dagblog - Comments for "Third Strategic Oil Release, Theory Update"

Congress and the CFTC also

Donal — Tue, 28 Jun 2011 18:03:49 +0000

Congress and the CFTC also lumped those hedge buyers in with speculators when they were proposing methods, like reinstating the uptick rule, to limit speculation. But in any case, I don't see how being a hedger or speculator changes the scenario whereby someone agrees to a high futures price, then still has to pay more when the delivered price is much lower.

Suppose you agreed to pay me $50 to fill your gas tank next week, but now the price is lower elsewhere. You can go elsewhere, pay $40 and save money. I don't think it works that way on the futures market. As I understand it, you have to cancel out your futures purchase by taking an opposite position, or actually accept delivery. Maybe I'm missing something, but it seems to me that even though on paper the delivered fuel is cheaper, someone is paying the (inflated) futures price for it, whether by accepting delivery or through margin calls.

In this case you are

A Guy Called LULU — Tue, 28 Jun 2011 17:20:44 +0000

In reply to I'm guessing that the futures

In this case you are confusing the practise of "hedging", which is the legitimate purpose of the market, with "speculating", which is just made possible by the market.

I'm guessing that the futures

Donal — Tue, 28 Jun 2011 17:11:35 +0000

In reply to I agree with what you say

I'm guessing that the futures market eventually develops a panicky momentum that can affect otherwise careful buyers. For example, airlines routinely hire speculators to lock in prices as a hedge against price increases. If they lock in at higher prices, can they back out without taking a loss? I don't know the market that well, but it seems to me that while someone will profit from the difference when the barrel is delivered at a much lower price than the locked-in future price, it might not be the buyer.

I agree with what you say

A Guy Called LULU — Tue, 28 Jun 2011 16:49:37 +0000

In reply to As I read it, supply and

I agree with what you say here but your comment does not make a distinction that clarifies where the fleeced money comes from and who that money goes to. If, as we both suspect/believe, the smart players can fleece the inexperienced players, that fleeceing does not necessarily affect the delivered price of a barrel of oil one bit.
To try to summarize my position: Speculators do affect price movements in the futures market. Some might be able to deliberately cause moves in one direction or the other [Since they can get rich either going long or short, maybe they push that market down] and thereby fleece other players through manipulation. The important distinction though is that this is a side game among players separate from the oil industry itself and which has miniscule affect, if any, on the delivered price of oil, and so it is a mistake to blame rising prices at the pump on speculation within the futures market. I am not saying that you have done that, but Beetlejuice, who I first responded to, did.

As I read it, supply and

Donal — Tue, 28 Jun 2011 15:16:28 +0000

In reply to Donal, I initially missed

As I read it, supply and demand do govern in the long term, but when there was a rush of inexperienced traders looking towards commodities as a safe haven it was easy enough for large traders to play around with prices and fleece them in the short term.

Donal, I initially missed

A Guy Called LULU — Tue, 28 Jun 2011 14:28:11 +0000

In reply to Generally the articles I've

Donal, I initially missed this response and then it took me a while to get to the links you provided and to give them a read. Thanks.

Generally the articles I've

Donal — Sun, 26 Jun 2011 23:30:52 +0000

In reply to Someday our current events

Generally the articles I've read agrees with your take, such as these Econbrowser articles:

May 17, 2008 http://www.econbrowser.com/archives/2008/05/oil_bubble.html
Aug 21, 2008 http://www.econbrowser.com/archives/2008/08/more_speculatio_1.html
May 11, 2011 http://www.econbrowser.com/archives/2011/05/oil_prices_and_2.html

but even though Hamilton thought supply and demand governed, he gradually accepted that speculation had had some effect.

Markey Report: Big Five Oil

Resistance — Sun, 26 Jun 2011 19:35:37 +0000

In reply to Someday our current events

Markey Report: Big Five Oil Companies Approach $1 Trillion in Profits for the Decade, Yet Still Rely on 100 Year-Old Subsidies to Sell $100 Oil

http://democrats.naturalresources.house.gov/press-release/big-five-oil-companies-approach-1-trillion-profits-decade-yet-still-rely-100-year-old

but also allows gamblers to predict what is going to happen with the price of a commodity and profit by those other gamblers who predicted incorrectly.

Where do you suppose these oil companies are placing their profits?

The only sure profit is made by the bookie/brokers who take their rake of every pot.

They are the bookie and the Gambler, who can positively predict what is going to happen..

A sucker born every minute? WE the People are being played, dont you just love the Capitalistic Free market?

Debs proved how they can manipulate the market.

Someday our current events

A Guy Called LULU — Sun, 26 Jun 2011 15:24:30 +0000

In reply to There is way too much

Someday our current events will be ninety year old history and a documentation of that history will include many instances of people and institutions trying to exert control for the purpose of amassing wealth. That history will also include documentation of some of the voices that are currently attempting to channel peoples knowledge and opinions, some doing so with deception for purposes of control and some trying to honestly inform the public so they can avoid being controlled and used solely for the profit of others through deception.
In the particular case of the particular commodity of oil, I do not see how speculation through the mechanism of futures trading can exert a controlling influence which raises the delivered price of oil and which puts the marginal difference, if it exists, between what the price would have been without the trading in futures and what it ends up being after that trading, into the hands of those would be controllers.
The comment I quoted above seems to me to be a correct evaluation of the ability, or more correctly the inability, of speculators to push up the price of oil and to reap the resulting higher profit. If that is so, again if, then those saying that speculators are raising the price of gas at the pump are wrong. If they are spreading a meme that is wrong it is either from making an incorrect analysis or from believing an incorrect analysis and passing it on. A third possibility/likelihood is that it is deliberate misdirection [at some level] to cast blame on a financial tool, futures trading, which has a vital purpose, and so will not be done away with, but also allows gamblers to predict what is going to happen with the price of a commodity and profit by those other gamblers who predicted incorrectly. Futures trading is said to be a zero sum game, nobody makes a nickel in that game that somebody else didn't lose in the game. The only sure profit is made by the bookie/brokers who take their rake of every pot.
If anyone can pick this comment to pieces and show me how it is, or even could be, wrong, then I honestly hope they will do so [and ideally with an explanation clear enough for my simple mind] because in every case possible I would like to know who the real bad guys are and who the bogeymen are.

There is way too much

Resistance — Sun, 26 Jun 2011 08:54:02 +0000

In reply to Following is a link to an

There is way too much manipulation it just never ends.

Heres an example in another era of controlling an energy source

http://en.wikisource.org/wiki/Debs'_Speech_of_Sedition

10…..Fifty-two percent of the land kept out of use, according to their own figures! They tell you that there is an alarming shortage of flour and that you need to produce more. They tell you further that you have got to save wheat so that more can be exported for the soldiers who are fighting on the other side, while half of your tillable soil is held out of use by the landlords and profiteers. What do you think of that?

Again, they tell you there is a coal famine now in the state of Ohio. The state of Indiana, where I live, is largely underlaid with coal. There is practically an inexhaustible supply. The coal is banked beneath our very feet. It is within touch all about us—all we can possibly use and more. And here are the miners, ready to enter the mines. Here is the machinery ready to be put into operation to increase the output to any desired capacity. And three weeks ago a national officer of the United Mine Workers issued and published a statement to the Labor Department of the United States government to the effect that the 600,000 coal miners in the United States at this time, when they talk about a coal famine, are not permitted to work more than half time. I have been around over Indiana for many years. I have often been in the coal fields; again and again I have seen the miners idle while at the same time there was a scarcity of coal.

They tell you that you ought to buy your coal right away; that you may freeze next winter if you do not. At the same time they charge you three prices for your coat Oh, yes, this ought to suit you perfectly if you vote the Republican or Democratic ticket and believe in the private ownership of the coal mines and their operation for private profit.

The coal mines now being privately owned, the operators want a scarcity of coal so they can boost their prices and enrich themselves accordingly. If an abundance of coal were mined there would be lower prices and this would not suit the mine owners. Prices soar and profits increase when there is a scarcity of coal.

It is also apparent that there is collusion between the mine owners and the railroads. The mine owners declare there are no cars while the railroad men insist that there is no coal. And between them they delude, defraud and rob the people.

Let us illustrate a vital point. Here is the coal in great deposits all about us; here are the miners and the machinery of production. Why should there be a coal famine upon the one hand and an army of idle and hungry miners on the other hand? Is it not an incredibly stupid situation, an almost idiotic if not criminal state of affairs?

We Socialists say: “Take possession of the mines in the name of the people.” Set the miners at work and give every miner the equivalent of all the coal he produces. Reduce the work day in proportion to the development of productive machinery. That would at once settle the matter of a coal famine and of idle miners