Oil spikes past $110

[WorldTraveler]

There is no outrage because a democrat is president and the media is nothing more than a DNC mouth piece.

problem w/ your theory is that oil price spikes have happened under both parties' watch...

I'm not buying it. Oil is produced all over the world and is consumed all over the world. It's traded in financial markets all over the world. The current price represents the world's perceived value, right now, for a barrel of oil. It's higher than you think it should be, but it's still relatively cheap.

correct... and those financial derivatives (hedges) are traded publicly... there are not people who sit in dark rooms passing money around the table to their benefit. The prices for oil and the hedges against their movement are traded on public markets (at least indirectly through corporations or investment funds). You could buy a piece of that action if you wanted to... problem is that most retirement funds (which is where the majority of individual Americans have investments) do not allow much exposure to high risk transactions such as currency and fuel hedging.
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The core of the argument is that there is a limited amount of oil in the world and the demand for it is growing faster than the supply.
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Sure you have a large amount of that oil that is controlled by a cartel that does not respond to market forces but is relatively free to price the product outside of the realm of market forces.... but they do not control all of the oil in the world. They hold nearly 80% of global petroleum reserves but only about 45% of production.
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The most significant part of non-OPEC controlled oil is US production. While global prices will impact the prices of domestically produced oil, no other country or organization can influence the rate of production in the US. The laws of supply and demand clearly would allow more domestic production to help offset supply disruptions elsewhere as well as to help moderate prices.
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But the single largest factor that is affecting global oil prices right now is the strength of the US dollar relative to other global currencies, esp. those of countries that are competing to buy larger percentages of global oil.
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Given that US lawmakers have not made the tough choices to cut the budget and are continuing w/ business as usual, the US dollar will continue to shrink in value relative to other currencies and the price of oil will increase.

 

[Veritas]

I'm not buying it. Oil is produced all over the world and is consumed all over the world. It's traded in financial markets all over the world. The current price represents the world's perceived value, right now, for a barrel of oil. It's higher than you think it should be, but it's still relatively cheap.

Since we're talking about commodities where the price can be "manipulated" by financial traders in one country with just 5% of the world's population, that makes me wonder who is behind the rise in the price of gold to nearly $1,500/oz? Is there a cabal of evil financial traders somewhere on the globe engaged in a huge conspiracy to cause gold prices to skyrocket over the past few years?

You must have forgotten the Hunt brothers' cornering the silver market in the 70's when prices rose twenty five fold only to come crashing down when they failed to meet a margin call.

Oil price manipulation has happened before and will happen again.

CNN - Traders manipulated oil prices

CNBC - Secrets of Alleged Oil Price Manipulation Exposed

HeatingOil.com - Anatomy of Oil Price Manipulation: High-Frequency Trading on Commodities Markets

Forbes - Did Goldman Goose Oil?

 

[FWAAA]

You must have forgotten the Hunt brothers' cornering the silver market in the 70's when prices rose twenty five fold only to come crashing down when they failed to meet a margin call.

Oil price manipulation has happened before and will happen again.

CNN - Traders manipulated oil prices

CNBC - Secrets of Alleged Oil Price Manipulation Exposed

HeatingOil.com - Anatomy of Oil Price Manipulation: High-Frequency Trading on Commodities Markets

Forbes - Did Goldman Goose Oil?

No, I have not forgotten the Hunt Bros' attempted cornering of the silver market. By bringing them up, are you claiming that someone is doing it again, this time with oil? It would be difficult to corner the market for oil for so long and stay anonymous. No, of course you aren't claiming that.

Your links support the proposition that commodities traders can make short-term profits by influencing small price movements, but they don't support the proposition that commodies trading is to blame for the underlying high prices. For example, from the CNN link:

CFTC has repeatedly said that speculators are not to blame for rising oil prices, and any cases of price manipulation - such as the one brought Thursday - have only a small, if any, effect on oil prices.

http://money.cnn.com/2008/07/24/markets/cftc/index.htm

 

[eolesen]

Funny how nobody ever sees the rise in oil as being a reflection of the continuing devaluation of the dollar.

 

[Veritas]

Funny how nobody ever sees the rise in oil as being a reflection of the continuing devaluation of the dollar.

Of course it is; however, I don't believe that the dollar has declined in value anywhere near the 28% rise in the price of oil this year.

Thanks to the Saudis, oil production and supplies are currently at record levels.

NYT - Little Relief Seen From High Oil Prices

In London, Brent crude oil from the North Sea for May delivery was trading at $121.70 a barrel late Wednesday, up 28 percent since the end of last year and higher in particular since the conflict in Libya removed a large portion of that country’s 1.6 million barrels of crude production a day of the market.

That fact that Saudi Arabia and the Organization of the Petroleum Exporting Countries have committed to make up the difference has failed to cool prices.

<snip>

“Oil prices have been surprisingly insensitive to supply and demand,” [Hussain al-Shahristani, Iraq’s deputy prime minister for energy,] added. “Volatility in oil prices have been more due to speculation in futures market and political instability, as in the case of Libya.”

<snip>

The French industry minister, Éric Besson, said his country’s presidency of the Group of 20 leading economies, which runs through 2011, would work to improve transparency of oil supply data and strengthen market regulation to “prevent potential manipulation.”

He said that the development of derivatives had gone beyond simply covering risk, which had been their raison d’être.

Didier Houssain, director of energy markets and security at the International Energy Agency, which primarily represents industrialized nations, emphasized there was no “fundamental” reason for prices to rise as high as they did in 2008, when they neared $150 a barrel.

“It’s not a repetition of 2008 because there is some slack in the market,” he said. In 2008, there was a real problem of supply and demand given an unforeseen surge in demand from China. “This year everyone sees demand at a lower level and growth in demand is lower,” he added. “We are not too worried — if we strip out the geopolitical factors.”​

 

[WorldTraveler]

The dollar doesn't have to decrease by 25% in order to account for a significant increase in fuel prices. Not only is not necessary mathematically - since the US compete with other currencies for oil - but it logically isn't necessary.
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The USD has decreased against a number major global currencies and I highlight just four for you. In the case of the Euro and Pound sterling, the US is competing against economies that are as large or larger than the US in their use of fuel...
IN the case of the Indian Rupee and the Brazilian Real, you have two major emerging economies that are using their new-found wealth to buy more petroleum; there is a direct relationship between the decrease in the value of the USD and the increase of the price of oil in USD.
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http://finance.yahoo.com/q/bc?s=USDBRL=X&t=3m&l=on&z=m&q=l&c=
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http://finance.yahoo.com/q/bc?s=USDEUR=X&t=3m&l=on&z=m&q=l&c=
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http://finance.yahoo.com/q/bc?s=USDINR=X&t=5d&l=on&z=m&q=l&c=
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http://finance.yahoo.com/q/bc?s=USDGBP=X&t=3m&l=on&z=m&q=l&c=

Note that this represents just 3 months of currency changes - there is a much longer term change that has been going on that is also reflected in petroleum prices.
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And of course you also have seasonality which sends the price of oil up as more people drive during the northern summer.
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It's not hard to see how the price of fuel has gone up and be able to trace it to the weakness of the USD.
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Given that the US has not yet made the tough choices necessary to cut the flow of red ink (borrowing) not to speak of reducing the current US national debt, the dollar will continue to weaken - and the price of oil will continue to go up.

 

[Veritas]

Of course it is; however, I don't believe that the dollar has declined in value anywhere near the 28% rise in the price of oil this year.

The dollar doesn't have to decrease by 25% in order to account for a significant increase in fuel prices. Not only is not necessary mathematically - since the US compete with other currencies for oil - but it logically isn't necessary.
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The USD has decreased against a number major global currencies and I highlight just four for you.

Thanks for proving that I was correct when I stated that the Dollar lost nowhere near 28% in value since January of this year. The largest decline in the examples that you cited was approximately 10% against the Euro.

As far as the cause for the spikes in crude oil prices, I trust the explanations proferred by the experts in the field who were quoted in the New York Times article that I linked above.

 

[WorldTraveler]

Thanks for proving that I was correct when I stated that the Dollar lost nowhere near 28% in value since January of this year. The largest decline in the examples that you cited was approximately 10% against the Euro.

As far as the cause for the spikes in crude oil prices, I trust the explanations proferred by the experts in the field who were quoted in the New York Times article that I linked above.

of course you would never admit that I was right... I appreciate E for recognizing that what I am saying is true.

I never said there was a 1 to 1 relationship between the value of the dollar and the change in price of oil... because there isn't.

Demand is very much a factor and that is not directly related to the value of the dollar.... but it also shows that all the fuel-saving efforts in the world in the US and even if the US drilled every available source of domestic oil won't completely change the price of oil without also addressing the relative strength of the US economy relative to global economies.

 

[Veritas]

of course you would never admit that I was right...

Why should I admit that you are right when you are obviously wrong.

I appreciate E for recognizing that what I am saying is true.

I never said there was a 1 to 1 relationship between the value of the dollar and the change in price of oil... because there isn't.

Excuse me, E mentioned the decline in the value of the dollar as a factor in the increase of the price of crude before you ever did:

Funny how nobody ever sees the rise in oil as being a reflection of the continuing devaluation of the dollar.

After I agreed with him, but added that the devaluation of the dollar did not entirely explain the much faster rise in the price of oil, you just piped in, without any source or corroboration, writing that there is no parity in the relationship between the value of the dollar.

Can you offer one single recognized expert supporting your hypothesis?

Demand is very much a factor and that is not directly related to the value of the dollar.... but it also shows that all the fuel-saving efforts in the world in the US and even if the US drilled every available source of domestic oil won't completely change the price of oil without also addressing the relative strength of the US economy relative to global economies.

Well, the experts disagree with you on this point. As I posted above:

NYT - Little Relief Seen From High Oil Prices

In London, Brent crude oil from the North Sea for May delivery was trading at $121.70 a barrel late Wednesday, up 28 percent since the end of last year and higher in particular since the conflict in Libya removed a large portion of that country’s 1.6 million barrels of crude production a day of the market.

That fact that Saudi Arabia and the Organization of the Petroleum Exporting Countries have committed to make up the difference has failed to cool prices.

<snip>

“Oil prices have been surprisingly insensitive to supply and demand,” [Hussain al-Shahristani, Iraq’s deputy prime minister for energy,] added. “Volatility in oil prices have been more due to speculation in futures market and political instability, as in the case of Libya.”

<snip>

Didier Houssain, director of energy markets and security at the International Energy Agency, which primarily represents industrialized nations, emphasized there was no “fundamental” reason for prices to rise as high as they did in 2008, when they neared $150 a barrel.

“It’s not a repetition of 2008 because there is some slack in the market,” he said. In 2008, there was a real problem of supply and demand given an unforeseen surge in demand from China. “This year everyone sees demand at a lower level and growth in demand is lower,” he added. “We are not too worried — if we strip out the geopolitical factors.”

In other words, supply and demand are in balance, but speculators are exploiting the current political situation in the Arab world.

I think it is time to follow the lead of E and FWAAA and add you to my ignore list.

PLONK!!!

 

[WorldTraveler]

Why should I admit that you are right when you are obviously wrong.



Excuse me, E mentioned the decline in the value of the dollar as a factor in the increase of the price of crude before you ever did:

​

After I agreed with him, but added that the devaluation of the dollar did not entirely explain the much faster rise in the price of oil, you just piped in, without any source or corroboration, writing that there is no parity in the relationship between the value of the dollar.

Can you offer one single recognized expert supporting your hypothesis?




Well, the experts disagree with you on this point. As I posted above:



In other words, supply and demand are in balance, but speculators are exploiting the current political situation in the Arab world.

I think it is time to follow the lead of E and FWAAA and add you to my ignore list.

PLONK!!!

first, except that neither you or FWAAA or E actually can ignore me because you know that I am not going to ignore you and in the absence of your reply, I get to finish the conversation... but of course it's all rooted in the distorted mindset that if you can't make your point or someone makes a point more persuasively than yours, you would rather just shut down the conversation than find the mental horsepower necessary to come up w/ a cogent argument - which you may or may not be able to do.
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you might want to check the record before you boldly proclaim that E said devaluation of the dollar is a part of the problem... because I said...

problem w/ your theory is that oil price spikes have happened under both parties' watch...


But the single largest factor that is affecting global oil prices right now is the strength of the US dollar relative to other global currencies, esp. those of countries that are competing to buy larger percentages of global oil.
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Given that US lawmakers have not made the tough choices to cut the budget and are continuing w/ business as usual, the US dollar will continue to shrink in value relative to other currencies and the price of oil will increase.

... long before E ever participated in this discussion.
Of course part of the problem may be that you don't know what "strength of the dollar" and "devaulation" actually mean... but most people who have wisdom but not intelligence are smart enough not to open their mouth and demonstrate their ignorance to the world.
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now to the point at hand.... sure speculation is part of the issue but experts are also saying there is far less speculation than there was years ago when oil ran up to $150/bbl. the whole point that supply and demand is in balance proves that notions of economizing/going green or increasing domestic drilling isn't going to solve all of the problem.

Which means that the real answer is a financially driven answer.... about half of the world's energy is pumped by a cartel that is obviously interested in obtaining the greatest profits they can without tipping the economy into depression... and they are going to continue to push prices up.
But you would be blind to not recognize that the US dollar has diminished in value relative to most other global currencies and the devaluation of the dollar is directly tied to the increase in prices of oil. When you consider that the US is having to compete with many other countries for the same supplies of oil, it isn't hard to see that the cost of oil in other countries is not going up to the same degree as it is in the US because those currencies are appreciating while the US dollar is depreciating. Other countries are buying oil at the same effective price in THEIR local currency - which is precisely why there have been alot of calls for oil to be priced in a basket of currencies instead of just the USD.
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But I'm sure global macroeconomics is WAY beyond your paygrade so we'll just let you drop out of the conversation and those of us who are capable of carrying on will do so.

 

[strikeforce]

I can assure you that Wall Street is fully hedged and the current price rise can be linked to large institutional funds pouring money into the oil futures market and driving the price up. Oil needs to be taken off the wall street casino and allow the true supply and demand levers to determine the price. The cost of extraction, transportation, and marketing is around $50/bbl. Add in a profit of 20% to keep exploration going, and it should be no higher than $60/bbl on the open market. Face it, we are being had by our government and Wall Street, and they are laughing all the way to the bank.

In the meantime, they are killing our economy, and making it very difficult for businesses to survive, let alone move the economy forward. Greed will kill us all soon.

Absolutely!!!!!!!!!
Name one lawmaker working on behalf of the middle class? Not the tea party, that's for sure!

 

[WorldTraveler]

Absolutely!!!!!!!!!
Name one lawmaker working on behalf of the middle class? Not the tea party, that's for sure!

problem is that at least w/ respect to oil prices, oil price spikes have occurred under both Dem and Republicans and neither party has been able to stop it. Since the Tea party isn't even in control of anything - they sure can't be blamed for what is happening. Unless you can tell us that a loud minority has the power to change American law - because that is what the Tea Party is - loud but still a minority.
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Further, given that no one has yet been able to identify w/ certainty the cause of oil price hikes, let alone stop them, it seems pretty certain that it is a multi-faceted problem. Nothing anyone has suggested here is not part of the solution - just that none of them alone will solve the problem... and picking an answer just because you don't like someone else or their answer is a certain way to prove that you will never be taken with credibility.
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Veritas,
you might also want to be careful about who you lump into what camps... because FWAAA and I have agreed on causes of the rise in fuel costs - as have E. FWAAA and E are both smart enough people that they will admit the truth when it is apparent that someone else has it.... they both bring alot of value to this forum because of that. FWAAA esp. is smart enough to know his limits and not argue points about which he isn't absolutely certain he is right - or at least be willing to admit there are multiple correct answers. That is why despite the fact that he and I disagree on some things, I would add him to my respected users list if this board had one because he knows what he is talking about but he also is wise enough to know when to quit talking.
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and if you or anyone else has the answer to what is causing oil price hikes and how to stop them, then figure out a way to stop it - and make a whole lot of money in the process. Because if you think someone is running up the price, then there are people who can make money forcing it down... happens all the time....
until then recognize that there are people who might be able to contribute something to the conversation.

 

[SpinDoc]

In other words, supply and demand are in balance, but speculators are exploiting the current political situation in the Arab world.

I think it is time to follow the lead of E and FWAAA and add you to my ignore list.

PLONK!!!

Brother, you hit the nail on the head, but there are way too many wealthy and influential people playing the "game", and they are raking in the money at the expense of those who don't have the resources to play the game. The only way to stop the game is to take control of oil prices out of the hands of the financial markets, but again, influence and politics will never let that happen. When oil rose to $147/bbl in 2008, politicians in the U.S. and all over the world were contemplating changing the rules and bringing more "transparency" to the process. They all lied because they ARE part of the game. And in the meantime, the average consumer loses as well as the overall economy around the world. If only they could put me in charge of euthanization of Wall Street energy traders and corrupt politicians...... Never mind. Anyway, folks we are screwed because we are the little people.

 

[SpinDoc]

Absolutely!!!!!!!!!
Name one lawmaker working on behalf of the middle class? Not the tea party, that's for sure!

From CNBC today:

Oil Ends $3 Lower, Near $106, on Signs of Slowing Demand

Light Sweet Crude
OIL 105.82

Hmmm. Goldman-Sachs advises their investors to cash out of oil futures today based on their predictions that a major market correction is coming and they actually LISTEN and dump their positions.

FWAAA, are you still here, man? What part of financial market manipulation and speculation don't you understand? The folks who dumped their positions today made a crapload of money on the run from $70 to $110, and they are walking away with huge profits. The only reason they made the profits is because they bid the price up based on fear and speculation. That is absolutely wrong and it's time to take oil off the futures market and let true supply and demand determine the price.

I only hope the downward slide continues, because the US economy, and the broader world economy needs the price of oil to be in the $50 to $70 range in order to prevent recessionary conditions. And, on top of that, it will send many Wall Street speculators to the poor house when their margins are called in. I will enjoy seeing that happen.

 

[delldude]

Absolutely!!!!!!!!!
Name one lawmaker working on behalf of the middle class? Not the tea party, that's for sure!

Barack Obama and John Kerry always look out for the little guy.......