It’s Decision Time – Oil Speculators or The American Consumer?

[Paulie]

I would favor legislation that limits speculation to less than 15% of the total market value in any commodity. That is largely in place in many futures markets in grains, meat, and cotton today, in the US and UK, although its not federal statute but the rules in place in those exchanges. Limits on the number of traded contracts and daily limits on price moves.

He did ask for data, Zoomie. Could you at least accomodate him?

 

[editec]

(Wind already is cost effective actually, if you look strictly at cost per kWh. So why isn't it widespread?

For the homeowner, it's a return on investment issue, I think.

A diabolical conspiracy? Capitalists aren't interested in profits anymore? No, they're intermittent power sources. The sun doesn't shine at night. Wind blows sometimes, and other times not. Without massively huge and cheap ways to store electricity, they will never displace coal/oil/nuclear. Okay, solar can work without batteries, to negate your A/C bill in the summer, which is pretty good. But it can't be the backbone of heavy industry.)

Well...you need some way to store excess energy as potential energy, that's for sure.

Depending on how large the system is overall, there's ways to store potential energy other than batteries, though.

Hydrogen, for example

Pumping water into reservoirs, another.

I'm not sure these are practical solutions for the overall energy picture, of course.

But I suspect conversion of solar into electicity, and conversion of any excess electicity it produces by means other than batteries is going to be a large part of the next generation of energy production.

A couple windmills on my land and I can demand less from the grid much of the time, and contribute to the grid some of the time, and that's without batteries on site.

Of course the grid has to be there and it has to have energy all the time, that I understand.

But if we exploit solar, we could, for example, find that we don't have to build quite so many nukes as that backbone of energy.

I think the solutions are out there right now, but as yet we lack the political will to start down the long road to sustainable energy.

T-Bone Pickens is doing the right thing, by trying to prime the pump to get that political will, I think.

 

[Ag107.87]

I would favor legislation that limits speculation to less than 15% of the total market value in any commodity. That is largely in place in many futures markets in grains, meat, and cotton today, in the US and UK, although its not federal statute but the rules in place in those exchanges. Limits on the number of traded contracts and daily limits on price moves.

I'd still love to know where you get your figures that speculative money is 60-70% of the oil market.

In 2003 there was $16billion of speculative cash in the oil market, roughly 10% of the total value of the market with 90% being from those who actually deal in the physical commodity. Today it over $260billion and 65-70% of the market is speculative cash

Actually, those numbers are for all commodities, not just oil. Oil accounted for only a small percentage of those numbers, but because 7-8 dollars can buy you 100 dollars worth of oil, it ends up being the same amount, roughly.

However, you state that $16 bln in 2003 equalled 10% of the market and $260 bln now accounts for 60-70% of the market.

So in 2003, you are saying that the oil market was worth $160 bln/annum. However, the world produced 78 mpd at an average price of $30/barrel. That is equivalent to a market value of more than $850 bln, not $160 bln, like you suggest.

And today, at $130/barrel and 85 mpd, that's a market value of $4 trillion (with a t). Which means that $260 bln worth is less than 7% of the current market, not the 60-70% like you suggest. That's 1/10 of what you said.

 

[gonegolfin]

Thanks.

Okay I read the link.

This above get.

The normal shorts (yin) can't compete with the long (yang) because they are the wrong side of the trend (can't sell off those positions) and have to keep ponying up money to cover their positions.

More specifically, the speculative shorts (many of which are investment banks) are trapped in their short positions because the speculative long index funds, pension funds, etc. are not traders and are in it for the long haul. Thus, they are holding their positions until near expiration and then rolling over those long positions into new (dated farther out) contracts. The speculative shorts hate this because they cannot force the speculative longs to sell, allowing the speculative shorts to get out from under their bad bets. So now, they want to pull Congress in and force the speculative longs to sell (another bailout of sorts).

Note that the large speculative shorts are accustomed to having their way in the futures markets, especially when it comes to precious metals. A small number of these speculative shorts hold a very large concentrated short position in gold and silver. They have fleeced the hedge funds (which are typically speculative on the long side) for years by triggering sell-offs at critical technical levels (hedge funds are mostly trading system based) and then covering their short positions on the way down. After the covering is complete, the cycle then begins anew. But the speculative shorts have been profitable thus far in PMs because most of the speculative longs (taking the other side of the bet) are not buy and hold longs (like the index funds in oil and other commodities). They can be moved out of their positions and are.

Does that make sense?

But what CAUSED the long term trends to start piling up so to begin with?

Quite simply, the supply/demand situation began to tighten. This is what I pointed out in the earlier post. Remember that during this July/August/September time period, the speculative longs were at their peak (as were the speculative shorts) while oil was in the low 70's. Oil began to get tight and the shorts started bailing. The speculative longs actually reduced their positions between that time and when oil peaked in the high 140's a couple of weeks ago. So it was not new long money coming in and driving up the price (liquidity in the market trying to find a home).

Brian