this just in - rise in price of oil has nothing to do with speculators

C&C Music Factory... wrote:

things that make you go hmm...Oil prices started dropping about 8 seconds after W lifted the executive ban on drilling, today's drop followed Dem. Majority Leader Harry Reid indicating he'll let the drilling issue come to a vote in Congress(a novel idea in a representative democracy)...

Actually Bush lifted the ban on July 15 - oil price peaked on july 11. Usually an argument for causation requires that the cause proceed the effect.

Demand destruction makes much more sense as the reason for dropping prices than political moves that might increase the supply by <1% in 10-15 years.

nope no speculators here wrote:

neb = moron

It will be below $120 by friday.

One heck of a correction going on. Someday he'll come to his senses that this wasn't a supply and demand issue. It was people messing with the market and trying to drive the price up on fears and politics.

Why can't there be a correction based on supply and demand? Demand drops which causes prices to drop. A short term drop in prices doesn't disprove that there are underlying supply issues.

What evidence is there that the market was manipulated in any significant way?

Wake up and smell the coffee you moron. Oil Prices may have peaked on July 11 (intra-day), but it was still stable, near the high, when W lifted the ban... W sending the signal on the 15th, then Reid possibly allowing it to come to a vote (I'll believe it when I see it)certainly affected the price of oil. Are there other factors? Of course! Demand for one, as well as a bubble. But to ignore a newfound committment to bring more oil to the market (6 to 8 yrs out or not) as a driver is ignorant.

Related, the last thing the world suppliers of crude oil want is for the US to start supplying themselves with oil (thus reducing US dependence on outside sources), if you don't think the above signals will "encourage" outfits such as OPEC to keep supplies up and prices in line, you're even dumber than I think you are.

Anybody who has done serious analysis of the effect of opening up alaska and off shore to drilling has found that there will be a minimal increase in worldwide supply. That amount of increase will probably effect oil prices by about 30 cents a barrel - not $20 a barrel.

OPEC already has plenty of motivation to increase supply - the truth is that they just can't do it other than a small token amount.

Demand destruction is what's leading this price drop. Actually that's great news in some ways - many people were predicting that prices would go much higher because demand for oil is relatively inelastic. But, it appears that there are many opportunities for creating efficiencies in the system as well as decreasing non-essential travel. The question is will demand continue to drop without the economy shrinking substaintially?

We've seen "round one" of the run-up on oil prices - it's not even close to the end.

You've stated the same thing over and over and over.

No one's buying it. The price gains were after the economic slowdown and AFTER a dismal July 4th driving holiday. There was no reason for the jump in June of $120 to mid-July's $147. It was pure speculation and price manipulation.

cut it out weirdo wrote:

You've stated the same thing over and over and over.

No one's buying it. The price gains were after the economic slowdown and AFTER a dismal July 4th driving holiday. There was no reason for the jump in June of $120 to mid-July's $147. It was pure speculation and price manipulation.

I love how you tell me that I keep repeating myself and then you write something to which I've already responded.

Please show me one link to a detailed analysis of the oil market that has found widespread market manipulation that had any significant impact on prices. Since you believe so strongly in that hypothesis you do have evidence - right?

There is a difference between manipulation and speculation. A manipulator makes trades in order to create market conditions that the manipulator will later use to his benefit. The best example is pump and dump. In this instance, the manipulator will time trades to defeat declines in the market. Then the manipulator will use naked shorting (i.e. short selling without having the stock to cover the short position) to make tons when the falsely inflated market price drops. This is much more common in the stock market where it is much easier to influence the price of a single stock.

By contrast, the speculator is just someone who buys a commodity not in order to actually use it but to benefit from fluctuations in the market.

There is no question that there has been a supply issue in the oil market. Excess capacity dropped to 2% from a usual 5%. This tension in supply drove prices up. The speculators, mostly money fleeing declinging financials, poured money into the market. This drove the price up even further than it would have been between a buyer who was willing to take delivery and a seller who actually had the oil to deliver.

The real question is whether this is good?

Friedman says it is: price went up, demand dropped and the market came back into balance in a very short time. Everything is fine, don't regulate a thing.

Galbraith/Keyens say it isn't: the price went up in order to transfer tremendous wealth to an elite few and the economy is now battered as a result. Oil is needed for our economic security. We must protect the price from speculators in order to smooth out the harsh edges of the economy.

What do you all think?

thanks sun - but i understand the difference between manipulation and speculation. I'm not sure that some of the others on this thread do though. The CFTC has shown that those pump and dump schemes have proven ineffective in driving up the price.

The CFTC report states that more speculators shorting oil (betting the price would drop) in the first half of 2008 than rise. If that's true - how is it possible that speculators had any effect on the market? If speculators were driving the market - and more of them were betting for the price of oil to drop then it should have dropped - right????

Speculators were (are) not driving the market. Clearly supply tension drove the market. Now slackened demand is driving the market in the other direction.

The FTC's point is that the speculators responded to the market and did not create the market. That is what speculators are supposed to do. When there is shortage, they buy, drive the price up, which discourages consumption, makes the supply last longer and encourages more production. That is the economic justification for speculation.

The FTC did not say that speculators had no effect on the price. Speculators are supposed to have an effect on the price. But that effect is supposed to be in response to legitimate changes in market conditions. Speculators are not supposed to use trading to create market conditions.

The debate is then whether to regulate speculators out of the oil market in order to keep the price down. The free market guy would say that if you do that, the market price will not respond properly to supply and demand and there will be sudden crashes and spikes when the information finally gets to the market. The Keyensian interventionist says that the spikes and crashes are a result of the speculator and things would be better if the buyer was really the guy who was willing an able to take delivery.

Probably in 1 - 2 months there will be the threat of a hurricane in the Gulf of Mexico ... the price of oil will run up $5 ... on speculation alone.

neb wrote:

thanks sun - but i understand the difference between manipulation and speculation. I'm not sure that some of the others on this thread do though. The CFTC has shown that those pump and dump schemes have proven ineffective in driving up the price.

The CFTC report states that more speculators shorting oil (betting the price would drop) in the first half of 2008 than rise. If that's true - how is it possible that speculators had any effect on the market? If speculators were driving the market - and more of them were betting for the price of oil to drop then it should have dropped - right????

Have you not read the past 3 to 4 pages?

The price of oil rising so much had little to do with supply and demand. There was "fear" in the market but no changes to supply.

NOW(PAST WEEK) after the drop it is finally responding to supply and demand. We've seen oil return to the price it should be at before speculation drove the price away from the supply and demand curve.

BEFORE the demand was already dropping. Fuel usage was down a few percentage points BEFORE oil prices started rising. That was on "fear of supply" alone. The speculation in the market only amplified the problem, when there wasn't a supply issue. Which was further verified by the fact that reserves saw a surplus when they were expecting a deficit.

You want all this evidence and it's quite rampant in this thread. You've failed to acknowledge that it was clear the financial crisis was obvious before the run up in prices. As noted by the articles about fannie, freddie, and indy mac on JULY 1!!!. The demand was not increasing from about June on.

Why would the price go up if it was quite clear demand was going to drop in all sections? Supply wasn't down, every single oil producing country had said "THERE IS NO SHORTAGE IN SUPPLY!".

No shortage in supply + Demand forecast to go down = Higher prices?

You said it yourself in the FIRST half of 2008 speculators were betting on drops in prices. Well the first half of 2008 ended in JUNE! Why then with this obvious drop in demand and no shortage in oil would price sky rocket? There was a "fear" of supply shortage, which when you couple in the fact that investors were moving away from stocks and into commodities and oil should be a pretty clear sign they were thinking oil was a safe bet and started buying strongly. As the other guy mentioned. They added to the problem that was occuring. They were treating oil like a stock. Hedgefunds are CURRENTLY under investigation by the US GOV. That should tell you enough. The article was already posted.

Neb you are a hopeless moron who can't think of anything but peak oil. YES we know, oil will run out. However the current supply and demand is not in jeopardy.

You just like to rant about it because SOMEDAY you'll be right. One of these days oil will run out and you'll go AHA, see I told you all along.

It's like if I keep saying everyday, "the sun is going to burn out tomorrow"... one of these days I'll be right, but that is not TODAY.

That is what speculators are supposed to do. Perfectly legal. They anticipate a supply crunch because of a possible hurricane disrupting supply. They drive up the price when they buy oil betting that there will be a supply crunch. If the speculator is right, people will buy at the elevated price because supply has been affected. If the speculator is wrong, he won't make any money because the price will drop once the threat to supply has passed.

It would be a totally different story if there was no threat of a hurricane and speculators just started buying huge quanties of oil in order to create the impression that the market was responding to a supply issue. But without any change in supply or demand, the market would eventually catch on and the price would come down. The speculator would lose his investment. That is the efficiency argument against manipulation by speculators. Freidman would argue that manipulation is impossible.

To some extent, this did happen in the recent market spike. Large funds dumped cash taken out of losing financial industry stocks and put them in commodities. But they did not do this in order to make the price go up. They did it because they were betting that supply shortage would drive the price up.

Speculation certainly amplifies market conditions. But Miltion Friedmam would say that there is no problem because the market eventually works everything out. Galbraith would say that with an essential component to the economy like oil, speculators should be kept out because of the broad damage done to the economy by their playing with the price of oil.

I've already responded to almost everything in this post - do you even read my posts?

The main point was made by the post at the top of the 4th page - supply has basically been flat since 2005. That is a fact. SA and Iran can make as many claims as they want about supply - the facts are the facts.

I don't have to wait for "the day" that peak oil is "comes true" - it's true today. the effects of peak oil are being felt today. the reason that i can't help myself from posting is that I think attributing these rises in the cost of oil to others (OPEC, speculators, environmentalists etc) will lead to violence and unnecessary suffering.

Nature is trying to illustrate a geologic truth - but, we would rather point the finger at each other. As Voltaire said, "Men argue, nature acts".

Fixed.

anytime you want to retract your statements Neb feel free.

Oil is now down $30/barrel since mid-July ($147/barrel).

$118 currently

Still thinking it was solely supply and demand?

Where is neb when you need a good whippin' boy?

hiding cause he thinks peak oil is upon us and we're all in Armageddon

loves it.

Hello Neb old pal.

Oil 116.18 -3.84 -3.20

Oil is much closer to 100 than it is to 150. Down over $31 per barrel in such a short period of time. I just saw a bit on why sub $100 oil is bad ... the speculators are moving out, no major hurricanes so far, none on the horizon, etc. etc.