Exactly how much are oil speculators actually driving up the price of oil?

[Le Jacquelope]

And would limiting oil speculation to those who actually work in the industry, bring down oil prices significantly?

I'm fairly sure that a billion Chinese drivers didn't just up and hit the road in the last 5 or so years.

 

[Lauren Hynde]

Exactly 7.

 

[Roxanne Appleby]

Speculators can drive a commodity a bit higher or lower than it would otherwise go, and when their positions unwind it goes a bit further in the other direction than it would have.

Imposing a new set of arbitrary government regulations would just make markets sclerotic and create a whole new set of negative unintended consequences.

Define "speculate" as opposed to hedge. Easy at the extremes, but when you're talking imposing regulation you have to be precise, and it's not easy.

Hedging is a legitimate business management tool for large consumers as well as producers, and if you take it away you make the entire economy more sclerotic. It has the effect of lowering economic activity and driving up general price levels as managers have to factor into their plans and operations the unhedged risk of adverse price movements. That would be unintended consequence Nos. 1 and 2. There would be many more.

Never forget the seen and the unseen. Politicians "do something" political about the seen, and the unseen comes back and bites their constits in the ass.

 

[cantdog]

"There oughta be a law" is usually an idea which would have evaporated if anyone had turned a little heat on it.

 

[Le Jacquelope]

Speculators can drive a commodity a bit higher or lower than it would otherwise go, and when their positions unwind it goes a bit further in the other direction than it would have.

Imposing a new set of arbitrary government regulations would just make markets sclerotic and create a whole new set of negative unintended consequences.

Define "speculate" as opposed to hedge. Easy at the extremes, but when you're talking imposing regulation you have to be precise, and it's not easy.

Hedging is a legitimate business management tool for large consumers as well as producers, and if you take it away you make the entire economy more sclerotic. It has the effect of lowering economic activity and driving up general price levels as managers have to factor into their plans and operations the unhedged risk of adverse price movements. That would be unintended consequence Nos. 1 and 2. There would be many more.

Never forget the seen and the unseen. Politicians "do something" political about the seen, and the unseen comes back and bites their constits in the ass.

You mean it would drive up the prices of other things? Moreso than the rising cost of oil drives up the cost of transporting said things? I'm sure these investors can use other, less critical commodities to hedge their investment bets.

I'm trying to find official numbers on how much industry outsider speculative activity there is in that industry, and how much their demand is driving up the prices. It could be a laughably insignificant amount, which is why I'm asking.

 

[trysail]

I'm trying to find official numbers on how much industry outsider speculative activity there is in that industry, and how much their demand is driving up the prices. It could be a laughably insignificant amount, which is why I'm asking.

While there are statistics which purport to differentiate between industry and non-industry activity in the futures markets, attempts at distinguishing which part of futures prices are attributable to non-industry activity are, perforce, laughable. Hell, people can't even agree on what part of current price represents the so-called "security premium" (i.e., that portion of the price that is attributable to scarcity arising from the possibility of supply disruption). Pundits, loudmouths, and windbags assert that it's somewhere on the order of $20/barrel. At best, they're pulling that figure out of thin air; at worst, it's a complete fabrication.

 

[trysail]

Rather than spend time trying to decompose the components of current prices, you'd be much better off worrying about places like "Albertastan" and Alaska which have become nearly indistinguishable from Russia and Venezuela in their ill-conceived money grabs which only have the effect of raising prices and discouraging investment.

"A newly enacted increase in the Alaska Petroleum Tax to a punitive 50% from 22.5% drives up long-term commodity price for oil and natural gas while it vindicates... stock repurchase strategies... The returns now being generated from past investments in Alaska are best distributed to investors rather than being reinvested under the changed terms of the fiscal regime voted by the Alaska legislature on November 16. The implications of higher price, induced by lower supply outlook, extend to natural gas as the long-delayed Arctic pipeline will likely be postponed for another generation, if not forever. Though the tax action may trim the upside... for Alaska, it boosts the commodity price potential for Canada and Lower 48 State natural gas..."

 

[elfin_odalisque]

You mean it would drive up the prices of other things? Moreso than the rising cost of oil drives up the cost of transporting said things? I'm sure these investors can use other, less critical commodities to hedge their investment bets.

I'm trying to find official numbers on how much industry outsider speculative activity there is in that industry, and how much their demand is driving up the prices. It could be a laughably insignificant amount, which is why I'm asking.

Roxanne explained this as well as you can in 10 lines or so. 'Speculator' is a pejorative term - and most of the commodity traders and hedge funds are not in the business of gambling - at least, not since Hunt went broke trying to corner the silver market.

Also, there is no way of defining a boundary that is called 'industry'. The marketing of commodities such as oil is done on trading exchanges similar to the NYSE. Never mind the anti-commercial idea of banning players from entering an open market, it is impossible. Do you ban the sovereign hedge funds from the Middle East and China - US and European hedge funds have got sovereign stockholders.

If you buy your ticket to Bali for Xmas 2008, you want American, United or whoever to give you a fixed price. To do this they must hedge (I prefer 'cover') their jetfuel requirements a year in advance.

The headline oil price you see is not today's price but a price for future delivery. It is, as Roxanne said, the marginal price for the last barrel of oil based on supply/demand forecasts by all the players in the market. If OPEC do not increase production (and who would bet on the stability of Iraq, Iran, Venezuela and others)

Also, more detailed, the decline in the dollar's value has imported inflation into the middle East and China - Walmart T-shirts may get more expensive soon. About 25% of the oil price 'rise' in dollar terms can be attributed to a fall in it's value not a real price hike.

And yes, ignoring automobile usage, Chinese industrial production has been rising at more than 10% pa for more than 5 years. With no increase in supply, the market is getting tighter.

Honest, you're chasing a shibboleth here.

 

[Le Jacquelope]

Roxanne explained this as well as you can in 10 lines or so. 'Speculator' is a pejorative term - and most of the commodity traders and hedge funds are not in the business of gambling - at least, not since Hunt went broke trying to corner the silver market.

Also, there is no way of defining a boundary that is called 'industry'. The marketing of commodities such as oil is done on trading exchanges similar to the NYSE. Never mind the anti-commercial idea of banning players from entering an open market, it is impossible. Do you ban the sovereign hedge funds from the Middle East and China - US and European hedge funds have got sovereign stockholders.

That's why I posed this thread as a question rather than an outright suggestion for action. You have a good point there, and I'm not saying Roxanne didn't have any good arguments. I'm also inclined to believe Trysail when he says an accurate analysis of the effect of these industry outsider investors is impossible.

If you buy your ticket to Bali for Xmas 2008, you want American, United or whoever to give you a fixed price. To do this they must hedge (I prefer 'cover') their jetfuel requirements a year in advance.

Yes, this was what Roxanne Appleby was talking about in regards to being precise. I assumed she understood I meant outside investors as in people who are buying into this side of the commodities market looking for some profit taking fun. The periodic brief selloffs that drive oil prices down by a penny or two, doesn't look like American Airlines doing a selloff; it does, however, look a lot like the daytrading activity that gives my retail brokerage reps their jobs. No, it's not exactly like that, I know, but it looks like it. But then there's no way, as you said, to put the brakes on investors outside the US.

The headline oil price you see is not today's price but a price for future delivery. It is, as Roxanne said, the marginal price for the last barrel of oil based on supply/demand forecasts by all the players in the market. If OPEC do not increase production (and who would bet on the stability of Iraq, Iran, Venezuela and others)

I know about those factors.

Also, more detailed, the decline in the dollar's value has imported inflation into the middle East and China - Walmart T-shirts may get more expensive soon. About 25% of the oil price 'rise' in dollar terms can be attributed to a fall in it's value not a real price hike.

I know about that part, too. I wanted to focus in specifically on the upward pressure from the outside investors, namely the people who aren't major consumers or producers.

And yes, ignoring automobile usage, Chinese industrial production has been rising at more than 10% pa for more than 5 years. With no increase in supply, the market is getting tighter.

Honest, you're chasing a shibboleth here.

Well, as long as you realize I wasn't ignoring the myriad of other factors involved in the price of oil, and that I was curious as to the effect of outside investors, I'm more than happy to wait until some concrete facts about them comes in - not that the US can really do a lot about it, though, as you said.

 

[elfin_odalisque]

Sure, but the hooded 'speculators'always get the blame.

Commodities are a market and anyone trying to play Texas Hold'Em would get their fingers burned.

The only way that prices stay (or increase) beyond current levels is that buyers outstrip sellers. Prices can fall away dramatically - like after both Gulf wars - and traders get stung.

There is a global demand for oil beyond current supply patterns. Prices will rise to a level to initiate more costly production. Basic economics.

Edited to add: I have a copy of a memo written in 1980 by a strategist in one of the major oil companies saying that the industry must accept that oil prices would never go higher again than $20/bbl. Think that's where our problem started.

 

[Le Jacquelope]

Sure, but the hooded 'speculators'always get the blame.

Commodities are a market and anyone trying to play Texas Hold'Em would get their fingers burned.

The only way that prices stay (or increase) beyond current levels is that buyers outstrip sellers. Prices can fall away dramatically - like after both Gulf wars - and traders get stung.

There is a global demand for oil beyond current supply patterns. Prices will rise to a level to initiate more costly production. Basic economics.

Edited to add: I have a copy of a memo written in 1980 by a strategist in one of the major oil companies saying that the industry must accept that oil prices would never go higher again than $20/bbl. Think that's where our problem started.

I know where you're coming from; it's fairly useless to drag the speculators into the picture when you don't even know the magnitude of their impact.

Yes, I do wish someone could actually substantiate the claim that outsider investors contribute $20/barrel to the total cost of oil. Imagine being able to at least point out that this gambler activity is adding more than 20% to the cost of oil, even if one country alone can't stop them.

 

[emap]

Loving your silly, investors do not add much more than a few pennies to the value of something. So long as we are talking about a commodity and not stocks of course. Though even in stocks, if a company that just shot up to $180 per stock does not produce what the people are thinking they will, their stocks will drop to pennies price in minutes.

Same is not said about commodities. Commodities prices are set by supply and demand along with whatever governing body if any decides to sell out for this day/month/year. Oil has has one, so do diamonds. Diamonds are artificially increased in profit by limiting the number released to the buying market per year. Why there are so many artificial diamonds being made to make diamonds used in making lasers for everything that has one. Not to mention record players if you happen to have one and buy a replacement tip.

The oil governing group doesn't limit sales so much as make sure everyone makes the same amount per barrel, which does in effect limit sales from the major sites, but not to increase profit. Well at least they claim not to be doing that. If they are or not who can tell, nobody says we have this much oil left and can only sell this much this year.

As was said before, the price of gas in the US is going up because the value of the dollar is going down and the oil coming out of Iraq was limited before the invasion, after well let's just say there was none, why the price for gas went up the exact instant an american set foot in Iraq. From that point on anything coming out of Iraq was a godsend, still is in many ways.

So now funny thing, Bush owns or had owned oil pumps, as in Bush used to at least sell oil. He would know better than most the effect of going to war with a major supplier of oil. As in suddenly anyone selling oil not being invaded, is making money hand over fist above what they were making to begin with. Do you really think he cared if there were weapons of mass destruction in Iraq?

Nobody will look, but I am betting he bought oil before he invaded, he probably was investing in oil for the months he spent trying to convince everyone there were weapons of mass destruction in Iraq.

 

[Jenny_Jackson]

I've seen this thread for several days. I thought I'd do some investigating to see what I could find. It appears that futures speculation really doesn't have a wide ranging effect on the "Spot Price" of crude oil. Speculators may push oil prices up or down $3 or $4 dollars at best. In this I agree with Roxanne.

But I pressed on further and began looking at the "Oil Industry Experts." Who are these guys? Some actually work for the oil companies. A couple work for the "Oil Institute." But most are simply journalists.

So where do they get their information? I would have suspected they would follow the commodities market, export tariff and so on. Nope. That's too much work. They get their information from The Oil Institute.

Who the hell is The Oil Institute? The Oil Companies, who else?

Does this make anyone else suspicious of a Bush/Oil Company boondoggle?

 

[Le Jacquelope]

I've seen this thread for several days. I thought I'd do some investigating to see what I could find. It appears that futures speculation really doesn't have a wide ranging effect on the "Spot Price" of crude oil. Speculators may push oil prices up or down $3 or $4 dollars at best. In this I agree with Roxanne.

But I pressed on further and began looking at the "Oil Industry Experts." Who are these guys? Some actually work for the oil companies. A couple work for the "Oil Institute." But most are simply journalists.

So where do they get their information? I would have suspected they would follow the commodities market, export tariff and so on. Nope. That's too much work. They get their information from The Oil Institute.

Who the hell is The Oil Institute? The Oil Companies, who else?

Does this make anyone else suspicious of a Bush/Oil Company boondoggle?

Where I come from, investigators say follow the money.

Bush is invested in oil. It is at least implied that he would do as little as he can to stop the rise of the price of oil. It's totally in his best interest to let oil prices skyrocket, and to even (and I'm not yet saying he has done this) prevent any price declines.

Now, Trysail just recently posted an article supporting the allegation that peak/plateau oil production is close or already at hand. If the Right wingers agree that it's upon us, considering that we on the Left have known about its approach for years, we have the #1 reason for the rise in oil prices, and a great cause for future alarm.

We may be looking at the end of affordable personal transportation.

 

[oggbashan]

In the UK, the Government has raised taxes on oil products.

They added a tax increase of two pence a litre to the price of petrol (gas in US) in October and will take another two pence in April 2008. The UK had nearly the world's highest tax on vehicle fuel already. Locally, unleaded petrol costs one pound and three pence a litre.

If you are a business, the government adds a tax to your fuel bills to help pay for greener energy.

Since the price of oil increased, the Treasury's estimates for revenue they would receive from fuel taxes have been exceeded. Will they scrap the April increase? That's as likely as turkeys voting for Thanksgiving/Christmas.

Og

 

[Le Jacquelope]

In the UK, the Government has raised taxes on oil products.

They added a tax increase of two pence a litre to the price of petrol (gas in US) in October and will take another two pence in April 2008. The UK had nearly the world's highest tax on vehicle fuel already. Locally, unleaded petrol costs one pound and three pence a litre.

If you are a business, the government adds a tax to your fuel bills to help pay for greener energy.

Since the price of oil increased, the Treasury's estimates for revenue they would receive from fuel taxes have been exceeded. Will they scrap the April increase? That's as likely as turkeys voting for Thanksgiving/Christmas.

Og

How do these politicians get away with this? Do they just totally ignore the will of the people?

 

[Jenny_Jackson]

Look, LT. The American People, as well as the people of most countries, are powerless in the face of big government (be it liberal or conservative) because govenment insulates itself from it's constituancy.

While the people are taught that the job of goverment is to look out for the welfare of the population, government (and those working for or elected to it) see it simply as an entitlement that pays well and opens doors that could/will pay big benifits now and in the future. Just look at Mr. Bushy Brown Nose, Trent Lott, who jumped out of the Senate, abandoning his party, to take a job with a PAT. Had he waited until after the first of the year or the end of his current elected term, he would have had to wait for two years. This is what we call "integraty in government"?

 

[Le Jacquelope]

Look, LT. The American People, as well as the people of most countries, are powerless in the face of big government (be it liberal or conservative) because govenment insulates itself from it's constituancy.

While the people are taught that the job of goverment is to look out for the welfare of the population, government (and those working for or elected to it) see it simply as an entitlement that pays well and opens doors that could/will pay big benifits now and in the future. Just look at Mr. Bushy Brown Nose, Trent Lott, who jumped out of the Senate, abandoning his party, to take a job with a PAT. Had he waited until after the first of the year or the end of his current elected term, he would have had to wait for two years. This is what we call "integraty in government"?

I don't believe in powerlessness. Sorry.

 

[DesertPirate]

Look, LT. The American People, as well as the people of most countries, are powerless in the face of big government (be it liberal or conservative) because govenment insulates itself from it's constituancy.

While the people are taught that the job of goverment is to look out for the welfare of the population, government (and those working for or elected to it) see it simply as an entitlement that pays well and opens doors that could/will pay big benifits now and in the future. Just look at Mr. Bushy Brown Nose, Trent Lott, who jumped out of the Senate, abandoning his party, to take a job with a PAT. Had he waited until after the first of the year or the end of his current elected term, he would have had to wait for two years. This is what we call "integraty in government"?

Jenny, you just need to accept that all politicians are worse than ever. In the 60's LBJ said an honest politician was one that stayed bought. Now they whore themselves out daily to the largest checkbook. Party doesn't matter. The oil companies are no different than Microsoft, they donate to both sides equally and largely so it doesn't matter who wins, they own them.

 

[Jenny_Jackson]

I don't believe in powerlessness. Sorry.

Well then, LT,

Explain how George Bush, Jack Kennedy and others were elected President with a minority vote? That's called powerless on the part of the citizenry.

Government will only listen if it is in their own self-interest, not the interest of the public.

Sorry.

 

[oggbashan]

How do these politicians get away with this? Do they just totally ignore the will of the people?

The current Labour government in the UK have a large majority and at least two years to go before an election. They can afford to be unpopular now. They might cut fuel taxes, or promise to cut them, just before the next election but at present they can do what they like.

Fuel protests, particularly by heavy truck drivers, might occur soon. At this stage in the government's life the protestors have no chance of success.

Og

 

[Brains_N_Boobs]

Not quite totally powerless....assassination is a very well "executed" option in many countries...although the consequences for the purportrator may not be viable.

 

[Jenny_Jackson]

Not quite totally powerless....assassination is a very well "executed" option in many countries...although the consequences for the purportrator may not be viable.

BnB, the oil companies and the Federal Government in the U.S. walks a thin line between How Much Can They Charge (ie fuck us) and How Pissed Off Will We Get?

 

[Roxanne Appleby]

If the Right wingers agree that it's upon us, considering that we on the Left have known about its approach for years, we have the #1 reason for the rise in oil prices, and a great cause for future alarm.

We may be looking at the end of affordable personal transportation.

Wow - who knew that with political ideology comes automatic expertise in geology?

We may be looking at the end of affordable personal transportation.

No technological hurdles prevent the creation of all-electric economy and ground transportation system powered by nukes. Right now electric cars can go 100-150 miles on batteries, and with standardized cells that can be swapped out in seconds at a "gas station" for battery cells that were swapped-out by another car a few hours earlier and recharged, road travel would be essentially identical to what we have today, at a cost that's 50 percent or 100 percent greater than in the US today. IOW, about what Europeans now pay.

How do these politicians get away with this? Do they just totally ignore the will of the people?

Politicians are professionals, with very sophisticated tools with which to manipulate populations of voters who are very ignorant and who have been heavily indocrtinated by school systems said-politicians have created, aided and abetted by a media establishment that is also largely ignorant of energy realities, and is generally very much in accord with the statist, big-government presumptions of all political parties in the welfare state era.

 

[Le Jacquelope]

Wow - who knew that with political ideology comes automatic expertise in geology?

Well, we did know the Earth was more than 7000 years old, for starters. And we also knew that oil was not an infinite resource. You don't have to be a geologist to know that natural resources are not infinite.

No technological hurdles prevent the creation of all-electric economy and ground transportation system powered by nukes. Right now electric cars can go 100-150 miles on batteries, and with standardized cells that can be swapped out in seconds at a "gas station" for battery cells that were swapped-out by another car a few hours earlier and recharged, road travel would be essentially identical to what we have today, at a cost that's 50 percent or 100 percent greater than in the US today. IOW, about what Europeans now pay.

That'll give the economy a kick in the ribs if transportation stays that expensive. Of course, if we don't do it, we'll run out of oil, or oil will go higher than 100% greater than the cost of transportation today. Our backs are almost to the sea with this issue.

Politicians are professionals, with very sophisticated tools with which to manipulate populations of voters who are very ignorant and who have been heavily indocrtinated by school systems said-politicians have created, aided and abetted by a media establishment that is also largely ignorant of energy realities, and is generally very much in accord with the statist, big-government presumptions of all political parties in the welfare state era.

Have you ever tried moving to a country without a welfare state?

Oh and corporations are even better at indoctrination than Governments.