Saturday, May 14, 2011

oil prices and jawbones


the recent(2 weeks ago) pathetic attempt by the president of the united states to blame oil prices on speculators raised the hair on the back of my neck.

his attempt to get the attorney general involved in fraud inside energy trading was outrageous.

what a.g. holder will find is that there is little fraud to be found.

what is to be found is an enormous amount of financial influence in the oil markets through hedge funds, pension plans, indexes, and people trading online that has, in many ways, swamped out the amount of money being traded by those with actual connection to oil.

the oil companies, the oil user, the drug companies, aluminum companies, the food processing companies, the refining companies, real users of energy that should be allowed to set the rice of oil, have been overrun by you and me, in many cases, by anybody who is a public servant.

the president's blame on speculators, only to slight degree correct,  is a bald faced attempt to distract us from the reality that our government has failed miserably for decades to establish a viable energy policy in the u.s.that would make us less, or independent of foreign oil prices and  the varying strength of our dollar.

we lack an energy policy that makes any kind of sense.

the amount of natural gas available in this country could power this country for 2 centuries.  instead, we are sending billions and billions of our dollars overseas to people who don't like us very much.

that being said, there is still considerable wall street influence overly on the crude barrel price, and the price you and i pay to fill our tanks.

we have an ENORMOUS surplus of supply.
demand is at the lowest level in 7 years.
the supply structure is the highest in 16 years.

yet, we have prices raising upward ..
when oil prices went down several days ago, i saw no presidential announcement blaming the drop from $115/barrel to $97/barrel on the speculators.

the president's implication, to me, is that there is MANIPULATION of the market, by 'somebody' going in and nefariously trying to hike prices.

there is nothing wrong with someone taking a small portion of their portfolio and investing in a hard commodity  index trying to capture what they think is going to be a rising price in oil, copper, soybeans, or whatever.

as people try to capture this asset class, they keep buying these commodities.
they are buying paper pieces(futures) of the commodities.  this hikes prices.

anytime something geopolitically happens to drive prices higher, the condition accelerates.

prices are swinging wildly like they did in 2009.   the lack of price stability is a real problem for folks who must plan and allocate dollars  for what  prices may be in the future.

85,000,000 barrels are consumed daily around the world.  ten years ago, the daily world usage was 65,000,000 barrels daily.

people are buying futures believing that oil demand will be increasing in future in india and china and that the price will increase.

there is a great growth in the amount of paper barrels being bought that has gone from zero to $350 billion of paper barrels of oil bought in the last 5 years.

that money has to go somewhere and it has to affect oil prices.

it has overrun a very delicate, tiny futures market, which was never created for people to come in and invest in, as if it were a stock or bond.

that's how you and i(presumably the 'speculators') are investing in it now.

if we buy the front end of an oil barrel, you we to find someone to sell it to.

real commodity traders are always looking for an exit. 

people coming in during the past 5 years never wanting to sell, and wanting to own it like a stock.

when they do that, there are higher and higher swinging and much more volatile moves in a commodity that we all depend on.

every president since nixon has talked of making this country energy independent.

folks who take stock in or believe in, or even, listen to political talk are fools.

every president since nixon has had the capability to make us energy independent, and has not done it.

now, with the new finds in natural gas, not counting fracking, we are in a better position for energy independence than ever before.

what will our energy policy be in 15 years?  my bet is that it will be the same one we have now---essentially no energy policy.
perhaps, the silly new energy fad of those  times will be ocean turbines or nuclear fusion.

looking into the near future, the death of bin laden may help to stabilize oil prices.  the futures  going out several months are progressively and considerably lower.

the president will likely 'suggest' that the exchanges significantly  increase their margins on oil, like the exhanges  recently did with silver, whch brought lots of froth and price out of an overinflated market.

it is overtly disingenuous for any politician in any position of power to go out and say that 'it's those traders and speculators' who are responsible for the $115 oil price, and then be silent 2 weeks later when the price recedes significantly(under $100/barrel).

bringing the attorney general into this game was a disingenuous political manuver .  whether the a.g. will wisely keep silent on this matter i've no idea.

leaning on the exchanges, or jawboning, them would have been less newsworthy, but perhaps more effective.
other wise moves would be to remove some of the financial instruments that have recently moved the price so violently.
that would include restricting the commodity indexes run by the big big fund houses.
big pension plans use them.
there should be a ban on futures-based etfs which allow anyone with a mouse to set or help set the price of something so critical to all of us as oil by buying shares that look like a stock but translate into futures buying.
that is manipulating these markets, sending prices upward and downward.
these things shouldn't be sold to folks like you and me.

when this was recently done with silver, $7.5 billion of retail wealth was flushed down the drain.
this frenzy is going to happen with oil, very likely.
commodities should not be accessible like stocks as etfs to normal people.

when oil was last $99/gallon, gas prices were about $3.40.
you and i are paying over $4/gallon with oil prices there now.
why do prices go up so fast when oil prices go up and down so slowly when they decrease?

if the futures prices stay where they are now our gas prices may go down 25 cents by summer.

the few people who have natural gas vehicles are paying 40 cents a gallon.
no american carmakers build them.
recommended reading
dan dicker
oil's endless bid

globe unity orchestra


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