There are a number of posters here that have maintained that oil prices are simply supply and demand. Others of us disagreed only to be told that we did not understand. CNBC's Senior Energy Correspondent wrote this interesting piece on May 6, 2009. http://www.cnbc.com/id/30603801 Oil Prices Ignore Supply, Demand Picture: Here's Why Topics:Energy | Commodities Sectors:Oil and Gas By: Sharon Epperson, CNBC Senior Energy Correspondent | 06 May 2009 | 03:46 PM ET Why is oil trading near a 6-month high—breaking into a new range—and rallying above $56 a barrel, when oil supplies are at the highest level we've seen since 1990 and demand is tanking? Oil remains technically strong today, despite rather bearish fundamentals, as traders continue to follow the equities market. Crude's broken into a new range and a settlement above $55 is significant. What's fueling the momentum? Nymex traders tell me they're seeing new money coming in from passive funds that are reallocating assets away from precious metals and into energy holdings. It's this money flow—rather than the fundamental supply/demand data—that's driving oil prices higher. Video: CNBC's Sharon Epperson discusses the oil build and why prices continue to climb. Looking at the intraday chart, though, it's clear that today's rally started with the job loss numbers from ADP (not as bad as expected) and continued when the Energy Department showed oil supplies rose less than expected and gasoline supplies declined slightly. Traders read that as neutral, not bearish—perhaps even as somewhat bullish. The fact that refinery run rates ticked up nearly 3 percentage points to 85 percent capacity has added to some traders' optimism that this market is turning around. Still, the overall supply/demand picture remains extremely bearish. U.S. oil supplies are at an 18-year high, and demand is at its lowest level since September 2001, at an almost 8 percent decline from a year ago. Product demand posted double-digit declines in every category over the past four weeks, except for gasoline, which fell about 0.4 percent. Yet, if stocks hold up in the face of bank stress test results tomorrow and April unemployment data on Friday, oil prices may make a run to $60 a barrel. And with money that was sitting on the sidelines coming in, investors will likely help propel the run up—buying more oil (and natural gas—notice today's 7 percent surge) just to have a little skin in the game.
Gawd this is such a stupid argument, Refman. Why do you think money is flowing into oil recently? Umm... because the inventory number was lower than expected (supply), the dollar has weakened (drives demand), and there are hopes that the economy has bottomed (drives future demand). Do I really need to explain queuing theory to you again? Everything is priced at the margin. Big swings are very possible and just because swings are large does not mean that it's just 'speculators' or anything other than supply and demand.
"Speculators" absolutely participate in the supply and demand equation ... for Futures Contracts. But in doing so, they influence real supply and demand also by defining the range of prices on the actual delivery of product. IE. Higher futures prices open up more spigots, more spigots more supply, more supply lower prices, lower prices more demand, more demand higher future prices. It's a sloping sine wave until irreplaceable scarcity changes the equation.
If it is between you and the Senior Energy Correspondent for CNBC, you haven't a chance. She understands the market a lot better than you do and has a LOT more access to the top of the industry than you do. You think it is a stupid argument because it is one that you don't understand. Just because you fail to grasp a concept doesn't make that concept invalid.
To add to this, demand has dwindled. This has caused a constant increase in supply. The fact that major analysts would use words like bullish and bearish to describe the fluctuation in price in and of itself indicates that speculation is heavily involved rather than simple supply and demand principles.
So because she's on CNBC and they gave her the completely meaningless title of Senior Energy Correspondent, she's beyond reproach?
Fake an emergency, raise the price. Oil pricing is determined by what the Oil companies think they can get away with.
Equity and commodity markets generally don't follow a trend based on what is happening today, but rather what is going to happen in the future. Crude traders must be anticipating the end of the global recession. Day to day price changes are generally irrelevant when looking at the yearly chart.
rofl rofl rofl rofl rofl rofl senior energy correspondent lololololololol hey refman...i think DD has the most posts on clutchfans...i think that makes him the ultimate authority on basketball.
The problem with this logic is in understanding the background of these CNBC types. Most of these folks are journalists first and financiers second. In addition, the vast majority have never held either an analyst or trading job in their life. They just regurgitate what others tell them in a pretty manner. Over time they get good at it and it makes them appear knowledgeable. I would far trust someone who actually works in the markets rather than someone who just writes about it.
But we've been told that the spot price of oil (or the first expiring futures contract) has to always reflect actual supply & demand. Why would a futures contract that expires in a week or two care if the recession is going to end in 6 months? We were told that the only real players there are the people who actually sell the oil and the ones who actually need it this month. That's the only way speculators can't influence oil prices, right?
Except these CNBC people aren't just making this stuff up. They are reporting what the people who are actually trading this stuff are telling them. And the traders, for the past 6-8 months since crude started falling, have consistently mentioned that price movements are happening for all sorts of things not-related to supply & demand, including everything from technical factors to hedge funds imploding, to speculators pouring money in because they have nowhere to put it, or what not.
Do any of the people defending the price actually have something to say about where supply and demand is right now. TJ mentioned wed's supply report but I believe the previous three were very bearish and the price still went up.
If you're going to appeal to the authority of the source you're citing and then say that anyone who disagrees just doesn't understand the argument, you should at least be able to defend that argument yourself to some extent, IMHO.
You don't even know what supply is, you dunce. You probably are equating inventory with supply, which pretty much qualifies you to sit on the sidelines in this debate. I don't have the time to bring you up the multiple learning curves for you to meaningfully participate in this debate. Refman, I watch Sharon Epperson in the mornings -- she's got very little background in the industry and is a journalist. I am more qualified to speak on energy topics than her by a factor of 10. That's why she's reporting and not investing. This is arguably your worst defense of all time. If I went in front of a board of directors and quoted Sharon Epperson as a source of information, I'd be laughed out of the room. Sorry to be so candid, but you are very wrong here. Here is the bottom line: When oil was at $100/bbl, production was actually declining. What does that tell you? It tells me that worldwide production has peaked. Once a reservoir peaks, it's production profile declines rapidly. If the same is true on a macro basis, then we are in a lot of trouble from a supply/demand standpoint. China and India are putting more and more cars on the road and despite 2009, demand will increase over time. This puts tremendous long-term upward pressure on oil prices, which we are just now beginning to see. This is entirely supply/demand driven. Little speculative blips here and there can exacerbate the volatility and extend the price swing farther than it should go, but not by much. The underlying trend is supply/demand driven. That's the truth, from someone with far more access and information than a tv reporter.
