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MYMC
06-20-2008, 12:03 PM
"They see speculation in the market, I see decline in global inventories. I don't think this is a big surprise, that we've had a jump in price when there has been a decrease in crude inventories."— Energy Secretary Sam Bodman, Bloomberg News.

"It should be obvious to you all that the [gasoline] demand is outstripping supply, which causes prices to go up." — President George W. Bush, Associated Press.

Obviously, the two quotes that led this article came from discussions concerning the current high price for oil on the futures market. Bodman appears to be protecting the speculators in oil, as opposed to looking after the interests of all Americans. President Bush, apparently, has never talked to the Energy Dept.'s Energy Information Agency to see whether gasoline demand is actually up. More troubling, the writer of that particular Associated Press article obviously didn't look up the EIA's numbers to verify the President's assertions. They weren't accurate.

1. There Is No Shortage
Gasoline reserves on hand are at the highest levels since the early 1990s, which is remarkable considering the nation's refineries have been cutting back on the production of gasoline because their margins have declined. In fact, average gasoline reserves on hand have risen since this past October, while oil reserves in this country have gone up virtually every week this year—and only fog in the Houston Ship Channel that kept oil tankers from unloading their crude one week kept it from being every week.
In the same Bloomberg article that quotes from Bodman's CNBC appearance on Mar. 4, he also said that it was thanks to ethanol that the gasoline problem isn't even worse. He then added that the fact that making ethanol is forcing up prices of other farm commodities, including hog and chicken feed, is "nowhere near as important as trying to relieve pressure on [gasoline] supplies."
Of course, there is no pressure on gasoline supplies in this country as of today, but Bodman's statement must have made eyes roll among the executives at Pilgrim's Pride PPC; the Pittsburg, (Tex.) poultry producer announced 1,100 layoffs on Mar. 13, closing one processing plant and 6 of their 13 distribution centers because their company's outlay for chicken feed went up $600 million last fiscal year and was on track to increase by another $700 million this year.
Here's the scorecard, in case you missed it. There's no shortage of gasoline or oil in the U.S. today, and we have near-record reserves on hand. Meanwhile the Congressional mandate for ethanol has jacked up the price of chicken feed for Pilgrim's Pride, which is the U.S.'s largest processor of chickens and turkeys—by $1.3 billion. And that's for just one company processing chicken. This is what passes for acceptable to our Energy Secretary?

2. Demand Is DOWN, Yet Prices Are UP
Just so we can all get on the same page, here are the verifiable facts on oil supplies, production, and gasoline demand.
In January of this year, the U.S. used 4% less petroleum than we did a year ago. (Oil demand was down 3.2% in February.) Furthermore, demand has been falling slowly since July of last year. Ronald Bailey of Reason Online has pointed out that worldwide production of oil has risen 2.5% in the first quarter, while worldwide demand has grown by only 2%.

Roonie's
06-20-2008, 12:10 PM
That is interesting as I always thought demand was outpacing supply (as did GW Bush). Would be nice to hear otherwise.

JimN
06-20-2008, 12:32 PM
Global demand has changed drastically and the locations of highest demand have moved but I also heard this AM that China is, or will soon be, out of money used to subsidize petroleum costs. If this is true, the worldwide supply should increase soon, unless production decreases, which will offset the drop in demand but keep the price high.

Speculation of commodities that are in high global demand, only for the purpose of making money is very irresponsible and reprehensible, IMO. I don't have a problem with making a profit- the thought that people are in business purely for the fum of it is completely naiive- but when someone has the ability to change the world markets on their own, it's pure greed and avarice.

Anyone on our government who is involved in this should be ground into a fine paste.

east tx skier
06-20-2008, 12:36 PM
Speculation of commodities that are in high global demand, only for the purpose of making money is very irresponsible and reprehensible, IMO. I don't have a problem with making a profit- the thought that people are in business purely for the fum of it is completely naiive- but when someone has the ability to change the world markets on their own, it's pure greed and avarice.

I read at one point that the speculation accounted for roughly 70% of the price. In a country that regulates what you hear on the radio, I wouldn't be surprised to see that business heavily regulated in the years to come.

coz
06-20-2008, 01:14 PM
It's even affecting the lawn mower industry :rolleyes:

High gasoline prices changing lawn-mowing habits http://news.yahoo.com/s/ap/20080620/ap_on_bi_ge/gas_prices_mowing

I know #1 would never give up that flaming Deere :D

TMCNo1
06-20-2008, 01:20 PM
It's even affecting the lawn mower industry :rolleyes:

High gasoline prices changing lawn-mowing habits http://news.yahoo.com/s/ap/20080620/ap_on_bi_ge/gas_prices_mowing

I know #1 would never give up that flaming Deere :D


That's right Coz, if I have to, I'll pull it with a mule to mow!
Besides, I've got 28 gallons in the boat that we never use, and at a quart a session, thats 112 yard movings over the next 4 years or so!

flipper
06-20-2008, 01:34 PM
That's right Coz, if I have to, I'll pull it with a mule to mow!
Besides, I've got 28 gallons in the boat that we never use, and at a quart a session, thats 112 yard movings over the next 4 years or so!

Put the deer in the vault, and get some goats!!!!

coz
06-20-2008, 01:50 PM
That's right Coz, if I have to, I'll pull it with a mule to mow!
Besides, I've got 28 gallons in the boat that we never use, and at a quart a session, thats 112 yard movings over the next 4 years or so!


Your killing me #1 :D I'll pull it with a mule to mow, that's funny :uglyhamme

shepherd
06-20-2008, 01:51 PM
I blame George Bush.

JimN
06-20-2008, 02:31 PM
"I read at one point that the speculation accounted for roughly 70% of the price."

I guess the days of basing the selling price on the cost are over, unless it's something we don't really need.

nuckinfutz
06-20-2008, 02:44 PM
Its too bad we dont have a "say" in it anymore!!

Ski-me
06-20-2008, 02:54 PM
A few quotes from Wall Street Journal:

"For all the attention paid to China's increasing energy thirst, rising energy demand in the Middle East may pose the greater challenge. Last year, the regon's six largerst petroleum exporters -- Saudi Arabia, United Arab Emirates, Iran Kuwait, Iraq and Qatar -- curbed their output by 544,000 barrels a day. At the same time, their domestic demand increased by 318,000 barrels a day, leading to a loss in nex exports of 862,000 barrels a day......"

"Since 2004, Saudi oil consumption has increased nearly 23%, to 2.3 million barrels a day last year." Predicted 2020 consumption could be 4.6 milliion barrels a day.

"No bigger exporter is struggling mor than Mexico, where net exports dropped 15% in 2007."

A few stats from Energy Information Agency Data:

Production by Energy Sources:
Coal 24%
Natural Gas 23%
Oil 38%
Nuclear 7%
Hydro 7%
Other 1%

Per capita consumption of energy by selected countries (shown in million BTU's)
USA 339
Russia 191
Japan 172
China 133

nuckinfutz
06-20-2008, 03:05 PM
" unless it's something we don't really need.

Doing my part to display this, I bought a bicycle last month. I Ride it work at least 2 times a week. If it rained less here in WA, I would ride more. Escalade is sitting in the carport gathering less miles, and I dont pay a gym to wonder when the cycles have an opening.

I buy local grown or raised food since the prices are actually competitive to others now. Now even my US $ is recyclable!!

Im not going to all together stop using my boat since it plays a part in Big Oils pocket lining, but I will offset the cost by doing more or less somewhere else. Its my responsibility as a US Citizen.

Jason

JimN
06-20-2008, 03:39 PM
"rising energy demand in the Middle East may pose the greater challenge. Last year, the regon's six largerst petroleum exporters -- Saudi Arabia, United Arab Emirates, Iran Kuwait, Iraq and Qatar -- curbed their output by 544,000 barrels a day. At the same time, their domestic demand increased by 318,000 barrels a day, leading to a loss in nex exports of 862,000 barrels a day......""

It's still greed and the ability to stick someone with higher prices. They curbed their output, it didn't happen naturally. That means they wanted to get more per barrel. That doesn't say what the total exported was but the price/bbl has made up for it. They're not losing money, they just don't have to do as much to make it now.

Jorski
06-21-2008, 12:06 PM
Important fact #1:
While demand in the U.S. is indeed falling, global (or total) demand is increasing

Important fact #2:
Supply is stuck at 85 million barrels/day (87 on an all liquids basis), despite the price tripling over the last 3 years.

Key thing to understand about "speculation":
While, everyone wants to point their finger at someone and "it's your fault" it is very unlikely that speculators can move a market of this size. Here's why:

a) The sheer size of the market. 87 million barrels/ day represents a $4.3 trillion per year market place. Simply too big for hedge funds to have much impact. If they could have they would have much more easily manipulated the price up when oil was $10/barrel.

b) How trading works in futures: For every long buyer of futures contract (a force which would push price up), there is a seller (which would push price down). Also, it would be just as likely that "speculators" would try to make money going short, trying to move the price down!

c) Reality: All of the hedge funds, financial speculators, and exchange traded funds, don't actually consume oil. So, they can buy a fwd contract, and tie up the option on that production for 30 days, or a couple of months etc, but in the end they don not take delivery, nor do they consume even one drop of oil due to their trading activities.

d) If all of the "speculators" of the entire planet focussed their efforts on one specific fwd contract in an effort manipulate it higher, the oil producers would swamp their efforts by selling all kinds of oil production. Further, other traders, would buy a cheaper contract, in another month, and sell to them at a profit until the articically high price was arbitraged away.

If you would like to learn more about oil, and what the realities of supply and demand are check out this site. It is an excellent resource:

http://www.theoildrum.com

Jorski
06-21-2008, 12:10 PM
It's still greed and the ability to stick someone with higher prices.

Jimn,

Funny thing, I thought that it was called Capitalism ! The right to charge what the market will bare...right ?? Now your post sounds like "The New Socialism"

TX.X-30 fan
06-21-2008, 01:06 PM
I blame George Bush.

Good one Shep. :D

TX.X-30 fan
06-21-2008, 01:10 PM
Important fact #1:
While demand in the U.S. is indeed falling, global (or total) demand is increasing

Important fact #2:
Supply is stuck at 85 million barrels/day (87 on an all liquids basis), despite the price tripling over the last 3 years.

Key thing to understand about "speculation":
While, everyone wants to point their finger at someone and "it's your fault" it is very unlikely that speculators can move a market of this size. Here's why:

a) The sheer size of the market. 87 million barrels/ day represents a $4.3 trillion per year market place. Simply too big for hedge funds to have much impact. If they could have they would have much more easily manipulated the price up when oil was $10/barrel.

b) How trading works in futures: For every long buyer of futures contract (a force which would push price up), there is a seller (which would push price down). Also, it would be just as likely that "speculators" would try to make money going short, trying to move the price down!

c) Reality: All of the hedge funds, financial speculators, and exchange traded funds, don't actually consume oil. So, they can buy a fwd contract, and tie up the option on that production for 30 days, or a couple of months etc, but in the end they don not take delivery, nor do they consume even one drop of oil due to their trading activities.

d) If all of the "speculators of the entire planet focussed their efforts on one specific fwd contract in an effort manipulate it higher, the oil producers would swamp their efforts by selling all kinds of oil production. Further, other traders, would buy a cheaper contract, in another month, and sell to them at a profit until the articically high price was arbitraged away.

If you would like to learn more about oil, and what the realities of supply and demand are check out this site. It is an excellent resource:

http://www.theoildrum.com




Exactly, I knew MYMC was trying to blow smoke up my behind!!! :D

JimN
06-21-2008, 01:17 PM
Sticking someone with an artificially high price is greed. Capitalism is making a profit by selling goods and services but not as a coop or state-owned. The market should determine the price, not speculators. Fear and greed are the two things that cause most of the changes in commodity prices.

Don't ever call me Socialist, new or otherwise.

TX.X-30 fan
06-21-2008, 01:20 PM
Sticking someone with an artificially high price is greed. Capitalism is making a profit by selling goods and services but not as a coop or state-owned. The market should determine the price, not speculators. Fear and greed are the two things that cause most of the changes in commodity prices.

Don't ever call me Socialist, new or otherwise.





Smartest dude I don't know!! ;)

JimN
06-21-2008, 01:27 PM
"Smartest dude I don't know!!"

Pffft! Dictionary.com

Jorski
06-21-2008, 07:17 PM
The market should determine the price, not speculators. Fear and greed are the two things that cause most of the changes in commodity prices.

The thing is that the market is determining the price!

The thing that causes most of the changes in commodity prices is SUPPLY and DEMAND...not fear and greed!

Speculators actually serve to LOWER prices, despite all of the popular rhetoric out there today. In commodities markets, there are "natural longs", "natural shorts" and "speculators" (also called financial traders).

The "natural shorts", are those who seek to sell commodities that they produce. In the case of oil, primarily the oil companies. They do this so that they can lock in prices for future production, thus knowing their profit margins. they can also smooth out lumpy earnings in this fashion. By the way, the expected future price is the current spot price plus interest (or inflation) plus/minus dividends/costs - the actual future price can differ from this; however, cash and carry arbitrage are a powerful force that generally prevents much deviation from taking place.

The "natural longs", are those who seek to buy the commodity for their own use in business. In the case of oil, that would be refineries, the government for the strategic reserve, the army, industry etc.

When there is a mismatch between the timing and the amounts of oil available or desired at a specific date, this where speculators come in. They improve liquidity in the marketplace by buying on the contract dates where there is excess supply (and lower prices), and buy selling into other contract dates where the price is higher, thus making a profit. This activity, allows for LOWER costs for both the producers and the consumers.

Please understand, the vast MAJORITY of the "buys" and "sells" in the futures markets are executed buy industry participants. The speculators play a small but crucial role. Further, they have virtually no power when it comes to manipulating prices. They are just too small.

Finally, you say that the price is "artificially high", I say prices go up when demand grows and supply does not (which is what is actually going on here). By the way, the idea that all prices are based on costs is interesting: there are many who think that we do a very poor job of capturing the true costs when we price natural resources.

First of all natural resources are limited, this is not like manufacturing a widget. We should be capturing something with regards to cost of depleting the resources. Once it is used it is gone for ever. Also, we clearly do not do a good job of capturing the environmental costs of mining, the use of other resources in the process such as water and so on. There have been estimates that the true cost of a barrel of oil is between $400 and $500 if all of this is included.

In closing if you really want someone to blame for oil prices, you could make a better argument blaming easy money policies of the Fed for "artificially" fueling demand in the U.S. for years. Or that darned China for growing so much. Or, the decline rates of mature fields in U.S., Russia, Mexico, Venezuela and The North Sea. These forces dwarf traders in commodities pits....over and out !

JimN
06-21-2008, 07:59 PM
"selling into other contract dates where the price is higher, thus making a profit"

So, who's buying at the higher price? If the oil producers clamp down on the available supply, the price will go up, right? If they want to raise the selling price on a whim, they just make less available. That's the greed I'm referring to, since they really don't need to charge more.

One thing that can't be forgotten is that the dollar's value is hardly what it was. Many didn't take this into consideration when they complain about the price of gas. Last year, gas was averaging $2.99/gal and now it's about $4.07/gal. I haven't seen the actual number but IIRC, if the dollar hadn't fallen so much in the last year, gas would be about $3.39/gal.

The problem with our election process is that the yelling, screaming and finger pointing makes a good smoke screen for the real issues.

bbymgr
06-21-2008, 08:46 PM
"selling into other contract dates where the price is higher, thus making a profit"

So, who's buying at the higher price? If the oil producers clamp down on the available supply, the price will go up, right? If they want to raise the selling price on a whim, they just make less available. That's the greed I'm referring to, since they really don't need to charge more.

One thing that can't be forgotten is that the dollar's value is hardly what it was. Many didn't take this into consideration when they complain about the price of gas. Last year, gas was averaging $2.99/gal and now it's about $4.07/gal. I haven't seen the actual number but IIRC, if the dollar hadn't fallen so much in the last year, gas would be about $3.39/gal.

The problem with our election process is that the yelling, screaming and finger pointing makes a good smoke screen for the real issues.

I'm with you Jim.........but you can't win a debate against Jorski about the Oil Industry. He is "The Supreme Being" of oil. Jorski be thy name!?!?:worthy::worthy::worthy:

Jorski
06-21-2008, 09:03 PM
If the oil producers clamp down on the available supply, the price will go up, right? If they want to raise the selling price on a whim, they just make less available.

So you think that state owned oil companies, and private companies all over the world have colluded to limit supply? Funny, I know a lot of people in and outside of Calgary running flat out to supply every single barrel that they can.

If they have this desire to produce less, and can so easily increase the price at "a whim" - then why couldn't they limit supply and increase the price for thirty years ???

JimN
06-21-2008, 10:04 PM
"I know a lot of people in and outside of Calgary running flat out to supply every single barrel that they can."

They may be but I keep reading that the Saudis have cut back. Their supply isn't the same as in Calgary and there's no reason for it to be. Also, the US is Canada's main customer, right? IIRC, the US buys crude from Canada but we buy gas from other countries and sell diesel to them, which makes it a very complex issue.

"then why couldn't they limit supply and increase the price for thirty years ??? "

They could but even they don't want most of the world POd at them.

"So you think that state owned oil companies, and private companies all over the world have colluded to limit supply?"

And what is the effect of those oil companies colluding to limit supply? Everyone selling oil makes a lot more money. Why else would they make that arrangement, if not to increase their income? The Gulf suppliers hauled in about $2 Trillion in the last two months. The people you know are making more, too. If they aren't, they're not selling at market price.

Jorski
06-21-2008, 11:10 PM
The sad truth about the situation we all find ourselves in is that they are all pumping and selling as fast as they can.

The Saudis most likely are pumping just about as fast as they can. It's most likely that their production has peaked...just like the U.S, Britain, Russia, Venezuela, Mexico, Norway etc

JimN
06-22-2008, 12:01 AM
So the report I saw a few days ago that said the Saudis cut their production is wrong?

Jorski
06-22-2008, 08:12 AM
I am sure that they did drop production; the question is why did they produce less. Their biggest field has been in production since the late 1940's. To get the oil out they pump in salt water from the ocean to push the oil to the surface.

The more they do this, and the harder they pump, the more they have to be concerned with collapse and instability of the chasm that holds the oil. A lot of geologists think that they have simply peaked inproduction and are managing their fields the best that they can in the face of ever increasing demand.

If they pump the fields too fast, they will bring up less total oil, not a good outcome either. The thing is, that no one knows for sure, as outsiders don't get access to the required geological information. That being said, there has been a lot of work done comparing their production profiles to what we know about decline rates in the rest of the world, and unfortunately it looks a lot like other fields in the world that are in decline.

bbymgr
06-22-2008, 08:23 AM
Saudi King says that speculators are to blame for oil prices. He also says that they are not maxed out on oil production and that they have increased production by 700,000 barrels a day in the last couple months and that they have more room to meet future demands. Here is the article.

http://news.yahoo.com/s/ap/20080622/ap_on_re_mi_ea/saudi_oil_summit

Jorski
06-22-2008, 10:53 AM
The Saudis will never say that they are running out of oil, it's just too politically charged. As for what he has to say about speculators; easier to blame traders, to deflect blame from themselves. FWIW, I have yet to hear a single comment from a government leader (elected or not) that indicates they understand anything about futures/fwds markets work.

Even if they can sustainably increase production by 700k barrels per day, that is a very small amount in terms of total demand. Helpful to a point, it's better than not having it. To put that into perspective, it's about 8/10 of one percent of CURRENT demand.

The EIA says that global consumption has grown by 600,000 barrels per day in the first quarter 2008. The link below, takes you to Energy Information Administrations Short Term Energy Outlook, released the other day. It details, among other things, growth, production, inventories and supply data. it is a worthwhile read.

On a side note, the EIA has had a history of erring on the side of optimism. So take that as you will, but still a great source of information.


http://www.eia.doe.gov/steo

bbymgr
06-22-2008, 12:15 PM
I understand what you say about it being easy for them to shift the blame on speculators to deflect the blame from themselves. That was my first thought when I read the article, but just to play devils advocate here....... isn't it also true that speculators could be trying to shift the blame to oil consumption so as to deflect the blame from themselves? The problem is everyone is going to point the finger at someone else and nothing will ever get accomplished. Everyone sees the situation from there own perspective, because that is human nature. Even you, as a Financial Adviser, will tend to see things from the Trading point of view, as apposed to the Saudi's seeing things from a production point of view. So to some your ideas may seem a little biased while others agree with you 100%. You always have great facts to back up your claims and what you say seems very logical, but so do the other factions in this nightmare. It just becomes impossible to tell who is telling you the correct story.

TX.X-30 fan
06-22-2008, 01:05 PM
I can't believe some say oil traders don't affect the price, BS they do. Did Enron set the price artificially high for energy/electricity, Duh yes.

There is plenty of oil and gas, we do need to go and get it and be able refine the stuff. A bottleneck in refining capacity we have now is bad for consumers and affects price.

east tx skier
06-22-2008, 01:54 PM
I can't believe some say oil traders don't affect the price, BS they do. Did Enron set the price artificially high for energy/electricity, Duh yes.

There is plenty of oil and gas, we do need to go and get it and be able refine the stuff. A bottleneck in refining capacity we have now is bad for consumers and affects price.

And then there was the commodities trader that claims to have bid the first above $100/barrel price "just so he could tell his daughter he was the one who did it."

Ric
06-22-2008, 03:24 PM
Finally, you say that the price is "artificially high", I say prices go up when demand grows and supply does not (which is what is actually going on here). By the way, the idea that all prices are based on costs is interesting: .


goshdam I agree with jorski!

Don't get excited, he will probably break into some tax on oil for killing the environment or something and blow it.

JimN
06-22-2008, 04:21 PM
The easiest way to maintain high prices is by pulling the supply back to a lower level. If anyone remembers the first Sony CD players, they sold at list price for the first six months and the initial dealer allotment was four pieces. They talked for two years about when they would introduce them and kept putting it off and when they finally brought them to market, 50 dealers got four pieces. That worked nicely and it wasn't a commodity, it was a freakin' CD player.

Sure, we can cut back on use of oil, to a point but we can't cut our use in half without it being a major shift in our habits.

Jorski
06-22-2008, 04:42 PM
I can't believe some say oil traders don't affect the price, BS they do. Did Enron set the price artificially high for energy/electricity, Duh yes.


TX-X30:
Enron was able to shut down the actual supply from the generators...that is how they rigged the market. it had little to do with the trading floor. In California they deregulated trading and not generation, yet they gave the authority to Enron to control the juice...bad legislation.

EastTx:
The guy that made that 1st $100 on oil trade lost money. It fell below $100 the next day. That is important in understanding the power that traders posess. Sure, they could pay too much on a trade and raise the price for a very short period of time, but unless there is real demand to support that price, the traders would get killed.

They would mostly get killed by other traders. Whenever, a desk or a fund gets too much of a long position, word gets around the street and everyone gangs up on them by going short. It is a cut-throat business, and more importantly it is a zero sum game. For every trader that wins a dollar, there is another trader that lost a dollar...that is by the very mathmatical structure an inescapable truth in derivatives and futures and forwards.

If you rememeber Nick Leeson (the trader that brought down Barings Bank) it wasn't that he had bought too much copper; it was that as soon as other traders found out that he had to sell, they all piled on short, and pushed the price down forcing the bank to sell at depressed prices or face margin call they could not afford.

In the case of oil, if the traders worked the price too high, the oil companies would dump a ton of oil on them, and the price would return to where it had fundamental support.

Jorski
06-22-2008, 04:57 PM
isn't it also true that speculators could be trying to shift the blame to oil consumption so as to deflect the blame from themselves? The problem is everyone is going to point the finger at someone else and nothing will ever get accomplished. Everyone sees the situation from there own perspective, because that is human nature. Even you, as a Financial Adviser, will tend to see things from the Trading point of view, as apposed to the Saudi's seeing things from a production point of view. So to some your ideas may seem a little biased while others agree with you 100%. You always have great facts to back up your claims and what you say seems very logical, but so do the other factions in this nightmare. It just becomes impossible to tell who is telling you the correct story.

BBYMGR,

Sure, I could be wrong and you should always consider anyone's bias, when they express opinion. Fair enough.

That being said, I don't have a dog in this fight. If I thought that speculators had somehow taken control of this market, I would climb aboard and be long a ton of oil futures. I only have to hit a few key strokes to do so. So for sure, consider what I do and filter for bias, that would only be smart. But, by the same token, filter for bias from other sources (particularly politically motivated ones) and dig for facts on your own.

IMHO, the process (for me at least) is one of first coming to understand what both sides have to say. Then seeking data in order to formulate one's own opinion of the facts. So I offer up what I have learned on this board. Feel free to take it or leave it, either way, we all still love water-skiing!

bbymgr
06-22-2008, 09:43 PM
either way, we all still love water-skiing!

True enough Jorski....true enough.

east tx skier
06-22-2008, 10:57 PM
They would mostly get killed by other traders. Whenever, a desk or a fund gets too much of a long position, word gets around the street and everyone gangs up on them by going short.

I guess I'm just missing how demand is playing into the mob mentality there. Oh well, I guess I can't understand it all.

BriEOD
06-23-2008, 07:53 AM
This is just an observation, I'm neither supporting or condoning, but can't help but wonder.

The US Gov't is consuming huge amounts of fuel in Iraq. The uparmored hummvees get approximately 2-3 miles per gallon and the new MRAPs are not much better. I estimate that their are probably close to 5,000 of both vehicles, collectively, in Iraq presently. These vehicles are out on the roads everyday. They run all day and are not shut off until parked on base. This doesn't include other soft skin vehicles used on base, specialized vehicles or trucks used to move supplies in an out of the country.

Additionally, Air Force General Art Lichte, Commander of the Air Mobility Command, was recently quoted stating that Air Force tankers (the planes providing air refueling) had pumped the equivalent in fuel of water going over Niagra Falls for 10 minutes since 2001. This doesn't include all the fuel used for ground refueling etc. There are 100s of sorties everyday orginating all over the globe to support ops in Iraq.

From a macro perspective, this is probably a drop in the bucket regarding global consumption. But, the US Government is the #1 consumer of fossil fuels in the US. I'd bet our ops in Iraq lead the government's oil consumption.

Just a thought...

bbymgr
06-23-2008, 08:44 AM
This is just an observation, I'm neither supporting or condoning, but can't help but wonder.

The US Gov't is consuming huge amounts of fuel in Iraq. The uparmored hummvees get approximately 2-3 miles per gallon and the new MRAPs are not much better. I estimate that their are probably close to 5,000 of both vehicles, collectively, in Iraq presently. These vehicles are out on the roads everyday. They run all day and are not shut off until parked on base. This doesn't include other soft skin vehicles used on base, specialized vehicles or trucks used to move supplies in an out of the country.

Additionally, Air Force General Art Lichte, Commander of the Air Mobility Command, was recently quoted stating that Air Force tankers (the planes providing air refueling) had pumped the equivalent in fuel of water going over Niagra Falls for 10 minutes since 2001. This doesn't include all the fuel used for ground refueling etc. There are 100s of sorties everyday orginating all over the globe to support ops in Iraq.

From a macro perspective, this is probably a drop in the bucket regarding global consumption. But, the US Government is the #1 consumer of fossil fuels in the US. I'd bet our ops in Iraq lead the government's oil consumption.

Just a thought...

Brian,

I haven't been in Iraq since 1990, so I won't even presume to contradict your intel. You just got back and have a good understanding of most the ops occuring in Iraq now. My question is : Do you feel that some or all of the Ops are fluff? Or are you just pointing out the situation as a major fuel consumer? I see at the top you say "I'm neither supporting or condoning" ......I am just looking for an insiders opinion.

BriEOD
06-23-2008, 09:23 AM
Wow, that is an entirely different thread. However, I posted my prelude in an effort not to spark a heated debate. It was just my personal observation from being around the DoD and in Iraq.

With that said, what is my opinion of the war? Well, I think our military has done a teriffic job, considering the hand it was dealt. However, at this point it is little more than a police force conducting community oriented police efforts. Counter insurgency operations take a very long time and a crucial element is convincing the local populous that the insurgents are the liability. Before I left I saw a local Army company spend a week visiting community parks and swimming pools to do an assessment and make improvements. I don't know about you, but soldiers are supposed to shoot guns and break things. I think this is very demoralizing for the guys (my personal opinion). Currently, Iraq is an economic and political problem--not a military problem. Iraqis turn to the insurgency because they can't get on with the police or military (really the only 2 steady jobs). In Iraq it is all about who you know and paying people off. So, if I can't get a job to feed my kids and somebody says go plant this IED and I'll give you $200 to feed your family does that make me a terrorist? I don't think so...We are asking the military to do things they are not equipped and trained to do--create agriculture and infrastructure updates, etc. We can't leave though. We created this mess now we have to fix it.

Additionally, we won't give up a strategic foothold in the Middle East (especially next to Iran). Iraq will be another Germany or Korea. We will be there for a long time.

Again, these are just my opinions based on personal experience.

bbymgr
06-23-2008, 10:07 AM
My bad....I wasn't trying to call you out to give an opinion on the whole war effort. Like you said that would spark a huge debate. I was just asking if we could cut back some of the ops because of your fuel observation. Again....my apologies.

BriEOD
06-23-2008, 11:17 AM
No problem. I enjoy talking about it and have an Int'l Relations degree, so I feel like I can look at the totality of the issue analytically.

I haven't seen anything re: military consumption of fuel in Iraq affecting prices at the pump. However, it would be interesting to do some digging with the DoD audit agency to see what the real fuel numbers are. I bet we would be floored! No, BS...we would "work" with locals and often times they didn't want money, they wanted gasoline. So, we would give them a 5 gallon can for something we could use.

JimN
06-23-2008, 11:29 AM
"I don't know about you, but soldiers are supposed to shoot guns and break things. I think this is very demoralizing for the guys (my personal opinion). Currently, Iraq is an economic and political problem--not a military problem"

If only there was an agency that could do this, instead of our military. Now, who could that be? Oh, let's see, maybe the UN?

Don't NATO forces still exist, or are all of the other countries so against the US that they refuse to help in this matter? I suspect that if our forces were gone, there was a way to provide for the people (Iraq"s income is from oil, so money shouldn't be an issue unless the idiots keep blowing up the pipelines and wells), maintain security and train the police/form a new military, the daily life in Iraq would change greatly. IMO, a large part of why the insurgents and outside influences (like Syria and Iran) keep sending the goofballs in is because the US is still there. We can't allow a power vacuum or a completely weak Iraq to be overrun by these two countries but I really think that if we left (and were replaced by other forces), it would improve.

We can't continue to be arrogant in our thinking that the whole world loves us. We have been dumped, just like the high school quarterback who thought he was invincible, and if we don't want to end up asking "You want fries with that?" to the rest of the world, we had better realize this.

BriEOD
06-23-2008, 03:06 PM
JimN,

I don't completely agree with you.

First, NATO and UN want nothing to do with Iraq. In fact, countries like France and Germany, who were opposed before it started, are definitely not going to engage. Moreover, take a look at Afhghanistan as an example. I believe I recently read that the US has 20K troops in country and the next closest country (UK I think) had like 4K. France had a few hundred. Aghanistan falls under NATO command. C'mon, who do you think is going to go in there. The UN, right, see Africa and all the sucess the UN has had there. No unity of commad, etc. It isn't going to happen.

The idiots do keep blowing up pipelines. They pay no taxes and all governmental income is solely based on revenues. Ask many of them on the street why the pipelines are targeted--so the Jews don't get the money. That is no BS, that is what they think. Moreover, a lot of the trucks, etc are hijacked and smuggled out to neighboring countries.

The police and army, while improving and better organized and equipped, still have a lot of issues. Racism is rampant. Shi'as exhibit reverse discrimination against Sunnis, Sunnis think they should still be in power and the Kurds are the second coming of the Jews. It doesn't matter what you do. If you're a Kurd and so are the police, nothing will happen, etc.

I agree that many of the Iraqis want us to leave. However, a departure by US forces isn't going to curb sectarian violence or imrove reconciliation. In fact, I think it will accelerate things. Sunni countries are going to back Sunnis (Syria, Saudi) and the same with the Shi'as and Iran. Each will continue to project power in an effort to establish their own rule.

This entire problem is very complicated. Men much wiser than you or I (particuarly me) can't figure it out. With that said, the UN and/or NATO is not the answer. Look at Rwanda or Somalia, etc, as past failures on behalf of the UN. Moreover, what is the difference between the US and the UN. Take a look at UN's budget. The US pays something like close to 50% (might be more) of the UN's budget...

JimN
06-23-2008, 08:12 PM
I was actually being facetious about the UN and to a lesser degree, NATO, but I can't make the font look like it's dripping.

I have heard the reason the pipelines keep being blown up as a way to keep the Jews from getting the money and I gave up wondering why they can't be persuaded otherwise.

Bush I didn't want to go in and do this, too bad W didn't pay attention.

I expect nothing different from Germany and France. They're some of the biggest whores on the planet.

Jorski
06-23-2008, 09:47 PM
Article on the amount and costs of fuel used in the war in Iraq:

Today, Bryce writes, the average G.I. in Iraq consumes 20.5 gallons of fuel per day, so that in order to secure the third-richest oil country on the planet (9.5% of the world total), the Pentagon is chugalugging over 3 million gallons per day in Iraq, “and nearly every drop of that fuel is imported.” About 5,500 tanker trucks are involved in this lovely, oil-burning up exercise so that “the U.S. is spending $923 million per week on fuel-related logistics in order to keep 157,000 G.I.s in Iraq.” Lovely, that is, for the “defense” contractors.

http://http://globalresearch.ca/index.php?context=va&aid=8476

stuartmcnair
06-23-2008, 09:57 PM
Put the deer in the vault, and get some goats!!!!


Can you Armor All goats?

east tx skier
06-23-2008, 10:20 PM
Here's an article (http://www.wfaa.com/sharedcontent/dws/wfaa/latestnews/stories/wfaa080623_wz_oilprice.308b7553.html) that quotes "experts" as saying that oil speculators are responsible for 70% of gasoline cost. These guys must have read my post. Go get 'em Jorski! :)

JimN
06-23-2008, 10:38 PM
If anyone knows how the price of collectibles changes, sometimes, all it takes is one moron to buy at an excessively high price and everyone thinks that's the new price. Is it worth that much? Not really, but some ends up selling that high, anyway.

Here's an example:
http://cgi.ebay.com/ws/eBayISAPI.dll?ViewItem&item=220248955440&indexURL=0&photoDisplayType=2#ebayphotohosting


It may sell for this price, but it has already been relisted several times. It's a fine example but the asking price is double the average.

east tx skier
06-23-2008, 11:59 PM
I recall those used to go in the $4,000 range. Wow!

Jorski
06-24-2008, 12:47 AM
Just remember that traders can make money short or long. If traders are responsible for the price of oil, it is just as valid to say that the price is much lower than it could be because of all of the short pressure exerted by speculators.

In fact, according to the most recent, Commitment of Traders report, commercial contracts dominate the trading over Non-Commercial (or financial) trading. The table doesn't post well, but if you follow the link below and scroll down to the various oil contracts, you can see for yourself.

http://www.cftc.gov/dea/futures/deanymesf.htm

In fact on that site there is a link under "Whats New" that deals specifically with tht 70% claim. Eastie, it appears that those "experts" made a fundamental and basic error in "calculating" the amount of speculative trading that is going on. Here is a snip of part of that article:

FACTS

• The 70% figure includes swaps dealers in the speculative category and includes the long and short positions of both swaps dealers and speculators without netting the positions.

• It is important to note that much of swaps dealer activity involves commercial hedging and risk management.

• According to CFTC data, swaps dealers as a whole are close to flat in the crude oil markets – meaning they are almost equally long and short in the marketplace. (as seen in Charts 1 and 3 below)

• Traditional speculative positions (in this case, “speculators” minus the swaps dealers positions) include long and short positions – in fact, there are almost as many short speculative positions as there are long positions. (as seen in Charts 2 and 3 below)

• Speculative positions have not been increasing during the past year. The net-long positions of non- commercials is currently around 100,000 (as seen in Chart 2), which is the lowest it has been in about a year.

east tx skier
06-24-2008, 10:21 AM
Again, I admittedly have little understanding of it all. However these guys got branded experts, I don't know. Just saw the article yesterday and decided to further the discussion. If they are wrong, and our congress is relying on something they are saying, then (gasp) our government could be making bad decisions (I realize this is not your govt.). That was just to distinguish it from my government, who is a person I share my bed with.

Jorski
06-24-2008, 10:31 AM
If they are wrong, and our congress is relying on something they are saying, then (gasp) our government could be making bad decisions


That would not exactly be a ground-breaking occurence (for any government) now would it. Eastie, you're a lawyer..what does "expert witness" mean to you ?

Jorski
06-24-2008, 01:39 PM
I have been thinking about this, and the best way to decribe the error that "the experts" have made is by analogy:

You walk into a convenience store and buy $5 worth of goods. So you hand the cashier a $20 bill, and he gives you $15 in change. The error is the equivalent of the store clerk, claiming to have just $35 in revenue.

JimN
06-24-2008, 01:57 PM
"The error is the equivalent of the store clerk, claiming to have just $35 in revenue."

You mean, calling the total cash flow 'revenue'?

1boarder
06-24-2008, 02:02 PM
I can't control the price of gas, but I do have one thing to offer.

I will make it a priority to fill up my boat to wakeboard/ski even if I have to eat odles of noodles and drink milwalkees best beer. Its all about priorities. I have picked mine as I am sure most that love this sport do. I don't even look at the price when I fill up anymore. It just upsets me when it kicks off at $75 and I have to rescan my card to finish.

On a positive note, I went on a trip to my hometown pulling the boat and traffic both on the road and river were noticably down.

Jorski
06-24-2008, 04:40 PM
You mean, calling the total cash flow 'revenue'?

No, worse than that...adding together trades that wash each other out. Let's change my previous example with the store clerk, into one where he makes change, 2 tens, for a 20. And he counts that as revenue.

A more practical example of how this works:

A producer has 1 unit of oil coming in July. A consumer (an industrial user) has a need for that amount of oil, but not until August.

In futures markets, there will be a slight profit available for a financial "speculator" to buy the oil available from the producer in July, and selling to the consumer in August. The speculator will enter these two trades at the same time.

So now, the speculator is long 1 unit of oil in July, and short 1 unit of oil in August - a plus and a minus. He is flat...these two trades should be netted out. What the people testifying to the senate committee did incorectly was in essence was to add those together as two trades when in fact the speculator in this case is completely neutral; just as the store clerk is when he made change.

Hope it helps.

bbymgr
06-24-2008, 05:29 PM
I'm not sure I understand it exactly Jorski. In your July - August scenerio, what happens to that speculator if the price of oil drops between when he buys the unit of oil in July and sells the unit of oil in August?

JimN
06-24-2008, 05:32 PM
"The thing is that the market is determining the price!

The thing that causes most of the changes in commodity prices is SUPPLY and DEMAND...not fear and greed!

Speculators actually serve to LOWER prices, despite all of the popular rhetoric out there today. In commodities markets, there are "natural longs", "natural shorts" and "speculators" (also called financial traders)."

This is from one of your earlier posts- How can speculators not be affecting the price of oil when rumors and events that may happen, but haven't yet, cause the price to go up? When I mentioned actual cost being the basis for selling price, this is what I was getting at- speculators aren't dealing with reality, they deal with what might happen. The price of crude went up today because of a Nigerian Oil Worker's Union action but they haven't changed anything to do with production. All that has happened so far, is a limited form of protest, according to the link below.

http://www.thestar.com/Business/article/447694

From Dictionary.com,
speculate:
2. To engage in a course of reasoning often based on inconclusive evidence. See Synonyms at think.
3. To engage in the buying or selling of a commodity with an element of risk on the chance of profit.

I understand the speculators getting a big thrill from this, partially because of the risk/reward thing but for this activity to affect prices globally, I think it's similar to Fantasy Football becoming the real thing and costing all football fans dearly.

TX.X-30 fan
06-24-2008, 05:45 PM
Futures market traders in oil and gas are making obscene profits on the backs of consumers. Explain it as you will but these guys are driving the price up on a barrel of oil beyond any supply and demand basis.

All of this could have been avoided with production. We have more oil and gas in this country than all the middle east put together, Add shale to the equation and done deal reserves for several hundred years. Shale is not there yet but not far off either technologically speaking.





The technical groundwork may be in place for a fundamental shift in oil shale economics," the Rand Corporation
recently declared. "Advances in thermally conductive in-situ conversion may enable shale-derived oil to be
competitive with crude oil at prices below $40 per barrel. If this becomes the case, oil shale development may soon
occupy a very prominent position in the national energy agenda."

Estimated U.S. oil shale reserves total an astonishing 1.5 trillion barrels of oil - or more than five times the
stated reserves of Saudi Arabia. This energy bounty is simply too large to ignore any longer, assuming that the
reserves are economically viable. And yet, oil shale lies far from the radar screen of most investors.

Ric
06-24-2008, 06:31 PM
I'm not sure I understand it exactly Jorski. In your July - August scenerio, what happens to that speculator if the price of oil drops between when he buys the unit of oil in July and sells the unit of oil in August?
That's where I was headed :confused:

TX.X-30 fan
06-24-2008, 06:43 PM
They lose money??? In their interest to keep the price going up, who in that business has been short for quite a while??

Jorski
06-25-2008, 10:29 AM
Futures market traders in oil and gas are making obscene profits on the backs of consumers. Explain it as you will but these guys are driving the price up on a barrel of oil beyond any supply and demand basis.

TX-X30:

Incorrect. They lower costs to both producers and consumers. Please recall, that they do not consume oil.

On another note...oil from shale is a very long way off.



In your July - August scenerio, what happens to that speculator if the price of oil drops between when he buys the unit of oil in July and sells the unit of oil in August?


bbymgr:
These are fixed price deals. The profit is locked in, as the price to the seller is fixed, and the price received from the buyer is fixed. If the "speculator" wanted to sell his position to someone else prior to the contract maturing, he would receive less if the spot price of oil dropped and more if it went up.

wakeX2wake
06-25-2008, 10:43 AM
These are fixed price deals. The profit is locked in, as the price to the seller is fixed, and the price received from the buyer is fixed. If the "speculator" wanted to sell his position to someone else prior to the contract maturing, he would receive less if the spot price of oil dropped and more if it went up.

this happens WAY more often than you'd think... i work in the metal industry and see it happen here all the time and our relationships w/ our suppliers are very similar to oil companies... we sign a contract w/ middle eastern suppliers for say 50 million lbs of magnesium at $3.75/lb and we pay for 10 million... they'll usually honor the first two payments of the contract but after that w/ costs going up they'll get an offer for $4.00/lb then turn around and give us the middle finger and tell us if we want it that we can pay $4.15/lb or go pound sand... there isn't sufficient capital out there to lock in these prices for the oil companies either... yeah there's astronomical numbers floating around that people find but they really aren't that far fetched if you knew where all they came from... hell my company's natural gas bill last month was $1.4 million

Jorski
06-25-2008, 11:42 AM
This is from one of your earlier posts- How can speculators not be affecting the price of oil when rumors and events that may happen, but haven't yet, cause the price to go up? When I mentioned actual cost being the basis for selling price, this is what I was getting at- speculators aren't dealing with reality, they deal with what might happen. The price of crude went up today because of a Nigerian Oil Worker's Union action but they haven't changed anything to do with production. All that has happened so far, is a limited form of protest, according to the link below.

Jimn,

Show me some evidence, other than a statement, that speculators were responsible for the price move. Further, there was an attack by a militant group called MEND on a Nigerian Off-shore platform (http://www.theoildrum.com/ ), that actually reduced production...this is a real event, despite what the Toronto Star says. Funny, this board quoting the Toronto Star. This paper is owned by a number of family trusts, that have legal charter approved by the courts to adhere to the Atkinsin Principles; essentially to present the Liberal point of view - who'da thunk it for TT?!?! http://www.thestar.com/aboutUs/atkinson

I posted a link to the commitment of traders report, showing that speculation has actually fallen over the last year. This is produced by the Commodity and Futures Trading Commission - government agency, so no profit bias in their analysis. When the futures market reacts to news, it is much more likely to be trades conducted by commercial producers and and commercial buyers than due to the result of speculative activity.

Even if it was due to speculators, the reality is that they can move the price by a couple of dollars in the very short term; however, if that news does not come to pass, they will lose money soon thereafter.

The speculators can change the shape of the futures curve, but they have very little abilty to shift the entire curve up or down.

Want some evidence ? Just compare the price of spot oil, to the futures prices. Not much of a gap...why ? Remember, speculators DO NOT consume nor take delivery of oil, thus they cannot affect the spot price. So, if they have pushed up the futures price so much, why isn't there a huge gap between between spot and future prices????

east tx skier
06-25-2008, 12:38 PM
That would not exactly be a ground-breaking occurence (for any government) now would it. Eastie, you're a lawyer..what does "expert witness" mean to you ?

It means paid. And both sides have them. My only hope is to (1) not trust them and (2) keep asking questions.

Jorski
06-25-2008, 12:46 PM
Easttx....BINGO!!!