[J-Rod]

$this->bbcode_second_pass_quote('', 'I')s it enough to point the finger of blame for the latest crash in crude oil on the arrival of global warming? Unusually warm weather in Russia, Europe, and the United States, with temperatures reaching the upper 60’s in New York’s financial district, weakened global demand for heating oil by 23% below normal last week, and a 30% drop in heating oil demand is also expected in the days ahead.

Quite often, markets seem designed to fool most people most of the time. Global economic growth and oil demand growth are usually linked, so given expectations for global GDP growth of 4.4% in 2007, it’s logical to expect global demand for crude oil to increase by at least 1.2 million barrels per day (bpd) this year.

[aahala]

I don't know the common useage amounts outside the US
for heating oil, but the reductions noted for the US should have
only the slightest impact. The US consumption for heating oil has been about 1% of total world oil consumption. 23% or 30%
decline in that amount is about what China could soak up in a weekend.

It might however have a big impact on the beliefs of the oil
traders in New York and therefore on world prices.

[Zardoz]

$this->bbcode_second_pass_quote('J-Rod', '
')linky

Here's some stuff for us to digest for today.

[zberry]

One thing I have heard, and sorry but I can't remember who said it, maybe Simmons, but basically, one or two percent surplus is all it takes to create a glut, and one or two percent shortfall is all it takes to create a shortage.
I'm sure there are multiple factors at work.

[J-Rod]

$this->bbcode_second_pass_quote('Zardoz', '')$this->bbcode_second_pass_quote('J-Rod', '
')linky

Here's some stuff for us to digest for today.

[rockdoc123]

I just wrote a short note on this in the Mike Lynch thread. Basically at this point in time all of the hedge funds have a tremendous amount of short positions. This is an opposite scenario to what was evident in 2005 where they were all long. Each pass through a price level like $60 starts a cascading selling effect down to the next level of support and so on. All news whether it seems to be good or bad is viewed as either irrelevant or something that would cause oil to drop. We saw this happen in natural gas last year where one hedge fund which went under due to the tremendous number of long contracts one of its traders had taken caused a cascading drop in natural gas of about 30%.
From what I've seen of the EIA reports as tracked and analyzed by Pup55 and Dantespeak there is no pattern of decreasing demand for gasoline and the recent weeks decrease in distillate demand is strictly a product of the unusually warm December and January in the eastern states which account for the greatest consumption.
I'm not a trader and this is just my read on things....perhaps Mr Bill could toss in his more educated viewpoint?

[DantesPeak]

Yes, gasoline demand has held up very well even in the holiday-like last week of the year.

Granted heating oil demand has been low, and there were unexpected drops in diesel and jet fuel demand around New year's - possibly related to the usual seasonal slow down of business activity at year end.

Regarding hedge funds - I did notice however there has been an explosion in the number of oil futures contracts outstanding since New Year's. Essentially the futures market can create all the paper barrels it wants. Selling is also unlimited. It's possible that sales by short sellers (those that don't own oil) total hundreds of millions of barrels.

Of course, I don't know that for sure, and since I am not a trader, I'm not willing to put any money on that opinion.

[thor]

The climate change we are witnessing pushes PO further away. It has been very mild in Western Europe and North-East US lately. Demand is down hence prices go down.

[nth]

DantesPeak,

You are right. There is a large number of open naked shortsell positions.

There are three key reasons for market speculators to push prices down.

1. Heating oil demand world wide is down producing a glut not only in US, but the world. This means refiners are switching configurations and so demand for crude will drop. Since storage is at pretty high levels, the only reason to take on more storage is for arbitrage due to oil prices are in contango.

2. Oil traders started seeing a pattern where oil investors have bought a lot of long positions and are just simply carrying over their positions when the future contracts are due. The oil traders can drive down the price of oil when the contracts are due and make a killing off the long term investors who are rolling over contracts. This effect forces long term investors to bail out and not roll over causing a price fall cascading effect.

3. Falling oil prices cause the oil arbitrage business to be less profitable reducing the amount being bought, so further pressuring prices to fall.

Those three reasons feed themselves to cause price to keep going down. What is missing is Saudi Arabia. Often these cycles could not take place due to Saudi Arabia and other OPEC members refusing to sell oil based on NYMEX prices. Instead they set up their own prices by a proprietary complex formula, there is amble evidence that Saudi Aramco is not sticking to this formula and allowing prices to be more insync with Brent. Speculators believe this is a political decision, but that is just hearsay.

[mmasters]

It is interesting, a matter of months ago the sky was the limit for oil. Same with metals and commodities in general. The site was all a buzz about cashing in on the frenzy. Now the speculation is much less and many people got screwed.

This clearly shows that TBTB have adequate controls for milking and driving out the long term speculators in commodities. Much of which is done through the naked buying and selling loophole in the DTCC and external clearance systems. Seems they're having a win-win in screwing the little guy that thinks he's schrewd while working to keep the economic system afloat at the same time.

This goes to show no matter how much of an edge you think you have the system is designed to allow total control from the top. This is one piece of the big picture most everyone seems to miss.

The fact of the matter is TBTB understand the concept that if people start hoarding commodities it can have a dangerous result on the economy. People that are attempting to invest in oil are getting screwed because TBTB don't want the economy negatively impacted at the moment.

To make a killing you have to be part of the ultimate insiders club and/or best understand what TBTB's plans are.

It's not an honest system.

[Temperedoil]

Looking at the movements of the oil market over the past few weeks, and comparing to the relevant news items presented on these boards over the same time, it would seem that psychology is a more important factor in determining the price of oil than is the actual supply/demand equation. Particularly the psychology of the herd, where no trader wishes to be left out in the cold as the markets hit a bull run or slide into a bear market.

Considering how important perception appears to be rather than reality, might the markets act more firmly to a sustained slew of bad news? Such as what could conceivably occur this year. It would seem that such events as a strong hurricane season in the Gulf of Mexico or the threat of a cut due to social unrest or military activity may have a greater impact than reports of declining production or exports over time. Why else would traders leap on forecasts of warmer weather ahead, yet seemingly ignore reductions in exports from Russia, other than the psychological impact? Television scenes of guns in the streets or the stated potential menace of an uncontrollable storm may be more alarming than an image of a gradually declining production graph.

[whereagles]

Oil price crash seems to me just the market entering a selling streak. Supply & demand balance will surely make it rise again in the short-mid term.

[MD]

Relaxation effect (world-wide) as a result of power shift in congress.

Definitely a factor; perhaps a significant one.

[Kingcoal]

In the early days of the oil business, huge strikes would produce gushers and the flood of oil would destroy the market. As the business matured, producers figured out how to stop blowouts and cap wells and generally control the flow of oil to the market. As the market matured even further and moved out of the US, blatantly anti-competitive trusts emerged (OPEC) with the sole goal of pushing the price of oil as high as possible, even to the point of breaking the market (such as the early seventies oil shocks.) OPEC still has a problem with that. From a business standpoint, they are a collection of idiots reigning over vast wealth.

Most OPEC nations "milk" their oil business - they remove the profits and reinvest very, very little. Chavez comes to mind. US corporate tax policy strongly encourages reinvestment to avoid punitive taxes for profit taking and anti-trust laws prevent rigging of markets. Nationalized oil companies don’t have to worry about any of that as oil profits roll right into the Treasury. Anyway, recent events have a lot of people spooked. Indicators have been moving in strange ways. I think that speculators have had a free ride for most of the GWB administration. Every time the price should have come back to Earth, the US would do something to spook the markets. The problem with artificially propped up prices is that a reduction in demand can cause the prop to break. I think that is what's happening. A lot of very rich people have their assets affected by sudden dropping oil prices. They will take steps to try to restore the prop. Perhaps the recent troop "surge" is, in part, an attempt to prop prices back up.

[Kristen]

The $6 billion of gasoline futures that are no longer needed for commodity funds based on the Goldman Sachs Index are surely involved somehow.

[seahorse2]

Article on stock manipulation.

Stock Manipulation

Now, I know we're talking about future's here, but same rules may apply.

[TreebeardsUncle]

Read in the business secion of the Sac Bee or the SF Chronicle a couple days ago that a spokeman for one of the big institutional speculators said that "the long term price" was epected to be in the forties or around 40. This is still what a lot of big players see as a natural price for oil with the uncertainties about the weather, geopolitical conflicts, and maintenance removed. Expect the mini-glut due to increasing production from parts of the ME, the Caspian Range, deep water oil in the Gull, off the coast of Brazil, and the artic to reinforce this perspective. Prices probably won't go over $70 this year and the expected strong ramp upwards in prices over $100/barrel probably won't materialize until at least 2015.

G

[J-Rod]

This is what I have heard on the grapevine as well. 40 just sounds awfully low considering the real future of supply constraints. Have we built more refineries that I don't know about? Maybe we discovered some more creamy nougat? What about when we have a real winter? (if that ever happens. )

I dunno about 2015, unless you are talking about *real* prices. But that doesn't really matter, since average joes are now allowed to speculate on the futures market for oil. "Oil *should* be X, but it's not because there was another terror attack, we invaded Iran, etc."

Don't get me wrong, I'd love more time to prepared before shtf, but every day I read news I get the feeling I may not have as much time as I'd like.

[evilgenius]

It is the Goldman Sachs re-indexing, along with a decrease in the contribution of CIA drug money (money now going into the markets). Add to that the fact that most hedge funds aren't into postions for the long term but need to get in and out.

Also, as far as commodities go, the world's central banks have many tricks up their sleeves to bring prices down. The primary trick is loaning gold to smaller banks, for no consideration, so that those banks can then borrow against the now twice leveraged gold. Twice as much gold appears to the economy, since the big banks are also using the same gold to make money at the same time, as truly exists. The actual gold never leaves the vault.

That stuff is temporary and can't be kept up, but it can be kept up long enough for the Fed to justify several rate increases.

The most important thing for the small guy is to stay out of the little spinoff investments that in an emergency can be allowed to go bankrupt while the parent organizations husband the wealth of the rich.

[nth]

Let's not get too carry away here.
Prices will not stay this low and will go back up, but it will take awhile, unless OPEC cuts supplies.
Towards end of this year, if we get hurricanes, the prices will skyrocket, again.

Just look at historic prices.
2006 is the only year that prices have been above $60 consistently. Prices will get excited again once they see demand pick up. Right now, there are zero bullish news on the demand side. We only hear about bullish news from supply side that people view as temporary and that won't affect market due to record oil storages in the world.