Oil Prices Rising: Are Speculators Back In Action?

BusinessWeek:

Many are asking the question about oil prices: Is this deja vu all over again? Didn't we just go through a several-year run-up in prices based largely not on fundamentals, but on traders bidding them up, ultimately to $147 a barrel? Only then to see them plunge to $32 a barrel?

Read the whole story: BusinessWeek

Comments

[armadillious2002]

The whole commodity futures industry is a scam. Over 90% of speculators lose all or more than their original investment. And, 10% of investors make 90% of the money - and that 10% ain't you, me, and the dentist. It's all rigged one way and always has been.

[zakon]

in response to calls for better regulation of oil futures, Congress introduced the Consumer-First Energy Act in May 2008. the act died on the Senate floor the following June. After the bill was defeated, the argument over oil speculation changed focus. No longer was the debate over what caused oil prices to rise beginning in 2006, but how long the United States would allow speculation to continue.

OUR GOVT IS CORRUPT AND DOES NOTHING WHILE WE THE PEOPLE PAY THE PRICE OF WALL STREET GAMBLING

[zakon]

Our government is not doing its job!

Commodies Exchanges should be a place reserved for producers and users of commodities, not Las Vegas gamblers on Wall Street and my mutual fund manager. Oil is not an "investment", its an input into production!!!!!

Damn, our government is SO SO SO SO SO SO SO SO SO SO CORRUPT!!!!! It sits back and DOES NOTHING!!!!!

[msjimmied]

After Katrina and other natural disasters they have laws in place for price gauging. However this is aimed at little country stores. What we need is a law in place that would make this kind of play a crime, because that is exactly what it is. The economy is in free fall for all intents and purposes, the tenuous hold the economy has at this point is the promise of a stimulus that has not translated into what we see happening. Till we can get this moving, we need to have checks as to what the traders can and will do. I propose a freeze on the energy market. Seriously.

[ptgkc]

Well... Oil inventory is at decades high, Cushing OK can't accept any more. There are barges parked offshore with no place to put it.

Global demand is down due to the recession/­depression over the last 6 months.

No rules have been implemented to crub use of leverage to buy futures contracts, so speculators can still bid up prices with minimal cash. Also, anyone can buy them. It is not restricted to businesses that actually hedge, like airlines. So, any hedge fund, trading desk (Goldman Sachs), or foreign wealth funds (sometimes even OPEC money), bids up the price of their own product.

Then at monthly expiration, there is a two or three day downturn as contracts are eithered cancelled or more often rolled over to the next month. Wash, rinse, repeat to bid up.

Of course it's speculators.

[ejhickey]

Sounds easy. sounds like a can't lose deal. Are you doing it?

[ptgkc]

Easy if you know the timing of the push up and down. There was much money made to $145, but lost back when price dropped to under $40. Both sides are played since money can be made up and down (long or short). It would be easy if logic applied, but again, with surplus and reduced demand, supply and demand says it should be going down. It's not. Only the big boys know that true action. The rest can try to ride it, but it would just a guess and gamble.

[Cyberoptic]

Someone just emailed me this little bit of data
--------------
Where did Wall Street get its name?

Free-roaming hogs were famous for rampaging through the valuable grain
fields of colonial New York City farmers. The Manhattan Island residents
chose to block the troublesome hogs with a long, permanent wall on the
northern edge of what is now Lower Manhattan. A street came to border this
wall named Wall Street.
----------------

Maybe we need another wall for the free-roaming hogs?

[cjt1957]

For alternative energy to work oil has to be at least $100 a barrel. Ask Obama why it is going up. To support his Alt Energy plans....

[FightingTheRight]

So George Bush had alternate energy plans which cause oil to go to $147 a barrel?

[TxAggie]

Obama's tax treatment of the domestic industry will result in thousandsof marginal wells being plugged and the production lost forever, imports will increase and prices will rise which of course makes alternatives more economical. Makes you wonder what Obama has up his sleeve.

[davidwayneosedach]

If oil returns to $150/bbl we will be into the Second
Great Depression.

[TJCole]

We've done noting to address the criminal manipulation of the market last year, largely due to the control over our government and president apparently by Goldman Sachs.....­the worst of all the offenders, and that scam, and now they need money and your getting that little $12 tax cut so they're gonna take it....them and your credit card company...­.!

[SaltySaltillo]

The disposition of people to believe a particular narrative without factual inquiry is surprising - in this case, a journalist need only insinuate that there is some dirty price manipulation going on and out comes the hysteria.
There are some fundamentals about oil pricing that people need to understand:
The international oil market itself is one of the more efficient global markets, really reflecting supply and demand. There are a few problems with oil that deeply affect the price, however. First is, yes, OPEC can to a certain extent impact (or try to impact) global prices by manipulating supply. In my personal opinion, they are largely ineffective these days.
The second problem is more serious: there has been a lot of investment "upstream" in exploration activities over the years, because when oil prices are high, that is where the big money can be made. But there has not been a corresponding investment in midstream and downstream - there is a global shortage of storage facilities and refinement facilities. This creates a supply bottleneck that creates a multiplier effect on price - slight changes in demand create massive swings in price. 30 years ago this wasn't the case because global storage capacity was at about 6 months consumption. Because demand has grown but storage capacity hasn't we are now at about 3 weeks consumption. This has a major impact on price. The Speculators don't drive this so much as ride it like surfers...

[mediamarv]

Written by an oil company flack to be sure.

"storage capacity hasn't we are now at about 3 weeks consumption. "

A patently false statement, as demonstrated in a column yesterday (which I am frantically attempting to recall and link to) showing that current oil inventory is the highest it's been since 9/11.

Today's SF Chron has an article on the rise in prices, with words like "gambling", "speculators" featured.
Also it notes that the US has 15% more crude sitting in storage than this time last year.
Ol SaltySaltillo should explain exactly where in the mantra "free market is run by supply and demand" speculation and gambling fits in.

The American public is being played for suckers and apologists like Salty just keep on enabling.

[NoMoFearNoMoHate]

current oil inventory is at a 19 YEAR high.

[SaltySaltillo]

The fact that you cannot distinguish between the number of days of consumption a given volume provides and the actual number of barrels in that volume is not my fault - it is the fault of your middle school math teacher.

[zakon]

The Commodities Exchange's rules were changed. Traditionally, those who actually need the commodities (ie, refineries and oil producers, or Tropicana and orange farmers, etc.). New rules led to investment banks on Wall Street trading on the exchange on behalf of banks, institutional investors, pension funds, etc.

Before the crash, 60-70% of futures contracts were held by Wall Street "investors­."

When Lehman's collapsed, the "investors" sold off, but now they are coming back.

Likewise, if money poured into orange "investing" from pension funds, institutional investors, banks, mutual funds, etc. your quart of OJ at the supermarket would jump in price. Not because of real demand and supply, but because of "market signals" from the usual suspects (i.e., analysts and the business press that circulates their garbage analysis).

Sir, all of your garbage is nothing more than "market signals" used by speculators. It's nothing more than pretense for speculation.

BTW, trading is done with NO government oversight.

[Bruupo]

"The second problem is more serious: there has been a lot of investment "upstream" in exploration activities over the years, because when oil prices are high, that is where the big money can be made."

You are also EXACTLY wrong about this. Exploration does not instantaneously yield oil available for sale at the high price. Exploiting new oil discoveries almost always takes longer than it would take to expand refining- but since the industry ENJOYS limiting refining capacity to control prices, when prices are high they sink their capital into exploration instead, because they HAVE the capital, and because the "big money" for them is in regard to investment and their stock price, or in other words- SPECULATION, SPECULATIVE INVESTMENT.

For your argument to make sense, that speculation was "along for the ride", the "big money" would have to come from selling the discovered oil instantaneously, which is impossible, rather than from the speculative spike following the announcement of a new discovery, which is the kind of thing "big money" is really all about.

[twoopeneyes]

Outrageous! Where is the US Attorney General?

[MIKEinNYC]

Stupidity of the American motorist is back in action.

We did not learn our lesson. $5-per-gallon gas is a distant memory.

We have reverted to form and continue to buy gas-guzzler trucks, SUV, CUV and other unnecessary utility-type vehicles that use much more fuel than normal cars.

If the Prez needs to raise some cash they should slap a tax of, let's say, $5,000 on every non-car vehicle sold in this country excepting those people who actually need vehicles of this type because of their jobs or the terrain that they MUST regularly drive on.

[Peter007]

I'm a speculator in oil and I'm buying up futures contracts.
If you aren't buying oil futures now, you will be a loser. Cash will be worthless.
Its up to you. Will you be using dollars to wall paper your kitchen or will you be comfortable with valuable assets in your portfolio.­?

[WASanford]

It's far more likely you'll be redecorating your kitchen. Those future certificates will look just great on your kitchen's walls.

[Peter007]

Ok, you convinced me. I'm back into cash this afternoon.

[scooperss]

Gas up 20 cents in two days. obama never followed through with plans to impose a windfall tax, or whatever it was. The oil people see other companies (banks, insurance co) getting goodies for free and know they can get by with doing the same.
*sigh* We're screwed.

[SaltySaltillo]

How could you do a "windfall" tax when companies were losing money? If oil had continued at $38 a barrel, sooner or later you would start to see the impact on the bottom line. Right now we are at about $58 a barrel (which, frankly is close to the bottom of where I think oil should be priced - with a top price of around $80). One thing is a windfall on excessive profits - another is to tax oil companies for making a regular, normal profit (which is what is happening now).

[NoMoFearNoMoHate]

Oh yeah, let's just pretend that whole record profits for two years on end never happened!

The windfall still exists - not even those bastards could spend all of that money!

[TxAggie]

Every oil company in the business is reporting revenues down at least 60% over this same time last year and the majority of companies are reporting losses, including the one I work for. The rig count is down 50%. We are doing eveything we can to keep oil production up but we simply do not have the revenues to maintain a robust E&P budget, our volumes are flat at best. The impact of the Obama tax treatment on the oil patch will be devastating on stripper and marginal production and thousands of wells will be plugged and investors will leave the sector. Prices will continue to rise, I think it is part of Obama's plan to make renewables look better by villifying the oil sector and taxing the hell out of it while insuring high prices to make renewables economic.

[NoMoFearNoMoHate]

two words for you: peak oil

[OMG1109]

or just old "SUMMER TIME" get rich while you can. The oil companies raise oil and gas prices like clock work every Memorial day. Then we have of course "our seasonal blend" or as some call it "our summer blend" that kicks in during summer. Sureeeeeee­eeeeeeeeee

[SaltySaltillo]

That is because demand for oil-derived products goes up in this country like clock work.

[ptgkc]

Oldest and most tired excuse in the world. I don't know anyone that goes out joyriding just because it's summer time. Vacation time is down, unemployment is up - who has the time and money to pack on all those extra miles.

In fact to counter any possible uptick in personal driving for a staycation, how much are businesses cutting back on business travel. How much has transportation companies cut back on routes because demand for transport of goods has slowed. Retail numbers out today are still down, just when the experts thought they would be flat. Other than staples like food, the decrease in fuel use for shipping would offset any possible consumer summer driving increase.

[vippy]

Baloney. Check your history and see how many times we, the people, were duped into believing that the era of peak oil has come. 1929 was the first of that warning! How idiotic to fall for it again and again.

[SaltySaltillo]

peak oil will happen when we reach a point when supply scarcity has driven prices so high that people are finally willing to invest in alternatives in a real way...

[NoMoFearNoMoHate]

were those warnings in the form of oil companies scooping up green energy patents and investing heavily in alternative fuels!?