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Oil Bubble Watch
OIL BUBBLE WATCH....The latest on oil prices:
In New York, oil futures fell as much as 8 percent to $68.57 a barrel on Thursday, their lowest since June 2007. Oil has lost half its value since hitting a record closing price of $145.29 a barrel in July.
....Global oil demand is undeniably slowing, particularly in developed nations. Japanese oil consumption dropped 12 percent in August, while in the United States, demand has been cut by 8 percent in September.
Still, consumption is growing in developing nations, albeit at a slower pace. The International Energy Agency expects global oil demand to grow by just 400,000 barrels a day this year, to 86.5 million barrels a day. At the beginning of the year, the agency was expecting growth of more than 2 million barrels for 2008.
So does this mean that this year's runup in oil prices was a speculative bubble after all? At first I didn't think so, but by the middle of the year I was beginning to wonder. Still, even at the height of the bubble in June, the best I could say was that the price spike "had a bit of a bubbly feel to it" but that I didn't really have any solid evidence to back that up.
I still don't, really. The problem is that there were genuine supply and demand issues pushing prices up beginning in 2007. But as prices skyrocketed, demand eventually went down. Then the banking crisis kicked into high gear and everyone got afraid that we were headed for a global recession. Those are both perfectly normal reasons for the price of oil to fall.
On the other hand, the "Enron loophole" that the bubble pushers kept talking about got closed in June too. And a couple of months ago the CFTC discovered that "financial firms speculating for their clients or for themselves account for about 81 percent of the oil contracts on NYMEX, a far bigger share than had previously been stated by the agency." So maybe it really was a speculative bubble after all.
Bottom line: Occasionally you get a massive, long-running thing like the housing bubble, which is visible (to some people at least) even while it's happening. Most of the time, though, bubbles are pretty hard to identify. This particular runup is hard to call even in hindsight.
POSTSCRIPT: However, one thing is obvious: this kind of price instability is going to be with us for a long time as oil demand bumps up against maximum oil production. Full story here.
Of course there is a speculative bubble- when the amount of a commodity is traded by major investement bankers at six times the actual production- what else do we call it? A better question is the role of such speculation or if one prefers to call it euphemistically: guessable projected future value. Obviously, such situations can get off kilter such as when the housing bubble bursts because the ratio of the supporting value was 30:1 or even 60:1 (debt swap instrumenst) of underlying asset values.
You can fool some of people some of the time, most of the people most all the time, but you can't fool all the people all the time. As the country was crashing towards a depression, the speculators sa increased demand? Who' fooling who? I think it's a case of get while the getting's good. With their boys in the Whitehouse make hay ....Hopefully the looters and pillagers of the economy will have to account in 2009.
Not to mention the Swiss double-dipping incident.
So yeah, it was a bubble. But it's one that's hard to deal with being as there's very little space between demand and production. the very real drops and demand only happened because of the increase in price and now the drop in capitalization.
That says nothing that it might not spike again next year as demand surges seasonally and the lower price is accepted by the demand portion of the market.
In fact, it's a given.
The price at the pump is a tactic long played by the oil cos. They raise the price based on some BS reason to a point where the public and some politicians start to bitch too loudly then lower it till the noise abates. One thing is for sure the price never goes back anywhere near the level it was before it all began. Our pocket is being picked. Speculators know this and have made plenty of money. Aren't you SO SO glad that gas has now dropped $.30 to $.40 a gallon?
You have those nice oil cos. to thank. Let's see now-What was the price of a gallon when oil was $60.00 a barrel?
Oil companies have a lot of cash on hand, and if they used it to "speculate" on the international price of oil, they could jack up the price quite effectively. Doing so would increase their revenue quite a bit.
But come the election, they lose a lot if the administration gets handed over to the Democrats. So right before the election is the perfect time to lower the price of gas at the gas pumps, which can be done by manipulating the international oil markets. If they know in advance when they are going to do it, they can even hedge for the drop in oil prices and not lose any money - maybe even make a profit on the downside as well as the upside of oil prices.
The drop in the price of gasoline at the gas station right before the election is designed to influence voters. This is oil. Prices are not set by the fabled "Invisible hand" practicing some kind of economic magic. Anyone who doesn't realize that is living in a dream world.
We need some stats to determine if the price of oil is tied to demand. There use to be stats on the how much oil china/india were importing, but that has suddently stopped. Also, it would be helpful to know if in china/india they were slowing down and laying off people. Prior to the olympics there were thousands of people in china awaiting a lic. to buy a car...has that changed?
I'm no economist, but the price of oil has just fallen by 50 percent. Can such an enormous drop be explained by supply or demand? Last time I checked there wasn't 50 percent less traffic.
So does this mean it's safe for me to buy a new Ford Extinction?
Do the seats fold down so you can sleep in it like an old station wagon back in the day?
"So does this mean it's safe for me to buy a new Ford Extinction?"
Just as long as you sell it after November 4th.
Now is the time to impose a $0.50 per gallon tax on gasoline. The revenue from this tax can be used to pay for rebuilding our infrastructure. It would also continue the virtous circle of using less gasoline and increasing fuel efficiency, thereby reducing the need to keep an army in the Persian Gulf to maintain access to oil.
Because of this bubble I will pay $1800.00 more to heat my home this winter season. I locked in a contract in May for the winter. These people suck.
I assume you that people that make a living off monitoring the oil industry (OPIS) were well aware that it was a bubble.
As for the oil companies, they cannot control the price nearly as much posters would like to think. There are a whole lot of businesses sitting between the refinery and the retail station, all of whom are competing to have the lowest price. While the oil giants don't face the same amount of competition due to the huge demand and comparatively small supply, they are generally held in check by the NYMEX people, who aren't going to trade futures at ridiculously prices... except during bubbles.
"this kind of price instability is going to be with us for a long time as oil demand bumps up against maximum oil production."
True, and it will always be the case. Oil infrastructure is very expensive. Nobody will spend money on it unless they need to. And given that supply shortages cause major price increases, there's a financial incentive to err on the side of insufficient infrastructure. And given that there is a finite amount of oil that's reaching it's peak, creating more infrastructure produces negative returns in the long run. So welcome to the days of high oil prices. Oil will be back up over $100 right after the election. And it will never drop below that benchmark again. OPEC is already making sure of that.
slanted tom: Do the seats fold down so you can sleep in it like an old station wagon back in the day?
What? Have you been talking to my mortgage company?
"I locked in a contract in May for the winter."
Ouch. I guess I'm glad to have natural gas at a flexible rate in a state that's rapidly expanding natural gas production. That combined with the efficiency improvements I made to my house should make me warm and cozy this winter. But I feel sorry for you. My suggestion would be to invest in some nice wool sweaters and turn down the heat. It's not so bad when you get used to it. But don't skimp on the hot showers. It's the only thing that can help you cope with being cold most of the day.
bmf,
Ignore fostert's advice. I will come and sleep on your chest, so you will be nice and toasty.
Well, if Inkblot will come to the rescue, go with it. Unless you're allergic to cats like me. I'm not a fan of cats as you might imagine, but I'm a lot better than my grandfather. He used to shoot the neighbors' cats if they came in his yard. He was a piece of work. A good man, but the president of his local chapter of the John Birch Society. And a cat killer. Sorry, Kevin.
I guess I should add that in a weird mixup of the estate, I ended up with my grandfather's cat killin' gun. It's a Sears Roebuck .22 caliber target rifle with a scope. The Sears guns were made by Remington, by the way. And it's a nice gun. Not as nice as my Romanian Army issue AK-47, but certainly more accurate. He could easily put put a head shot in a cat from 100 yards with that gun. But he was an experienced marksman. And I want to make it clear that I don't advocate such behavior. I like cats as long as they're not around. They are beautiful animals that should not be shot. Especially Inkblot, that's one cute cat. On that, my grandfather and I would disagree.
"So does this mean it's safe for me to buy a new Ford Extinction?"
Posted by: thersites on 10/16/08
Available for a limited time only. Hurry in before they're gone!
I'm not certain that I am happy with gas prices returning to "normal". It means that we won't get our gas tax holiday! And I already went out and bought the lights and decorations. And thersites will now ask me to send my new shoes back to him.
Weenie, you might as well keep the shoes. After what happened at the party, I'm not sure Neiman Marcus will take them back anyhow.
I'm just glad the lights and things were on your credit card, not mine.
The speculative bubble in oil developed because alot of fake wealth (CDS's, derivative investments, etc) was trying to find real wealth (oil, food, gold) to lock in its ponzi gained riches.
This pseudo wealth has got to be let out of the financial system, and we need to make sure it never happens again. People died from malnutrition because of this shit.