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Politics : President Barack Obama -- Ignore unavailable to you. Want to Upgrade?

To: Wharf Rat who wrote (24632)	6/25/2008 12:10:26 AM
From: Wharf Rat	Read Replies (2) \| Respond to of 149317

More speculating about the speculating that speculators speculating are causing price increases. Short version; no such luck. Long version, The Big Lie About Oil Speculation There is a great deal of talk in Washington about the pernicious effects of “oil speculators” driving up the price of oil. One writer claimed that 50-60% of the price of oil was pure speculation. Even OPEC is taking the opportunity divert attention from their refusal to raise output by blaming speculators for the price rise. That is patently false. The truth is that speculation in oil futures adds almost nothing to the price of oil because futures trading is a zero sum game. It is like a poker game in which money is won only by others loosing. At the end of the game the same amount of money is on the table; it has merely changed hands. Perhaps most importantly, the total amount of speculative trading (that is, hedge funds, etc) is only a tiny fraction of total contracts bought and sold by producers and refiners. Therefore, their impact could not possibly be large when you realize that annual world oil sales total about $3.4 trillion dollars. The actual sale of oil takes place in a global auction in six major centers around the world, which are logically the major refining and distribution centers, in which thousands of trades take place simultaneously. These are completely free markets and are not “rigged” simply because it is not possible to rig them. The market is simply too large and diversified for that to happen. Keep in mind that in these auctions there are actual sellers who have oil to sell, mostly government-owned oil companies. Most of the buyers are independent oil companies, primarily refiners. The actual sale of oil does not take place by means of futures contracts, but rather spot market contract sales. These contract sales can be for immediate delivery, or delivery at a future time, in which case they are called forward contracts. What distinguishes forward from futures is that forward are binding commitments to make and take delivery. With futures actual delivery almost never takes place. Contract sales are for “cargoes,” that is ship or barge loads of oil or in some cases amounts delivered via pipeline. So, what is the futures market all about? Its about hedging one’s bets on future price. Futures serve as a price signal about where the price is likely headed, and most importantly for actual oil traders, futures trading serves the function of leveling out both gains and losses; in other words futures trading actually stabilizes prices for traders. To blame those who speculate with futures is plain wrong. Note: In other commodities the actual exchange of money for goods can an does occur, in which case participation of speculators can and does result in speculative price increases. Causality tests suggest that speculative activity, as proxied by net non-commercial long positions, does not have a significant impact on spot prices, but it does moderately influence longer-dated futures prices. The results—which should be treated with caution owing to the definitional problems noted above—also suggest that speculative activity follows rather than leads spot prices, as do longer-dated future prices, which supports the argument that changes in the fundamentals affect, via spot prices, perceptions regarding future physical market conditions. - IMF Report 9/05 Dollar-wise, the oil industry is the largest industry in the world and being operated in a free market (that is, there is no overarching authority that controls these sales). This makes it nearly impossible for it to be manipulated by virtue of the power of its numerous players. Any attempt at manipulation promptly raises powerful voices. Many believe that OPEC controls the price of oil but this is not directly true. All that OPEC can do is control the amount of oil they place in the market, which is the same power that anyone with anything to sell possesses. OPEC sells its oil directly into the open market, after which they have no control. The world’s oil producers are generally happy with this arrangement because it is fair and works well. Consumers should be too. Yet they gave no thought to it when fuel was cheap and only complain when it goes higher. There is no arrangement or modification of this market that could result in lower prices. Any efforts by government to manipulate the price lower will only result in higher prices. Attempts to control futures trading in New York will only result in traders shifting to London. Attempts at price controls will produce the inevitable shortages since producers will stop selling anywhere a lower price is forced when they can sell it elsewhere for the market price. Retaliation by taxing will raise the price by the amount of the tax, maybe more. Diverting revenues from producers into “alternatives” will reduce supply, drive up price and waste tax payer money in yet more mindless schemes like ethanol. There is only one thing we can do to reduce our cost of energy and that is to stop using so much of it. In the end either the market or the government will make sure that happens since you can’t have what you can’t pay for unless you steal it without getting caught. I will say it again: The Saudi oil ministers and OPEC are taking the opportunity divert attention from their refusal to raise output by blaming speculators for the price rise. The Saudis intend to keep the price rising because either they can’t raise production due to depletion, or won’t because their oil won’t last forever. In the end it doesn’t really matter because there is not an infinite supply of oil and we are using it like it was water. STAY TUNED! I will be posting an analysis of the decline of the world’s largest oil field, Ghawar, in Saudi Arabia along with a review of that nation’s intentions. In about a week or so. davidpascoeblog.com

To: Wharf Rat who wrote (24632)	6/25/2008 11:35:08 AM
From: koan	Read Replies (1) \| Respond to of 149317

As you probably know oil fields fall like sliding down a bell curve. Most of the big oil fields are in decline. Alaska went from 2.2 million barrels a day to about 700,000 plus 100,000 barrels of heavy oil being produced today. The prudhoe field had 16 billion barrels and West Sak 4 billion, but there is another 100 billion barrels of heavy cold oil lieing above West Sac they are goign after now with the new high prices. Mexico in big decline, Russia in decline for fist time this year, Saudi fields filling with salt water. Personally I like the high prices as I think it will force us to face reality about both energy and I hope pollution. It is certianly a time when we will need to make smart decisisions. Cutting taxes does nothing. It just gives more room for oil companies to raise prices. The truth is we are going to need to restructure our entire infrastrucure to accomodate the new reality.