How long have the threat of storms effected the price of oil?

[Shaun @ Tru6]

the price of oil is on the rise because Gustav could become a hurricane and may drift into the Gulf this weekend.

I've been conscious of the price of oil and gas since 1976. It's only been in the last 5-6 years that the threat of storms increase the market price of oil and subsequently gas. we had tons of storms in the 70s, 80s and 90s, but I don't remember the price of gas going up on the threat of a storm, or even a real hurricane barreling through the Gulf.

I can certainly understand that a rig in the Gulf supplying 2% of the world supply going down after a storm would increase prices, but why is only the threat of damage, based on weather, enough to increase the price?

how does it happen? who sets that price increase? how do they figure it?

[Mule]

I agree that any excuse raises prices, but you have heard of Port Fourchon? Check what percentage of the country's oil flows through there.

[onewhippedpuppy]

How long? Since the oil companies realized that we will pay whatever they charge. Now they don't need much of an excuse.

[The Gaijin]

Track the weather. Buy the futures contracts. Make millions!

(If you dare.)

[Tobra]

As long as they have been drilling in areas impacted by tropical storms.

[looneybin]

They probably always did, but when gas is .72 cents a gallon & they raise it 5% you just don't notice a 4 cent increase, but at $4 dollars a gallon, that same 5% is a 20 cent increase

[hardflex]

Katrina and the aftermath instilled the fear in people, and it's been stoked ever since.

[Shaun @ Tru6]

Originally Posted by Tobra

As long as they have been drilling in areas impacted by tropical storms.

that is wrong based on real world experience.

Who sets the new price? how is it calculated when a storm is only threatening?

[s_wilwerding]

I think the other difference between now and then is that there was excess supply then. If we lost some output for a few weeks, it was no big deal. Now, if we lose output anywhere in the world, it's a big deal, because we don't have enough excess supply to make up for it.

[sammyg2]

Originally Posted by onewhippedpuppy

How long? Since the oil companies realized that we will pay whatever they charge. Now they don't need much of an excuse.

Please stop saying stuff like that. The oil companies don't set the prices. They don't control the prices. They supply a product and get as much as they can for it, similar to an auction. The price is determined by how much a buyer is willnig to pay. the only way an oil company could affect the price would be to purposefully cut production and if they do that people go to jail. It is too closely scrutinized for that to happen. Too many eyes watchnig at all times, too much monitoring by government agencies to allow that to happen.

To answer the original question, for many, many years there was a great deal of excess production and refining available so the oil market was inherently stable. The investors wanted nothing to do with this market. There just wasn't enough money to be made to make it attractive from an investment standpoint.

About 5 years ago it started to become more attractive and as the speculators started dipping their toes in the water others joined them. It started to gain momentum until it reached critical mass, there were enough speculative investors interested and enough money available that they became capable of influencing the price.
They ganged up and took control of the market. It wasn't organized and it wasn't collusion but they could and did affect pricing based on rumor. Perfect example of mob metality. If enough people get involved it becomes a seperate entity with as mind of it's own, devoid of logic and running on emotion.

In comes a storm, and they start asking what if. They go long just in case and others follow, the price jumps. They dump right before rumor becomes a fact (or non-fact as is the case most often) and they make money. Lots of it.
They did this because they could. Prior to that point they didn't because they couldn't.

The big boys had enough smaller sheep investors to take away their money. The big boys win, the less-powerful or uninformed lose. the money was just shifted from one pocket to the other.
Then, they gained even more power and other big money investors joined in and they were able to drive the price high enough that even the small investor could make money.
They all made money and the consumer lost. All they had to do was to keep driving the price up and profiting on the increases, just like a pyramid scheme.
Eventually it toppled just like those pyramids do and the upward momentum wained. As the price started fallnig the big boys could still make money on shorts and an occasional long position (like today for instance) but the smaller investors got cold feet and started getting out.
that's where we are now. There isn't enough money in the market to drive it upwards and maintain that momentum like we saw earlier this year.

I've said it many times that what we need to do is mandate that 10% of all oil contracts purchased have to physically transfer possession. In other words, if someone buys oil contracts they have to take physical possesion of at least 10% of the oil they purchase instead of just pumping and dumping contracts.
That would take out the middle-man so to speak, especially when there are 5 or 6 midle-men each taking a slice.
If they made that manditory the price of oil would drop to $75 and would be stable again. It would take away the temptation and ability for investors to influence the price beyond what is justified by the fundamentals.

[legion]

(Finance major in college...)

One of the theories of commodity pricing is that at any given point in time, there is a finite number of factors that affect the pricing of a given commodity. However, over time the number of these factors varies as do their relative weights.

Katrina and Rita wiped out a portion of our countries oil production, refining capacity, and shipping capacity. The memory is still fresh in investors' minds. Over time, the memory will fade. It is already being partially tempered by fears of falling demand.

[Shaun @ Tru6]

Originally Posted by sammyg2

Please stop saying stuff like that. The oil companies don't set the prices. They don't control the prices.

snip

If they made that manditory the price of oil would drop to $75 and would be stable again. It would take away the temptation and ability for investors to influence the price beyond what is justified by the fundamentals.

THank for that excellent write-up Sammy.

in your experience, have you seen a situation(s) where a rig that produces 1% of world supply is threatened and the price jumps 4%?

[Nine17]

Originally Posted by sammyg2

It would take away the temptation and ability for investors to influence the price beyond what is justified by the fundamentals.

Thank you Sammy. You have just summed up everything that is wrong with our economy. Our savings and those of the emerging economies have been looted by the use of derivatives and securities to inflate markets beyond their fundamental value. Tulip futures anyone?

[Mule]

Originally Posted by Shaun 84 Targa

THank for that excellent write-up Sammy.

in your experience, have you seen a situation(s) where a rig that produces 1% of world supply is threatened and the price jumps 4%?

Your proposition is foolish (imagine that). 40% of the nation's oil flows from the Gulf. Not 1%. Fourchon goes down, you go dark. Simple.

[Mule]

[sammyg2]

Originally Posted by Shaun 84 Targa

THank for that excellent write-up Sammy.

in your experience, have you seen a situation(s) where a rig that produces 1% of world supply is threatened and the price jumps 4%?

While i haven't looked up the numbers, I understand your point that over-reaction has becoming commonplace in this market.
Investors buy on rumor and sell on fact and the mob mentality gets investors jumping on the bandwagon from fear of being left behind. If the price is rising and people are buying, they buy too. That creates an over-reaction and exaggeration of the swings.

Hopefully as the price comes down and the investment money finds a new market to play with that should lesson to some extent.

[tabs]

World demand for oil has risen to the point where oil production is getting tight. Therfore any threat to the supply would raise prices as ther might be a shortage of that commodity.

[Jim Richards]

"How long have the threat of storms effected the price of oil? "

Since 2001.

[Buckterrier]

Originally Posted by Shaun 84 Targa

the price of oil is on the rise because Gustav could become a hurricane and may drift into the Gulf this weekend.

I've been conscious of the price of oil and gas since 1976. It's only been in the last 5-6 years that the threat of storms increase the market price of oil and subsequently gas. we had tons of storms in the 70s, 80s and 90s, but I don't remember the price of gas going up on the threat of a storm, or even a real hurricane barreling through the Gulf.

I can certainly understand that a rig in the Gulf supplying 2% of the world supply going down after a storm would increase prices, but why is only the threat of damage, based on weather, enough to increase the price?

how does it happen? who sets that price increase? how do they figure it?

A rice paddy in China has just dried up... Be prepared

[sammyg2]

Originally Posted by tabs

World demand for oil has risen to the point where oil production is getting tight. Therfore any threat to the supply would raise prices as ther might be a shortage of that commodity.

That is true to an extent but it is greatly exaggerated to the investor's advantage. There is plenty of oil to go around. There is plenty of oil in inventory.
A huge hurricane is not enough to change that, the speculators just use the story to influence other investors into going the wrong direction to to cover their own tracks. The supply just isn't that tight yet.