Oil prices down,

J

Jay Idaho

Guest
Oil is jus under $39 a barrel this morning. Opec cuts production but oil goes down? The market reflects the sum of everyone's knowledge and beliefs.
A lot of people must believe that we are in for a deep, enduring recession.
 
The market also reflects the sum total of speculation both long and short. Did you think @ 150/bbl we were really doing that well?
 
I'm trying to understand how speculators can control a market this big.

http://www.schaeffersresearch.com/streetools/centers/commodities/commodPutCall.aspx

This website shows about 5 million open contracts at any given time. I think that each contract is for 1000 barrels, so that would be 5 billion barrels on contracts. The put/call ratio stays near 1:1. That is about 70 days of world consumption.
Do speculators do the same thing to orange juice, corn, wheat, gold, silver, pork bellies, Euros, Yen, lumber, bond prices, etc? Or is it mostly oil that they manipulate?
In the NW, saw mills close when lumber really slumps (now) and zinc mines close when prices plummet (now). But prices seem to stay down. Supply and demand seem to work there, why not with oil?
 
Jay,Idaho

Jay
Speculators just got invoved with oil and have made way more money than Exxon,Conoco or Chevron combined.The amount of money made makes all of the worlds speculated products pale in comparison.
The Saudis and all of OPEC have said in the past and again now they want oil between $53 and $57 a barrel.They place the entire $150 a barrel oil prices on speculators as does the German government who asked the G8 Summit to put a worldwide ban on oil speculation.
I know you live in Idaho but out here we have a great deal of experience with speculators.They are the reason we pay the nations highest prices on utilities.They create manmade problems to falsely raise the price of what they are dealing with in an effort to make fast money.If you remember the 60 Minutes piece on Enron they would call the big utilities and ask them to do maintenance on a facility in order to take it offline then raise the price claiming supply and demand.They were the guys saying "burn baby burn" on recorded phone lines when southern calfornia had a large fire burning near some transmission lines.It had nothing to do with the fire but the re-routing earned them millions upon millions in higher prices.It cost us about 8 Billion dollars for there speculation.
On oil the speculators raised the prices because of the war in Afghanistan and Iraq do to the uncertainty of them supplying us.Today both countries are still at war and still producing the same amount of oil yet the price has dropped over $100 per barrel.How much of a demand do you think it takes to raise the price per barrel $100 in 3 months time?
Last I checked everybody is still using oil and the worlds population isn't shrinking so why is the demand down $112 a barrel? The Saudi's will now cut the supply 730 Million barrels in 2009 or more than most countries will ever use and this will bring the price back to that $53-$57 window I was refferring to earlier.When you do the math a 42 gallon barrel of oil produces around 24 gallons of gasoline.That is roughly 21.720 Billion gallons of gasoline.If we multiply that by 15 miles per gallon for a rough average of trucks and cars we get about 325 Billion miles of driving in order to bring oil from $43 a barrel to $53-$57 a barrel.
U.S. driving slowed to an all-time record low while all this speculating was screwing us and american drivers drove 18 Billion fewer miles or a difference of over 300 Billion gallons.
The easiest check is just to see when commercial speculation(not the oil companies) started and what the price per barrel did at that instant and since.
Lynn
 
Jay said:
I'm trying to understand how speculators can control a market this big.

http://www.schaeffersresearch.com/streetools/centers/commodities/commodPutCall.aspx

This website shows about 5 million open contracts at any given time. I think that each contract is for 1000 barrels, so that would be 5 billion barrels on contracts. The put/call ratio stays near 1:1. That is about 70 days of world consumption.
Do speculators do the same thing to orange juice, corn, wheat, gold, silver, pork bellies, Euros, Yen, lumber, bond prices, etc? Or is it mostly oil that they manipulate?
In the NW, saw mills close when lumber really slumps (now) and zinc mines close when prices plummet (now). But prices seem to stay down. Supply and demand seem to work there, why not with oil?
Click to expand...

Speculators can become a major influence on not only any commodity but anything that trades on a public market. Can you say "naked short seller"? Here's a piece of trivia I read in a research paper a bit back, last August there was one oil options contract for future delivery[ forgot what month] that was 80% owned by a total of 4 hedge funds. My guess is they were'nt thinking of opening up a few stop-n-go's.
 
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Commodity

Any commodity can be traded on the commodities exchange in Chicago. I think they even trade contracts on the DOW. Very risky business as most of it is done on margin. You can get wiped out in a matter of minutes.
Unless there was colusion what they did what was fair. In the long run, not this glich, it contributes to a level market, fewer highs and lows.
Had a customer who got into trading futures contracts. Thought he was smarter than the market. In 2 weeks he lost $52,000 dollars and decided it wasn't for him.
 
Tim,

I don't understand "naked short seller" as applied to a futures contract. A high percentage of all futures contract positions are held by speculators, that is what gives depth to the market.
For every contract there is a seller and a buyer. Every contract holder will have to deliver or accept delivery of the commodity at the end of the contract unless they close their position. So, each seller must buy a contract to close his sale and each buyer must sell a contract to close his buy position. The open interest usually diminshes to near zero by the time the contracts mature. This keeps things very orderly. Exceptions are like when the Hunts had a lock on silver and put the big squeeze on everybody. But the gum't got into it and changed the rules, that is another issue.
It seems to me that there must be a speculator on each side of every contract except for those that are held by actual producers and users of the commodity. For each winner there is a loser.

What am I not seeing correctly?

BTW, oil closed at under $34 per barrel today, Friday, 19 DE 08

Jay, Idaho
 
WAAAAAAY back

When folks were looking to see how Hilllll a r y made her money in Cattle Futures it was splained that in the futures markets the brokers decide who s going to win and who is going to loose.

Not long after that investigation I saw a documentry that showed a Gold trader buying a large position of gold first thing in the morning and his job was to run the price up, sell their position before the trading day was over and to make money doing it. It was an interesting thing to watch.
 
Speculating

I think there is a bit of confusion on what is actually happening in oil speculating.The commercial speculating is extremely new to oil.This is not the same thing as pork bellies and orange juice futures.
Pork Bellies and corn futures started around 1855 to stabilise the market in case of droughts or other catastrophies.You can go a lifetime without bacon or orange juice but how do you get to work without oil? Oil speculating began in 1983.
When the big oil companies speculated on oil from the beginning the price went from $9 a barrel to around $45 a barrel.
When the commercial speculators(large financial institutions spending hundreds of billions of dollars not mom and pop investors) got involved it went from $45 a barrel to well over $150 a barrel in a years time.Does the name Goldman Sachs ring a bell? It should as they predicted oil at $200 a barrel.Tell me how they are doing today?
If you look back to the years around 1976 you will see a steady decline in the U.S. consumption of oil into the early 90's.In 1976 we used almost as much oil as we use today.The numbers can be found doing a simple google search.
The speculators claimed uncertainty brought about by the afghanistan and Iraq wars is why oil went to $150 a barrel.Can anybody tell me when we pulled out of both those wars as I thought they were still ongoing.Again a google search will show how much oil we import from each of those countries.
Supply and demand didn't increase oil from $45 to $150 a barrel in a years time.Look up Enron then take a look at oil.
Lynn
 
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Lynn said:
When the commercial speculators(large financial institutions spending hundreds of billions of dollars not mom and pop investors) got involved it went from $45 a barrel to well over $150 a barrel in a years time. Lynn
Click to expand...

So is there a tie-in between those "Large Financial Institutions," the recent crash of those Institutions, and the current price of a barrel of oil?

Cheers,

Mark
 
Lynn said:
I think there is a bit of confusion on what is actually happening in oil speculating.The commercial speculating is extremely new to oil.This is not the same thing as pork bellies and orange juice futures.
Pork Bellies and corn futures started around 1855 to stabilise the market in case of droughts or other catastrophies.You can go a lifetime without bacon or orange juice but how do you get to work without oil? Oil speculating began in 1983.
When the big oil companies speculated on oil from the beginning the price went from $9 a barrel to around $45 a barrel.
When the commercial speculators(large financial institutions spending hundreds of billions of dollars not mom and pop investors) got involved it went from $45 a barrel to well over $150 a barrel in a years time.Does the name Goldman Sachs ring a bell? It should as they predicted oil at $200 a barrel.Tell me how they are doing today?
If you look back to the years around 1976 you will see a steady decline in the U.S. consumption of oil into the early 90's.In 1976 we used almost as much oil as we use today.The numbers can be found doing a simple google search.
The speculators claimed uncertainty brought about by the afghanistan and Iraq wars is why oil went to $150 a barrel.Can anybody tell me when we pulled out of both those wars as I thought they were still ongoing.Again a google search will show how much oil we import from each of those countries.
Supply and demand didn't increase oil from $45 to $150 a barrel in a years time.Look up Enron then take a look at oil.
Lynn
Click to expand...

Interesting, and mostly wrong. Can you say hedge fund? Your GS reference implies one is related to the other, they are not.
 
Jay said:
Tim,

I don't understand "naked short seller" as applied to a futures contract. A high percentage of all futures contract positions are held by speculators, that is what gives depth to the market.
For every contract there is a seller and a buyer. Every contract holder will have to deliver or accept delivery of the commodity at the end of the contract unless they close their position. So, each seller must buy a contract to close his sale and each buyer must sell a contract to close his buy position. The open interest usually diminshes to near zero by the time the contracts mature. This keeps things very orderly. Exceptions are like when the Hunts had a lock on silver and put the big squeeze on everybody. But the gum't got into it and changed the rules, that is another issue.
It seems to me that there must be a speculator on each side of every contract except for those that are held by actual producers and users of the commodity. For each winner there is a loser.

What am I not seeing correctly?

BTW, oil closed at under $34 per barrel today, Friday, 19 DE 08

Jay, Idaho
Click to expand...

Reread the post, I said nothing about naked shorts and CBOE. Think NYSE NASDAQ, etc. The price swings between when a contract starts and matures can be big. Do a little homework on any contract as to how many get traded vs delivered.
 
Tim

You could help us all out a lot if you could give us a synopsis of your understanding of the speculation in oil. I think a lot of us have only snippets we think are correct but are not correct at all. I don't think the comodities markets ways of doing business are genreally understood or the terms used for the actions traders make.

Thanks, Pete
 
Pete, If anybody has the interest and the willpower[ without getting too depressed] they can find out a lot of factual stuff in a variety of financial publications or on web sites. A lot of what I mentioned here has been the subject of lots of discussion by quite a few investment strategy guys. It has less to do with the specifics of oil trading as opposed the magnified impact so many huge financial entities, such as hedge funds, credit markets, stock markets, in particular when there has been so much leverage can be employed. Some of these entities could, until recently, employ leverage on a magnitude of 40 or 50 to 1. Don't get me wrong, lot's of what has been said about China, India, etc. as well as dumb energy policy was responsible for a fair bit of increase but not from $60 to $150 in a year or so. When this kind of $ jumps on a big trend it can go nuts.
 
Well I guess what I said was that it is in the realm of public information. Thanks for clearing up the fact that you're the guy that grants permission to post here.
 
Please forgive me

tim said:
Well I guess what I said was that it is in the realm of public information. Thanks for clearing up the fact that you're the guy that grants permission to post here.
Click to expand...

I was out of line with what I said there. I had mis-read something you had said earlier.
 
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Tim

If you do a google search you will see Goldman Sachs invested about 70,000,000,000 into oil speculation and immediately pulled out 39,000,000,000.You can then ;look up what happened to the price.This is Enron 101 all over again and the last person I would trust is somebody in the investment strategy business.Most of them sat through some classes and now claim to be experts.When I remodeled my kitchen one of those experts told me to pull all of the money out of my house and invest it in stocks.He is out of a job right now and his institution is getting government bail out money.
I'll stick with Michael Masters assessment and leave the experts in the unemployment line were they belong.
I can't believe the rest of the country never heard of Enron and what they pulled in california.Lots of experts then as well.
Lynn
 
You might want to study up on what an investment strategist is. They don't consult kitchen remodelers, they head up global investment policy for large institutions.
 
Tim

I looked them up and found out most of them are now out of a job and on Government aid do to there lousy strategy.Maybe those very bright guys could help Bear Stearns,GM,Freddie Mac,Chrysler,Fannie Mae,Ford,Enron,WorldCom,CountryWide,AIG,Lehman Brothers,Goldman Sachs,Bank of America,Morgan Stanley Chase,Wells Fargo and a thousand others out first.
I think the strategist I talked to worked for one of the above mentioned companies
I wouldn't let them into my kitchen or my house and have already set all the Rat Traps I could find.All of there very very bad strategy can be found doing a google search.Looks like those global geniuses are going to cost Joe sixpack atleast 6 trillion dollars.I think I'll decline there advise yet again.
Lynn
 
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