No To Oil Prices Ruining U.S. Economy

[Care4all]

But care, you have to understand WHY they're "speculating" in it.

All the relevant fundamentals currently exist, to keep the price going up. The only way it's going to come down at this point, is if we stop devaluing the dollar the way we are, and we stop with the military empire. Even THEN, it's not going to be a bottom drop-out like the housing or dot-com fiascos. This isn't a bubble, like those are. People aren't rushing to oil because they all just can't bear to live without a piece of it, like with the housing boom. It's shaping up to be a long-term quality investment because the important fundamentals that serve to increase its value are present and increasing themselves.

If we get through the Bush admin without action in Iran, and the next admin spends about a year or more on good terms with them...maybe then we'll see some of the "speculation" diminish. Of course, it would also need to be accompanied by a more humble foreign policy all around. The global community is going to have to see a reason to regain faith in the USD again, and the budget certainly could stand to be brought to a surplus or at least a balance, as well.

When and if that can be forseen in the near future, oil will start coming down. Until this all happens, oil has nowhere to go but up.

I can see your points, but before you actually make this decision, go to c-span and look in to the archives for this meeting with the Oil Execs on the Hill and listen/watch it all before you do it.... I am really clueless on all of this and am just trying to learn, and this is why I have kept my eye on this thread and a few others that you and others have been posting on...BUT it did seem to me that this Capital Hill testimony implied that it was or could be, a bubble of sorts....

But like said, i could have not understood it Paul, but I know you would so watch it first, ok? that's all....

Care

 

[Paulie]

I can see your points, but before you actually make this decision, go to c-span and look in to the archives for this meeting with the Oil Execs on the Hill and listen/watch it all before you do it.... I am really clueless on all of this and am just trying to learn, and this is why I have kept my eye on this thread and a few others that you and others have been posting on...BUT it did seem to me that this Capital Hill testimony implied that it was or could be, a bubble of sorts....

But like said, i could have not understood it Paul, but I know you would so watch it first, ok? that's all....

Care

I certainly appreciate your willingness to learn. That's all I can really expect of my fellow citizens. But a lot of that Capitol Hill testimony is dog and pony show for the ones who give a lot less effort in the 'desiring to learn' dept.

I'm trying to show you why they are, to a certain extent, not giving you the full truth. It can't be a bubble like past ones you are currently aware of, in that the motivation to get in on it is not like the motivation for housing and tech stocks was. The fundamentals that kept those other sectors inflated were temporary, with nothing really existing that could be counted on to maintain them in the long term. Tech stocks, because how can thousands of competing fledgling companies all be expected to stay in business AND maintain those kinds of stock prices. Housing because so many buyers were already up to their asses in debt-to-income deficits to begin with, so it's collapse was inevitable.

With oil, as I pointed out, there are many factors that exist that are sure to keep the price up for a long time. Of course, at any time those factors could change...but do you see us scaling back our military empire anytime soon? Do you see us scaling back our entitlement spending? Scaling back on bailing out everyone who takes ridiculous risks? Those things haven't changed in DECADES.

When Obama talks of "change", I'm not seeing ANYTHING in his platform that addresses these particular fundamentals that are keeping oil prices high. He wants to spend more than Bush has endorsed, he'd like to continue bail-outs as his platform reeks of socialization. His foreign policy seems to touch on it a bit, but can he be trusted to come through on it? Will the military-industrial complex and the media-industrial complex give him a pass on scaling back the empire? I doubt it. He's going to have to conform, or he's toast and he knows it.

The ONLY question is, does he have the balls to take the chance anyway.

 

[Zoomie1980]

This is nothing but a bunch of drivel.

The nation is not going to go into a depression over oil prices. I am certainly not one to rule out a depression in the foreseeable future, but it's certainly not going to go unchallenged by ME at least, if someone is going to merely blame oil prices.

I'm not sure what you think congress OUGHT to do, besides stop the out of control spending that is requiring us to inflate the money supply so much.

The culprit is the Dollar, and the policy the runs it. Congress is wasting time and distracting and dividing the nation by trying to scapegoat oil companies.

Congress needs to focus on putting limits on speculative interference with commodity markets. Like I've stated elsewhere, by family are oil people and my wife's family are farmers. In normal times in commodity markets less than 10% of market investment is speculative. The markets are used, normally, by producers, consumers and shippers to mostly hedge positions. You buy and sell commodities on or off a dated contract price. When one side fixes you offset in the futures market to protect your basis (negotiated profit margin). These are all people who either have to deliver the commodity or take possession of a shipment of a commodity. Speculators do neither. Under normal circumstances their purpose to provide a degree of liquidity to the market, allowing the middlemen (shippers) to protect themselves by making timely trades.

Under normal times the markets adhere closely to stochastic models that follow normal demand-supply pressures in REAL terms. In hyper-speculative times, markets no longer obey these "rules". That's today. Over 60% of the money in the oil market today is speculative, as opposed to 10-15% in normal times.

Speculators are essentially causing almost ALL the problem and if there is a group that needs to have the federal screws applied to their thumbs it is the speculator, NOT the oil companies.

 

[Paulie]

Congress needs to focus on putting limits on speculative interference with commodity markets. Like I've stated elsewhere, by family are oil people and my wife's family are farmers. In normal times in commodity markets less than 10% of market investment is speculative. The markets are used, normally, by producers, consumers and shippers to mostly hedge positions. You buy and sell commodities on or off a dated contract price. When one side fixes you offset in the futures market to protect your basis (negotiated profit margin). These are all people who either have to deliver the commodity or take possession of a shipment of a commodity. Speculators do neither. Under normal circumstances their purpose to provide a degree of liquidity to the market, allowing the middlemen (shippers) to protect themselves by making timely trades.

Under normal times the markets adhere closely to stochastic models that follow normal demand-supply pressures in REAL terms. In hyper-speculative times, markets no longer obey these "rules". That's today. Over 60% of the money in the oil market today is speculative, as opposed to 10-15% in normal times.

Speculators are essentially causing almost ALL the problem and if there is a group that needs to have the federal screws applied to their thumbs it is the speculator, NOT the oil companies.

I'd certainly appreciate some numbers to back up the assertion that 60% of oil is speculative. Although, even if so, why SHOULDN'T it be? What fundamentals can you provide that would assume oil will not be continuing to rise?

And why should the government interfere with speculation? This, coming from a guy who claims government should keep its nose out of the markets. Speculation should be our freedom of choice. Right now it doesn't look good for the Dollar in the long term. Naturally, because of that, I speculate that commodities will rise. I'm not investing BILLIONS, of course, but why should it be any different for a little guy like me or someone with that much capital to invest? We're both citizens with the same constitutional rights. You allow the government to regulate that, and they'll take even MORE, like always.

Should I assume you are an opponent of shorting?

 

[Toro]

Congress needs to focus on putting limits on speculative interference with commodity markets. Like I've stated elsewhere, by family are oil people and my wife's family are farmers. In normal times in commodity markets less than 10% of market investment is speculative. The markets are used, normally, by producers, consumers and shippers to mostly hedge positions. You buy and sell commodities on or off a dated contract price. When one side fixes you offset in the futures market to protect your basis (negotiated profit margin). These are all people who either have to deliver the commodity or take possession of a shipment of a commodity. Speculators do neither. Under normal circumstances their purpose to provide a degree of liquidity to the market, allowing the middlemen (shippers) to protect themselves by making timely trades.

Under normal times the markets adhere closely to stochastic models that follow normal demand-supply pressures in REAL terms. In hyper-speculative times, markets no longer obey these "rules". That's today. Over 60% of the money in the oil market today is speculative, as opposed to 10-15% in normal times.

Speculators are essentially causing almost ALL the problem and if there is a group that needs to have the federal screws applied to their thumbs it is the speculator, NOT the oil companies.

Do you know that Exxon's production profile has barely grown over the past five years but the company spends $20-$30 billion a year in share buybacks?

Did you think that the government should have done something to stop the mania in tech stocks in 1999 or the housing market in 2005-07? Do you think the government should have stopped the insane buying of tech companies and homes by investors? Because it was the inability of the government to do anything as those bubbles inflated while flooding the system with liquidity after the bubbles burst that is a primary driver of commodity inflation today. Investors are merely acting as rational agents in response to economic conditions the government helped create (though we're entering Bubble 3.0 territory).

I agree that speculation is having an effect on the price of commodities. Its hard to say that it is not. However, to say that ALL of the problems are caused by "speculators" is specious at best.

For example, the soaring price of rice has almost nothing to do with speculation. Many speculators didn't even know that rice was traded in America until it started to soar. (Rice is traded on the CBOT) Rice is one of the lowest volume commodities traded on any futures exchange in the world. About 90% of all rice produced is consumed in its home market, and the soaring price has more to do with drought in Australia and infestation in Vietnam.

There is no futures market for liquified natural gas that I'm aware of. However, spot pricing for LNG delivered to South Korea was as high as $20 a month or two ago, far above the spot price of nat gas in America. This has nothing to do with speculators because there is no speculation in the LNG market.

Also, look at the Baltic Dry Index, which is an index of shipping rates for dry bulk goods. This is back to all-time highs. If speculation was the primary (as opposed to a minor) driver of commodity prices, the Baltic Dry Index would be nowhere near its highs because it represents the prices paid to shippers to transport actual goods. If it were speculators as opposed to the real economy, buyers of commodities in the real economy would not be bidding up shipping rates so high.

http://investmenttools.com/futures/bdi_baltic_dry_index.htm

I find it more than a little ironic that Congress is considering limiting speculation in commodities markets, given how much support it gives farmers and the tax breaks it has given the oil companies. When investors on their own volition bid up prices of foodstuffs, putting money into the pockets of farmers, that's bad. But when Congress supports farm prices through distortionary subsidies which pay farmers not to farm, upsets our trading partners, takes money out of consumer pockets in the form of hidden transfer tax, and supports an ethanol program that is contributing to the skyrocketing prices of commodities around the world (not to mention that subsidies contribute to the deficit, which is inflationary and also contributes to high commodity prices) that's good.

The United States has run an incompetent fiscal policy for most of this decade and an incompetent monetary policy for longer. The dollar is tanking and investors are running for hard assets. Surprise, surprise.

You want Congress to limit "speculators," which include the largest pension funds in the world. Fine, we'll trade out of London, which will create arbitrage opportunities for real producers and consumers to transact out of there, keeping the prices up anyways.

Best of luck with that.

 

[jreeves]

I'm not quite sure exactly what you base that on. The dollar is being devalued to keep up with the debt burden. It's also being shorted hard on the market, for this reason, which is bringing it down even farther...not to mention being completely dumped for foreign equities. No one wants to be in the Dollar right now, and rightfully so.

Then you have supply diminishing, while demand is increasing. And we may very well be expanding our military escapades into Iran which will UNDOUBTEDLY cause even more of a spike...

I mean, the fundamentals are all there for a continued upwards trend in oil. Look at the USD charts, and the oil charts.

Where exactly are you seeing anything to the contrary?

Futures prices of oil is dropping which signals to me current oil prices will drop.

 

[BrianH]

Futures prices of oil is dropping which signals to me current oil prices will drop.

Hey could you post a link for that??? I'm not accusing you of lying, but I've seen future projections of the oil prices rising dramatically....

 

[jreeves]

Hey could you post a link for that??? I'm not accusing you of lying, but I've seen future projections of the oil prices rising dramatically....

Some analysts see signs in a recent switch in the relationship between the price of the current July crude contract and prices of crude for delivery in future months that tell them prices could soon fall.
http://www.msnbc.msn.com/id/12400801/

 

[Paulie]

Hey could you post a link for that??? I'm not accusing you of lying, but I've seen future projections of the oil prices rising dramatically....

You misunderstand. Futures, as referred to in this case, means delivery of a presently purchased security at a future date and price. Not a projection of the future prices, necessarily, as you stated.

Although I'm in disagreement with jreeves. As I've been pointing out, the fundamentals are staring you right in the face. All the links in the world from people claiming that futures are showing a potential decline in spot prices, can't add up to the basic fundamentals: Iran is questionable in the near term future, supply is not necessarily increasing, or keeping up with demand, and the BIGGEST, the Dollar has a long way to go before it's ever going to see a long term upward trend which is bascially what it's going to take to bring oil back down to Earth. Unless congress performs a friggin miracle and all the sudden does a 180 on fiscal policy, scaling back the new money creation, and even approving homeland drilling in our reserves, oil is going to go up, while the dollar goes down.

 

[Toro]

Futures prices of oil is dropping which signals to me current oil prices will drop.

Actually, future years are rising.

Prices of oil for delivery in 2009 and beyond have staged even more dramatic moves, surging 30% or 40% for the month, before settling back a bit Thursday.

http://online.wsj.com/article/SB121144793027713801.html?mod=todays_us_money_and_investing

The oil market is now in contango - future prices are higher than spot prices today - which is unusual in the oil market. Usually, oil is in backwardation - the opposite of contango.

This condition almost certainly has to do with the speculators that zoomie referenced earlier.

 

[Paulie]

Some analysts see signs in a recent switch in the relationship between the price of the current July crude contract and prices of crude for delivery in future months that tell them prices could soon fall.
http://www.msnbc.msn.com/id/12400801/

jreeves, this is more than likely behind-the-scenes market manipulation by groups such as the President's Working Group on Financial Markets, for one.

That's not real-world market activity. Perhaps I'm wrong, and I'm sure Toro or Gonegolfin can offer some insight as well.

 

[jreeves]

Actually, future years are rising.



http://online.wsj.com/article/SB121144793027713801.html?mod=todays_us_money_and_investing

The oil market is now in contango - future prices are higher than spot prices today - which is unusual in the oil market. Usually, oil is in backwardation - the opposite of contango.

This condition almost certainly has to do with the speculators that zoomie referenced earlier.

Couldn't access your article could you post a portion of it?

 

[BrianH]

Ok I misunderstood...even so, I still do not quite agree with jreeves....Nothing personal bud, but if current trends continue, I don't see a fall in prices...especially since demand is not decreasing.

 

[jreeves]

Ok I misunderstood...even so, I still do not quite agree with jreeves....Nothing personal bud, but if current trends continue, I don't see a fall in prices...especially since demand is not decreasing.

Not a problem, I believe prices will drop, but not dramatically. I just don't believe you should invest in oil, when it's trading for what it is right now.

 

[BrianH]

Not a problem, I believe prices will drop, but not dramatically. I just don't believe you should invest in oil, when it's trading for what it is right now.

What I think (is and) will happen (given we don't have an economic collapse) is that they will continue to raise the price (to get us used to it) and then drop it a little to make it seem as though the price is cheaper. After paying 4-5 dollars a gallon, 3.50 will seem cheap....

 

[Gunny]

This is nothing but a bunch of drivel.

The nation is not going to go into a depression over oil prices. I am certainly not one to rule out a depression in the foreseeable future, but it's certainly not going to go unchallenged by ME at least, if someone is going to merely blame oil prices.

I'm not sure what you think congress OUGHT to do, besides stop the out of control spending that is requiring us to inflate the money supply so much.

The culprit is the Dollar, and the policy the runs it. Congress is wasting time and distracting and dividing the nation by trying to scapegoat oil companies.

I disagree.

This nation functions on oil and our lifestyles revolve around it. The price of EVERYTHING has gone up along with the price of oil. Every single person who was just barely making it 3-6 months ago is now on the red side of the line.

Gas at teh pump prices didn't just go up. The increased cost of transportation has been passed on to consumers in just about every aspect. it isn't JUST the price at the pump ... it's also the $50 extra per week for groceries.

And what about people who have to commute to work? I am fortunate in that I live about 3 miles from the shop I work for and can hop in a company truck, fueled by the company, that has passed that increase in fuel costs on to consumers.

There IS such a thing as a breaking point. Our government kept oil prices artificially low. It created this monster. Now it appears it is unwilling to control it and it's destroying PEOPLE ... not numbers on the NYSE.

 

[jillian]

I disagree.

This nation functions on oil and our lifestyles revolve around it. The price of EVERYTHING has gone up along with the price of oil. Every single person who was just barely making it 3-6 months ago is now on the red side of the line.

Gas at teh pump prices didn't just go up. The increased cost of transportation has been passed on to consumers in just about every aspect. it isn't JUST the price at the pump ... it's also the $50 extra per week for groceries.

And what about people who have to commute to work? I am fortunate in that I live about 3 miles from the shop I work for and can hop in a company truck, fueled by the company, that has passed that increase in fuel costs on to consumers.

There IS such a thing as a breaking point. Our government kept oil prices artificially low. It created this monster. Now it appears it is unwilling to control it and it's destroying PEOPLE ... not numbers on the NYSE.

I agree with everything you said. It cost me more than $50 to fill my gas tank yesterday. I drove down toward the jersey shore yesterday... no cars. No backup on the Garden State Parkway. Nada.... Same on Saturday. No traffic going either way on the George Washington Bridge???? On Memorial Day Saturday?!?!?!? There's only one reason for that. People can't afford to use the gas. The lack of people traveling affects the owners of the businesses to WHICH people travel. So it's not even just the gas; or the cost of goods; its reduced income to people who are reliant on it, thereby sending those that are marginal into the red.

This is going to place our social fabric at risk if it's not gotten under control.

 

[Annie]

I agree with everything you said. It cost me more than $50 to fill my gas tank yesterday. I drove down toward the jersey shore yesterday... no cars. No backup on the Garden State Parkway. Nada.... Same on Saturday. No traffic going either way on the George Washington Bridge???? On Memorial Day Saturday?!?!?!? There's only one reason for that. People can't afford to use the gas. The lack of people traveling affects the owners of the businesses to WHICH people travel. So it's not even just the gas; or the cost of goods; its reduced income to people who are reliant on it, thereby sending those that are marginal into the red.

This is going to place our social fabric at risk if it's not gotten under control.

I too agree. I'm giving serious consideration to selling my quick selling townhouse and moving closer to school, though I intend to leave there in the next year or two. I drive about 45 miles per day. My intention was to stay put until my youngest had graduated and found a position, then move out of state. I never intended an intermediate move, but it may be necessary.

 

[onedomino]

We need to mobilize the productive capacity of America with the same intensity we did in the first half of the 1940s. We need a crash program to develop and bring on-line the energy resources that we possess: oil shale, coal, off shore petroleum, and nuclear power. We cannot afford to wait years for these resources. We need legislation that will provide the incentives for private companies to immediately finance and develop these resources. We need to stop chasing windmills and pursue energy sources that we can use in the near future.

 

[Paulie]

I agree with everything you said. It cost me more than $50 to fill my gas tank yesterday. I drove down toward the jersey shore yesterday... no cars. No backup on the Garden State Parkway. Nada.... Same on Saturday. No traffic going either way on the George Washington Bridge???? On Memorial Day Saturday?!?!?!? There's only one reason for that. People can't afford to use the gas. The lack of people traveling affects the owners of the businesses to WHICH people travel. So it's not even just the gas; or the cost of goods; its reduced income to people who are reliant on it, thereby sending those that are marginal into the red.

This is going to place our social fabric at risk if it's not gotten under control.

jillian, I live right at the jersey shore. This weekend was no less travelled than any summer weekend I can remember. Just earlier today, I got caught in a half hour slow crawl in bumper to bumper traffic, on BACK ROADS. I mean, there wasn't a road leaving the shore that wasn't backed up for miles. I've actually never even seen that before. I used to be able to take the back roads, as I know them all in my area, and now the shoobies have figured all of THEM out, too.

If gas prices are hurting people so badly, it sure didn't appear that way THIS weekend. I don't even want to think about how much gas was wasted by the stop-and-go traffic jams this weekend.

Gas can go to $10. People will still waste it.