail stocks have been doing gangbusters though and I believe I understand the factors behind that. As long as the economy doesn't completely collapse...
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Re: Americans to be banned from overseas oil trading

Unread postby cube » Fri 09 May 2008, 09:41:58

Like I said before the ridiculousness on this forum knows no limits.

If you want to see all hell break loose start imposing capital controls. That's what you're advocating JD.

History has made it very clear, there is no better "signal" of a collapsing society.
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Re: Americans to be banned from overseas oil trading

Unread postby TheDude » Fri 09 May 2008, 09:48:24

I'll stick with boring old supply constraint.

Image

Image

Image

Passes the sniff test, survives Occam's razor. As Freddy points out the bulk of the volume is in long-term contracts.

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Re: Americans to be banned from overseas oil trading

Unread postby threadbear » Fri 09 May 2008, 10:08:02

$this->bbcode_second_pass_quote('cube', 'L')ike I said before the ridiculousness on this forum knows no limits.

If you want to see all hell break loose start imposing capital controls. That's what you're advocating JD.

History has made it very clear, there is no better "signal" of a collapsing society.


Happened in Malaysia, prior to the Asian meltdown of, I believe, '98. It was the only economy in that region to escape the currency roller coaster, triggered by the baht crisis, that destroyed most of the other countries in that region.
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