Ah, the wonders of supply and demand. On the supply side:
Saudi Arabia Oil Minister Ali al-Naimi said on Sunday the world oil market was oversupplied and that the kingdom had reduced production in March due to weak crude demand.
Oil consumers have urged OPEC to quickly add supply to the market to quell the rally in crude prices that has taken oil to its highest level in two and a half years amid unrest in North Africa and the Middle East.
Other OPEC ministers have insisted the market is well supplied and there is nothing the group can do to stop prices from going higher while there is not unmet demand for crude.
“The market is overbalanced… Our production in February was 9.125 million barrels per day (bpd), in March it was 8.292 million bpd. In April we don’t know yet, probably a little higher than March. The reason I gave you these numbers is to show you that the market is oversupplied,” Naimi told reporters.
And now for the demand side:
Oil prices are roiling financial markets, hitting the economy and forcing investors to re-examine their portfolios.
Oil prices closed at $109.66 a barrel on Friday, up more than 31% in the last year. They’re up from a low of about $84 in February and are near levels not seen since September 2008, before the economic downturn.
Behind the spike in oil: Unrest in the Middle East, including continued fighting in Libya. At the same time, improving economic prospects in the U.S., including a slowly improving job market, suggest that energy demand will grow.
bobbo, you crack me up. Like most people who’ve worked in commodities trading, I wouldn’t go near securities. Technically a commodity future is an option, but it’s used and traded very differently than a security option. Options are mainly used in the energy industry to avoid foreign exchange risk.
For example, if you have a June contract to deliver gas you’ll put on a forex hedge if the commodity will cross the border. I don’t know many security traders holding canola futures just like I don’t know a lot farmers holding mortgage options.
Thanks foobar–I’ve stated clearly: “I don’t know” and I’m looking for a simple “accurate” text. I did google (“effect of speculation on commodity prices”) and about 20 hits indicated “about nil” on effects of prices. The few hits I tried to read didn’t come from academically neutral sounding sources, AND I probably phrased the question wrong, but I did get pulled more towards the Net-zero position, which as stated, does make sense.
Your post communicates only the fact that you know what you are talking about, but it doesn’t explain a thing.
Perhaps just the way all traders want? I do agree a security and a commodity are different products. Doesn’t help explain the initial question. I dont’ see why Investment Houses would go all in on commodity betting when the restrictions were listed if they could not rig the game to come out ahead over the long haul. Whatever that “ahead” is, is a rip off to the system/consumers of those commodities. the SMALL percentage of actual users of the commodities that need protection are dwarfed by the volume of betting that is going on==just like debt/swap securities having a volume several times larger than the entire security market they are supposedly based on.
Your opinion: near nil net effect or a constant skimming of profits? Why do I crack you up? Ignorance is not funny.
Bobbo, good to see you are trying to educate yourself, and not just declaring it true that speculation is raising oil prices. Let me know what you find, as I’ve been always asking people on here and elsewhere to explain how speculation is raising the price.
Best I’ve seen is that you have more money being invested in buying oil, so the price is going up. However, eventually that oil contract comes due, and the speculator has to sell it back, unless he’s planning to hold 100000 barrels in his house. He can then use that money to buy some more oil contracts in the future, and repeat the process. This still balances out. The only way I see the price rising is if the money comes in is accelerating, and even that has limits.
Compare to a gas station that will lets you buy more gasoline at some point in the future. I might have bought 1000 gallons when the prices were at $3. Now maybe the gas station charges a premium for future price, so I pay $3.20 for my summer driving.
However, if the price stays at $3, I just buy it new and don’t cash in my rain checks. This would be an option. I would guess that options would be priced very high by the seller. On the other hand if I’m out the money guaranteed at a certain date, then I will either take the gas or find someone else to take it, maybe losing money in the process.
If I have enough money to move the market, then it is worth it for me to buy lots of contracts to drive the price up past $3.20. However, that would require buying lots of other contracts on which I lose money.
Mike, we’ve had this near conversation before: I don’t understand macro economics well enough to know if the stimulus should have been 2-3 times as large, or what the effect would have been without the TARP. I can find links to any answer I wish, but thats not what I’m looking for.
LIEberTARDS say: let the banks fail thereby letting the market work. Dogma. I’m willing to say let the banks fail but only after I know what the probable effect would be. Its a net game, a long term game, not the application of dogma for some existential religious experience.
The truth, pragmatism. Thats why I say:
Wake Up Fools. The Republicans want to Kill America but they can’t do it without your vote.
The Fed needs to stop devaluing our money.
Jack it to three and make you happy when it drops to “only” two.
Jack it to four and make you happy when it drops to “only” three.
Jack it to five and make you happy when it drops to “only” four.
Dance, happy monkey, dance!
I wasn’t talking about the stimulus bobbo. Stop acting like Mr Confusion, and let me know if you find out anything about speculation and futures markets.
#2 Nope. Obama isn’t transformative enough to be a factor in this.
#6 I think you can get a better 5k used car than 25k new car. Cars are starting to suck. The Hyundais John mentioned in the last DH unplugged are maybe the last good value car left. And those are 35k or so.
It’s sad that so many here think there’s a difference between republicans and democrats.