Oil, Gas speculation, out of control manipulation

[Porsche-O-Phile]

Won't someone please think of the coyotes?

[MRM]

Bush hates excellent gas mileage.

[MRM]

Sammy, I just read that refiners are going to take it in the shorts this summer because the refiners aren't being able to pass the crude price increases on to the consumer and are having to eat some of the difference. What do you think? What natural gas plays do you like?

[competentone]

Originally Posted by Mo_Gearhead

For those that missed my post some weeks back:

In 2000 the entire ‘futures market’ in oil was about 9 Billion dollars. In 2007 that market had grown to 250 Billion! That figure amounts to several months of oil demand for the entire world!

It is abundantly clear that 'speculation' has a LOT to do with the price of oil/gasoline today. These are people 'trading paper', they do not, nor do they ever intend to, take delivery of even one barrel of oil.

It will collapse of its own accord (like the housing bubble) some day.

Commodities' "speculators," while they may be trading pieces of "paper" are constantly limited by the fact that there are real goods underlying those "pieces of paper."

If the speculators are wrong, they may find themselves owning a large amount of the commodity they were trading in, or -- the more likely scenario today -- the speculator may find himself scrambling to find physical commodities which he offered to sell which he did not possess.

In today's market, any "collapse" is not likely to be a downward collapse in commodity prices, but instead an effective "short squeeze" creating massive upward movements in commodity prices as traders with short positions scramble to buy physical commodity to meet unexpected delivery orders.

There are trillions of depreciating U.S. dollars held by foreign entities. The U.S. government keeps creating more dollars continuing with the destruction of the dollar's value. If the owners of those dollars decide to own "hard assets" instead of paper (with nothing backing it), they will likely carry out their "exchange" of U.S. currency for hard assets with purchases through the commodities futures markets.

The speculators with "naked short" positions (a "naked short" position is one where a trader enters a contract to "sell" a commodity he does not actually own) along with the exchanges, will not be expecting the large amount of delivery orders. If the surge in delivery orders happens rapidly over a short period of time, expect extreme chaos in the futures markets with prices skyrocketing to unbelievable levels.

The commodity exchanges -- with the U.S. government's blessing -- will probably "bail out" the commodity short-sellers by allowing defaults. Expect to see the exchanges shut down and the buyers of commodities forced to accept "cash settlements" on their positions at prices of the "last trade" before the markets were closed. (Such prices will be well below the true market-prices for the commodities.)

If this event happens, know that it will be a sad day for what little capitalism we have left in our world.

For the average person not involved directly in the commodities markets, expect continued price increases, with possible massive, very rapid price rises in certain goods.

There will be continued attempts to blame "speculators" for the price increases (similar to what can be seen in some of the comments on this thread). Few will understand that the price increases will all be the result of the government's actions over the past decades of "printing" more and more money.

[legion]

Hmmm...two straight days of declines after reports show increasing supply and decreasing demand.

Why is the price bid up on rumor (a strike in Scotland might happen), but bid down on fact? I mean, everyone knew how the numbers were going to look before the reports came out, why no selling when that becomes apparent?

[sammyg2]

MRM, refining margins have been absolutely horrible so far YTD. At one time refiners were losing as much as 5 cents for every gallon they made. It's improved somewhat


but is still well below what it was last year.
To answer your question, it all depends on oil. If oil continues to rise and goes up as much as some suggest, the independent refiners will simply die. Bankrupt, close the doors. All that will be left is the majors who can afford to loose money in refining as long as they make a killing on the oil.
If oil hits $200 then gas will have to go to $7.40 to break even. That means people won't drive to work because it would be too expensive and there probably wouldn't be very many jobs left anyway. That lower demand will eliminate the need for so many refineries. We'll be conserving but it won't matter because we wouldn't be able to afford what we're saving.

If oil goes down as I think the fundamentals say should, then the refining margins will improve dramatically for the summer. It's too volatile right now.

I've got a good chunk invested in nustar and some mutual funds that are heavily into energy, I've got some in UNG and a few other NG companies like NWN. I'm toying with china natural gas CHNG.OB, it looks really good so far but ..................

[sammyg2]

BTW, here's something interesting about speculators:

OPEC chief says he blames speculators for record oil prices
The Associated PressPublished: May 22, 2008

QUITO, Ecuador: OPEC's secretary-general blamed market speculators for soaring oil prices on Thursday, saying they have stripped his cartel of control over the global cost of fuel.

Abdalla Salem El-Badri said speculation and the weak dollar are responsible for record crude prices — which topped US$135 (€85.70) a barrel on Thursday, up nearly 4 percent from US$130 (€82.50) on Tuesday.

"We are not very happy with the rise in oil prices... it has nothing to do with OPEC," El-Badri told reporters during a visit to Ecuador.

OPEC will not boost output or price its oil in euros — which are currently more stable than U.S. dollars — because it is convinced that rising prices "have nothing to do with the basic elements" of supply and demand, he said, insisting that current supplies are sufficient.

The best way to control prices is to "control speculation," he said, referring to futures traders who some experts say have bid up the price of oil by a significant amount.
More than two-thirds of global trade is still conducted in dollars, he added, making a shift to the euro difficult at this time.

[MRM]

Originally Posted by Mo_Gearhead

Unreal! Last night I'm channel surfing. Some guy that wrote a book about the oil 'mess' is there with Bill O'Reilly (Fox). Now O'Reilly always struck me as a reasonably intelligent guy, but at times he can rub me the wrong way and he can come off as a know-it-all.

O'Reilly states (I do not have the transcript/exact verbiage) that he thinks ONE guy somewhere (?) sets the price of a barrel of oil, daily (????) The author tried to impart to him the market aspect (supply/demand) and he basically brushed him off and stood by his fantasy?? Amazing.

Dude, where have you been? I posted previously that when I joined the Trilateral Commission a few years ago the new recruiting class got to have lunch with the guy who controls oil. He's a legend. He's moving over to control the presidential election later this year, and Copper is moving over to take over Oil. The guy in charge of Bush 2000 is running the whole show now. It's more of a committee process, but when it comes down to the final price, it's his decision and the results are his responsibility. They started me out in Zinc, and it's going very well. I should move up to Aluminum at the end of the year when the older generation retires. The old guys say they haven't had fun like this since Marc Rich was a stringer for the Commission. Good times!

[Jim Richards]

That reminds me, when's our next TC meeting?

[speeder]

The freeways are certainly getting less crowded here in L.A. lately.

[Superman]

Originally Posted by Joeaksa

I drive a Honda Accord for most of my trips. It gets around 34 mpg.

Joe, I just replaced the brakes on a '94 Accord EX. If yours is like this one (Pre-'96), then I suggest you sell it before it needs brakes. Just as an example, the rotors are bolted to the BACK of the hub flange. So... the steering knuckle must be removed from the car and disassembled.

[Porsche-O-Phile]

Originally Posted by speeder

The freeways are certainly getting less crowded here in L.A. lately.

Good. Keep those gas prices going up!

Anything that keeps people the hell off the roads around here is juuuuuuust fine by me. . .

[speeder]

Going somewhere in the 996 right now. Pedal to the metal!

[MRM]

Jim, month's end regular meeting is next Friday but we're meeting for drinks Wednesday to preplan the distribution to be announced at the Friday meeting. It's just too much money to give away in one sitting.

[hytem]

Just watch the price of gas at your corner station every day. It moves daily according to the oil futures price the day before. The oil companies are just floating with the tide and reaping the profits.

[mossguy]

Bush hates motorcycles!

[sammyg2]

Originally Posted by hytem

Just watch the price of gas at your corner station every day. It moves daily according to the oil futures price the day before. The oil companies are just floating with the tide and reaping the profits.

A couple things wrong with that statement:
First, the "oil companies" don't set the prices at the pumps or corner stations. The owners do. If the prices are moving up at the stations, it;'s becasue th3e owners are charging more.
Less than 3% of all stations in the US are owned and operated by an oil company.

second, the only oil companies that are making decent profits are the majors, not the independents.
The definition of a major oil company is one that drills for oil, refines it, and markets it.
An independent oil company buys crude oil from someone else and refines it and markets it.
The refining part of the equation is not profitable so far this year.

Third, you act like the major oil companies are making incredible profits but that just isn't true.
BP had a net profit margin of 7.66% last quarter, shell was around the same, Connocophillips had 6.75%, and the big daddy, exxonmobil had a net profit margin of 10.85%.

As a comparison, the independent refiners are not doing as well.
Valero reported 4.2% and was the leader of the class. Sonoco reported 1.44%, tesoro reported 1.51%.

[jyl]

In the other thread going (insight on exxon) the initial post indicates that the oil company (XOM in that case) constantly resets the gasoline price charged to the gas station franchisee, which in effect controls the retail price charged by the gas station, at least if the gas station wants to stay in business.

"Through a password-protected Web portal, Exxon notifies Rezazadeh of wholesale price changes daily. That way the oil giant, which is earning about $3.3 billion a month, fine-tunes the pump prices at the franchise Rezazadeh has owned for 12 years."

Is that how it works?

Originally Posted by sammyg2

A couple things wrong with that statement:
First, the "oil companies" don't set the prices at the pumps or corner stations. The owners do. If the prices are moving up at the stations, it;'s becasue th3e owners are charging more.
Less than 3% of all stations in the US are owned and operated by an oil company.

second, the only oil companies that are making decent profits are the majors, not the independents.
The definition of a major oil company is one that drills for oil, refines it, and markets it.
An independent oil company buys crude oil from someone else and refines it and markets it.
The refining part of the equation is not profitable so far this year.

Third, you act like the major oil companies are making incredible profits but that just isn't true.
BP had a net profit margin of 7.66% last quarter, shell was around the same, Connocophillips had 6.75%, and the big daddy, exxonmobil had a net profit margin of 10.85%.

As a comparison, the independent refiners are not doing as well.
Valero reported 4.2% and was the leader of the class. Sonoco reported 1.44%, tesoro reported 1.51%.

[sammyg2]

Originally Posted by jyl

In the other thread going (insight on exxon) the initial post indicates that the oil company (XOM in that case) constantly resets the gasoline price charged to the gas station franchisee, which in effect controls the retail price charged by the gas station, at least if the gas station wants to stay in business.

"Through a password-protected Web portal, Exxon notifies Rezazadeh of wholesale price changes daily. That way the oil giant, which is earning about $3.3 billion a month, fine-tunes the pump prices at the franchise Rezazadeh has owned for 12 years."

Is that how it works?

If you are to actually believe what that one station franchisee tells you, go ahead. IMO it is a slanted, one side of the story and eggagerated. At the very least I would suggest it is isolated. The business doesn't run that way. I personally know three station owners and discuss the business with them frequently. None of the experience the same thing that the perdson in that other thread described. Maybe there is some truth to that one case but I'd suggest it is because the station franchisee agreed to a very poor business contract in order to get a lower price on the franchise. Maybe XOM discounted the price of the franchise if the station operator agreed to an unusual payback schedule.
Blaming exxonmobil for the francisee's stupid decision is irresponsible. Thinking that is how all stations are run in ridiculous.

[sammyg2]

Oil prices take a slide
Cap day of big prices swings as inventories plummet, economy grows and government unveils oil trading probe.

NEW YORK (CNNMoney.com) -- Oil prices fell over $4 Thursday, a day of wild price swings on the back of plummeting crude supplies, signs of a strong economy, and news the government is six months into an oil trading investigation.

U.S. light crude for July delivery settled down $4.41 at $126.62 a barrel on the New York Mercantile Exchange. The 3.37% decline was the biggest on a percentage basis since March 19, according to the Energy Information Administration.

A report on oil inventories was perhaps the most closely watched factor.

In its weekly inventory report, the Energy Information Administration (EIA) said crude stocks decreased by 8.8 million barrels last week. Analysts were looking for an increase of 750,000 barrels, according to a survey from Platts, an energy research firm.

But the report issued online by the EIA said "the drop was due to temporary delays in crude oil tanker off-loadings on the Gulf Coast."

Oil futures, down $1.80 to $129.23 just prior to the report, surged as high as $133.12 minutes after the 10:30 a.m. ET release.

"Everybody reacted to the headline number, but then the report says that a lot of the drawbacks are due to imports," said Phil Flynn, senior market analyst at Alaron Trading.

He said the oil that was missing from the report could very well be floating in tankers on the Gulf of Mexico, where fog often closes ports this time of year.

The report was "not quite as bullish as it might be on first glance," he said, and the price began a fall of as much as $7.

News of a government investigation into oil trading came later in the day.

The Commodity Futures Trading Commission said it launched a nationwide investigation into the purchase, transportation, storage, and trading of crude oil and other petroleum product contracts back in December.

While CFTC investigations are usually secret, the agency said it is making this one publicly known in response to "today's market conditions" - which include surging oil prices and a growing chorus of people who blame them on speculative investors causing a price bubble.

The CFTC did not indicate when the investigation would be completed or when the results will be made public. The agency, which has previously said it had found no evidence speculators are artificially driving up crude prices, also said it would better monitor the oil futures markets by requesting more information from overseas exchanges. It also will require investors who do not take delivery of oil - such as indexes and retirement funds - to provide more information about their trading practices.