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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: Seeker of Truth who wrote (49643)	5/8/2004 10:51:47 PM
From: Taikun	Respond to of 74559

For gasoline futures, you wouldn't have to store it, you could buy a forward contract on production from a broker or refiner with the objective of reselling the contract. Remember the California energy crises? I do, I remember pricing Honda portable gas generators after the second rolling blackout shut our office. It turns out the energy transmission lines called Path 15, is the sole and main energy artery between LA and San Francisco. If you've ever driven between LA and San Francisco on I-5 you can see Path 15 running alongside you down the Central Valley. Against the wishes of many in the industry, deregulation in California led to Enron monopolizing that capacity. It turns out, Enron brokers in Texas would unnecessarily then run electricity through Path 15 when they sold it from, say, Utah to Nevada, tightening the capacity and creating proof for them to show to users that they could charge the excessive prices they did. You could likewise finance controlling the oil supply at 2-5%, hold the contracts, and then resell to a buyer who becomes anxious amid geopolitical tension and imagines demand tightening. Examples would be the Kinder Morgan pipeline in CA blowing up, or refineries in the Middle East being hit by terrorists, or when the Texas BP refinery had an explosion. Then, use the profits to control more oil... The Brewin Dolphin analyst, Iain Armstrong, speaking on CNBC, said one more thing about the current oil market. (By the way, I don't know how he calculated the speculative premium of $30/bbl). According to him, prior to Iraq's invasion of Kuwait, there was a 'loose' 8m bbl in the open market. That has now shrunk to a very tight 2m bbl. He said that has energy users worried. On the other hand, high production in response to tighter than expected global oil balance has reduced spare production capacity within OPEC to the lowest level in recent years. "Moreover, the vast majority of OPEC spare capacity is now in Saudi Arabia. In fact, some OPEC countries have struggled even to produce as much as their quota, and some are falling behind. Venezuela's general strike in early 2003 seems to have caused permanent damage to some oil reservoirs, and the country's output has fallen 0.7mn b/d below its quota. Indonesia is facing a sharp decline in capacity, and is now 0.3mn b/d below quota". menafn.com ***** Toronto Globe and Mail Report on Business. Oil market tightness is likely long term By JEFFREY RUBIN Monday, March 15, 2004 - Page B4 "Not only has conventional production not grown over the past four years, but there is virtually no spare capacity left among producers belonging to the Organization of Petroleum Exporting Countries. Excluding the brief period when Kuwaiti and Iraqi oil wells were ablaze during the Persian Gulf war, OPEC has not operated with such spare capacity -- 2.7 million barrels a day at present -- in nearly 30 years".