Bush oil cartel raises oil prices

Discussion in 'Economy' started by alan1, Jun 16, 2009.

  1. alan1
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    alan1 USMB Mod Staff Member Supporting Member

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  2. Toro
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    Oil prices are rising because of liquidity flooding the market. Oil is not going up because of dollar weakness. Oil has gone up in all currencies. The commitment of traders report shows that the proportion of futures contracts held by commercials (the guys who make the stuff) to non-commercials (speculators) is near all-time lows.
     
  3. Oddball
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    Oddball BANNED Supporting Member

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    What about end users trying to lock in prices, like airlines, in order to maintain relatively stable month-to-month budgets??
     
  4. Toro
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    Those are commercials. It's primarily speculators driving up prices.

    There is a lot of cash sitting in commodity hedge funds that has been put to work. I own LEAPS on the USO, which I'm blowing out tomorrow.
     
  5. alan1
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    alan1 USMB Mod Staff Member Supporting Member

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    Was it speculators that drove down the price to begin with?
    Or do they only get the blame when the price goes up?
     
  6. Toro
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    There has been a structural shift in the composition of the commodities futures markets, which has been well documented. There has been a large inflow of funds into the commodities markets as primarily large institutions increased their asset allocations to commodities. Not only do you see it in the commitment of traders reports, you see it merely in the curve. For example, oil was usually in backwardation, meaning that the spot price was usually higher than prices for contracts to settle in the future. Investors and speculators generated a significant amount of their return by playing the "roll" whereby they bought contracts set to expire in the future and "rolled" up the curve as expiration approached and the price rose to the higher spot price as time went on. So everyone tried to do that, which increased demand out on the curve, such that futures prices have generally been higher than spot prices over the past five years. When the futures prices are higher than the spot price, this is known as "contango." What this means is that this flood of investment money has fundamentally altered the structure of the market. So whatever the specs so, they will have more of an effect than in the past.

    When the spot price of oil was in the $30s, the percentage of commercials to specs was about average over the average of the past 30 years but was near highs compared to the past five year average. Thus, when oil was low, it was because the specs had sold out their positions and the commercials were buying.
     
    Last edited: Jun 16, 2009
  7. alan1
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    alan1 USMB Mod Staff Member Supporting Member

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    So, it sounds like you are saying the speculators did cause the drop in price.
     
  8. Midnight Marauder
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    Midnight Marauder BANNED

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    It's Booooosh! And Halllllliburton!!!! And Cheeeeeeney!!!!
     
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  9. Toro
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    They caused it to go up big and they caused it to go down big. For the most part.
     
  10. auditor0007
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    auditor0007 Gold Member

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    So where do you see this going near term Toro? Are the speculators going to continue driving it higher, or are we do for a bust and large drop? I've been under the assumption that the glut is growing to the point that we have to see a big drop soon. Am I wrong?
     

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