Expectations, of course, are driven by... wait for it... wait ... it's coming... SPECULATION! In fact, guessing future expectations is the very definition of speculation.
Which is funny, because during the run-up, oil indurstry analysts were quoted DAILY as to how the news events of the day contributed to the fluctuation in the price of oil that very day.
Looking forward to that special project, which at this point I assume is a re-tooling of American history to show how every negative event after 1961 is intricately tied to Barack Obama. Lord knows that all of your ramblings are. Glad to see you back, I missed your bombastic proclamations.
Whether speculation fueled the price swings or other factors what do y'all think are the possibilities of seeing another oil price spike this summer?
Pickens says it will be back up to $100 by the end of the year. If that happens, you'll really have a hard time talking to me about that merely being a function of supply/demand. If the price nearly triples from where it is now in 11 months...in the midst of global recession...yeah, I'd have a hard time buying that.
In other news, water is wet. One thing lost in this thread, relating to supply and demand is that short term spikes/crashes are directly correlated with uncertainty. So any news whether it's geopolitical or weather obviously plays a role in the commodities market, particularly oil and gas. From a long term perspective, macro uncertainty playes a pretty big role. It wasn't until around late-Nov/early-Dec when companies started issuing warnings about "lack of visibility" heading into 2009 and revised earnings (and subsequent spending) downward. That triggered a subsequent panic in the equities and commodities markets. This uncertainty heading into the current fiscal year combined with the ridiculous amount of liquidity in the commodities markets, ultimately led to the rapid crash in crude prices. What's even more stunning that the volatility index or "VIX", which is a generally a good proxy for market uncertainty didn't even accurately represent the degree of uncertainty in the financial markets. Guess what happened then -> vols traders from hedge funds and the like got hosed bad.
Boone Pickens's words aren't worth the paper they're printed on. He shorted oil most of the way up, then went long. He's lost 2/3 of his money in just a couple of years.
didn't oil consumption still grow and weren't growth forecasts for china still at 10+%? people also had a consensus that the emerging markets were going to continue their growth and supply would not be able to keep up with their voracious demand. does anyone deny that this was a widely held belief?
According to the article, demand was dropping all last year. Also, though, future expectations of emerging markets shouldn't affect the spot price, right? That was the whole argument people were trying to make - that the spot price would be determined by current actual supply and demand and that these speculators couldn't have an impact. If the whole idea is that the spot price should match what people need *now*, then what should matter for that is current supply and demand. Emerging markets needing more oil in 2009 isn't going to make the real buyers pay more for oil in 2008.
You could never explain to me how oil company profits skyrocketed as the cost of oil skyrocketed. If oil was ever priced as a real cost, profits would not have skyrocketed along with the price. This was the first clue that should have told you that it was a bunch of speculative BS that drove the price of oil and not supply and demand. Now you want to back off the video you posted where you chided people for not understanding that speculators couldn't affect the market because they never took delivery. So please now explain how the dollar caused gasoline to rise 175% and fall 175% within three years time. It's evident you still have not taken the time to read the article because it clearly states that oil prices spiked as demand went down. If you READ the article, it explains that the collapse occurred when the speculative bubble burst. I'LL EVEN BOLD IT FOR YOU BELOW SO YOU CAN READ IT MORE EASILY. You were not only wrong, as many of us told you at the time, you were the way the hell ass wrong. The oil bubble began to deflate early last fall when Congress threatened new regulations and federal agencies announced they were beginning major investigations. It finally popped with the bankruptcy of Lehman Brothers and the near collapse of AIG, who were both heavily invested in the oil markets. With hedge funds and investment houses facing margin calls, the speculators headed for the exits. "From July 15th until the end of November, roughly $70 billion came out of commodities futures from these index funds," Masters explained. "In fact, gasoline demand went down by roughly five percent over that same period of time. Yet the price of crude oil dropped more than $100 a barrel. It dropped 75 percent."
WTF are you talking about man. If companies priced anything at the cost of production then you couldn't make money at anything. Ya think an iphone is priced at cost? (Here's a hint- NO.) And bubbles aren't caused by speculators. Speculators are part of them, but they are generally caused by lots of factors, including easy money (easy money preceded both the Internet and housing bubbles).
Absolutely - and that's how the market has traditionally worked. What changed in the last several years is that the actual producers and consumers were being drowned out in volume by the purely financial players - which means they weren't necessarily determining prices anymore. This is why, when you had various hedge funds blowing up last fall, prices of oil and other commodities would all come crashing down in a single day. Demand expectations didn't suddenly coincidentally drop on the exact days hedge funds liquidated. Hedge funds liquidating caused commodity prices to tumble at far higher levels than they would have otherwise - because they had become the primary players in the market.
There are big, primary financial players in lots of things that haven't had big price runups or volatility. There are also price runups and volatility in things that don't have finanicial players. I think it was a bubble fueled by the FED, not speculators, that caused this.
http://www.ritholtz.com/blog/2009/01/oil-speculation/ What 60 Minutes Missed on Oil Speculation Email this post Print this post By Barry Ritholtz - January 12th, 2009, 7:15AM Last night’s 60 Minutes had a story on Oil Speculation. Its not that they said anything that was factually wrong per se, its more that they told 10% of the story of the rise and fall of energy prices. The entire report was surprisingly thin, and avoided discussing all of the many other factors that had been impacting energy prices during the 7 year rise and subsequent collapse (60 Minutes video here). Very often, major bull market moves begin on fundamentals, but shift towards the end of its life into a speculative frenzy. These always end in a price surge (i.e., a blowoff top), which is followed by a collapse. But note that it is in the end game where speculation dominates, not the first 7 or 8 innings. That was true as much for Housing in 2005-06 as it was for dot com stocks in 1999-2000. Hot markets always attract hot money. But merely claiming that the run up in Oil prices was due to unprecedented speculation misses the big picture of what actually occurred. And, it reflects a lack of understanding of how markets work, and the psychology of booms, bubbles and busts. Here are a few factors that I believe the folks at 60 Minutes either misunderstood or overlooked completely during the run up from $20 to $100: 1. Oil is priced in US Dollars. Since 2001, the Dollar fell 40% (from 120 to 72); Oil rise nearly 5 fold over the same period. And Oil’s collapse occurred over a period when the dollar formed a short term bottom; it has certainly had its most significant rally in years (72 to 88). 2. Over the same period that Oil prices were rising, the US was fighting two major wars in the Middle East, Iraq and Afghanistan. These impact prices via psychology and risk of supply disruption — especially at a time when producers were running flat out. 3. Energy prices rose during a global economic expansion (fueled by low rates and cheap money); Oil fell during a period that marked the beginning of the US recession and the start of a global slowdown. 4. Since 2001, Commodities of all sorts rose significantly: Steel, aluminum, cement, cotton, soy, livestocks, foodstuffs, precious metals, etc. Were they all driven by speculation, or was something else going on? 5. Since the 1% Fed funds rate of 2002-03, inflation has had a dramatic impact on ALL prices — from medical costs to insurance to education to health care to transportation to housing to food and energy. That 60 Minutes failed to even mention inflation in a piece on Oil prices is a terrible oversight on their part. 6. Throughout the 1990s and 2000s, cars were increasingly replaced with SUVs and trucks in the United States. Not only did these get appreciably worse gas mileage, that fleet transition took place as the total US miles driven rose. Over the past 20 years, people have lived increasingly further away from their jobs. Hence, increased US demand for energy accompanied (and increased prices). 7. Since gas prices hit $4 a gallon and the recession began, total US miles driven fell significantly, by several billion miles. As expected,t he drop in driving was followed by a fall in prices. 8. 60 Minutes interviewed Mike Masters, a hedge fund manager who had testified before Congress that speculation was driving prices. They omitted to mention he was talking his book. His holdings in energy sensitive stocks — with large positions, the vast majority in call options, in AMR Corp (AMR), the parent of American Airlines, Delta Air Lines (DAL), General Motors (GM), UAL Corp (UAUA) and US Airways (LCC) — were responsible for his fund losing 35% of its value before the Fall 2008 market collapse.. 9. China boomed~! More and more global manufacturing outsourcing saw factories being built throughout China. They also went through a wild process building out the nation in preparation for the 2008 Olympics held there. Oh, and China, like the US, also began filling its Strategic Petroleum Reserves. Another small country, India, was booming over this period also. 10. The rise of extremist terrorist groups like al-Quada, the hostility of Iran towards the West, supply and political disruptions in places like Nigeria, and overt hostility to the US by oil producers like Venezuela President Hugo Chavez also contributed to drive prices up. The political factors were also omitted. There’s a lot more, but the bottom line is this: Higher energy prices were caused many many factors over the past 8 years. Certainly, speculation played a part at the end of the run — but it always does. Oil fell more precipitously than it rose, but don’t all markets do that? Didn’t the S&P just plummet nearly 50% in a year, after a 5 year run? Speculation is merely one aspect of what happened. 60 Minutes missed the other 59 elements .
your first paragraph doesn't even make sense. why would their profits go down if the product they were producing was worth significantly more? your 2nd paragraph again fails to even understand the point i have made OVER AND OVER AND OVER AND OVER again to you. the strength and weakness of the dollar is only one factor simply because oil and other commodities are priced in dollars. why is it so hard for you to understand? i never said the whole move was because of the dollar. why do you keep saying that i said this? if you look at a chart it's pretty easy to see when it burst. if you believe that govt had that effect on crude then why did all the other commodities that went thru the roof crash at the same time? do you honestly believe that it had nothing to do with actual buying? were companies not actually renting ships at those insane prices? was it only speculators pushing up the prices of the baltic dry index? were countries (aka china) not actually buying steel, iron, copper, aluminum, coal, and so on? was it only manipulators pushing the prices around? and why can't you just admit what has happened to demand for commodities over the past six months?
rofl i was just looking thru your boy mike masters' investments on sec.gov...man this guy LOVES to light money on fire!! he has been long and wrong since the beginning of last year. looking at his positions more it looks like he really didn't understand that falling oil was actually representative of the failing world economy and slowing demand and not the exit of the evil speculators who were propping up oil prices and hurting good companies like GM lol.
Obama + Obama + Obama + Obama = Jorge Breakfast with Bitter Sauce Let's look at Odoacer, shall we? A "Germanic barbarian." So, Obama is Scottish and African. Analogy fail. Odoacer was said to be illiterate. Obama has written books, sans ghost writer. Analogy fail. Odoacer recaptured Sicily and was warlike. Analogy fail, I hope. Romulus Augustus was known as "little Augustus" (see: shrub). Analogy win! Romulus Augustus was installed (by his father) and served as a figurehead. Analogy win! But here's the eerie part, folks. And this is real. Check out Odoacer: What does that say, other than Odoacer = Conquistador v0.1 ! Stay tuned. I can't wait for the increasingly paranoid, Golum-like postings from our friend. His every swallow will start to sound like "Obama."
