I could vote for Donald Trump

[pocketfullofshells]

He's a quitter. Damn him and all his money. I will never take him seriously again. Boycott his TV shows.

come on you did not know it was going to happen? Hell MSNBC even peggeed the day he would say he was not weeks ago...and nailed it.

 

[pocketfullofshells]

A

Futures contracts are just bets on future supply and demand.

and they would be alot better...if people who actuly needed those supplies used them...and not people who hope to profit and munipulate them for that gain...

 

[BigRob]

and they would be alot better...if people who actuly needed those supplies used them...and not people who hope to profit and munipulate them for that gain...

If you hold a futures contract you do have to take delivery of whatever it is when your contract comes due, or you have to sell it someone who will take delivery.

If I am holding a contract for oil at $100 a barrel that comes due on May 18th, and oil is sitting at $75 dollars a barrel, I am going to take a big loss on my speculation....speculators don't always make a ton of money.

Ultimately, the oil gets used, because Goldman Sachs etc are not taking delivery of actual oil. If the demand was not present to justify the price at whatever they are able to sell their contracts for, then they would lose money by speculating, and they would not be doing it.

Speculators do not really seem to have the price influence that everyone wants to argue they do in my opinion.

 

[pocketfullofshells]

If you hold a futures contract you do have to take delivery of whatever it is when your contract comes due, or you have to sell it someone who will take delivery.

If I am holding a contract for oil at $100 a barrel that comes due on May 18th, and oil is sitting at $75 dollars a barrel, I am going to take a big loss on my speculation....speculators don't always make a ton of money.

Ultimately, the oil gets used, because Goldman Sachs etc are not taking delivery of actual oil. If the demand was not present to justify the price at whatever they are able to sell their contracts for, then they would lose money by speculating, and they would not be doing it.

Speculators do not really seem to have the price influence that everyone wants to argue they do in my opinion.

When demand and supply hardly change, and price per barrall goes up to where gas goes from 3 to 4 bucks a gall...someone is taking in those profits....and only 2 people see to be gaining, wall street and oil companies...my guess is its a combo of course...but needless to say we are getting raped and ripped off..and they are enjoying it.

someone needs to get a billionair to start a non profit oil company to compeat with the big ones.

 

[BigRob]

When demand and supply hardly change, and price per barrall goes up to where gas goes from 3 to 4 bucks a gall...

What exactly are you basing the claim that supply and demand are not changing on?

The oil market supply is not just based on what is extracting from the ground...oil is a finite resource, and proven oil reserves also factor into supply levels.

Imagine the following scenario:

There are 100 units of commodity X.
Demand for those units is 10 units a year.
10 Units a year are extracted from the ground.

You would argue that supply and demand remain unchanged, even though supply at the end of year one really has fallen to 90, while demand has remained constant.

Not to mention the little fact that our own government is predicting increasing demand and tightening supplies....so I have to ask again, what are you basing your claims on steady supply and demand on?

someone is taking in those profits....and only 2 people see to be gaining, wall street and oil companies...my guess is its a combo of course...but needless to say we are getting raped and ripped off..and they are enjoying it.

We are getting ripped off for gasoline because the monetary policy of the federal government is killing the dollar. It has nothing to do with Wall Street, or some greedy oil company.

someone needs to get a billionair to start a non profit oil company to compeat with the big ones.

Why would a billionaire want to front all his money to make no profit?

 

[GenSeneca]

If you hold a futures contract you do have to take delivery of whatever it is when your contract comes due...

I do not believe that is correct. I cannot remember the exact source or I would post it but I read that there used to be a law regarding futures trading that has since been rescinded. That law stated that in order for someone to bid on a futures contract for a commodity, they would have to have proof of their ability to take possession of the commodity. For example, in order for me to bid on a contract for 100 barrels of oil, I would need to have proof that I had the means to take possession and store the product. This law kept many people out of the speculation market. Once that law disappeared, the market was wide open to anyone.

If the demand was not present to justify the price at whatever they are able to sell their contracts for, then they would lose money by speculating, and they would not be doing it.

What? You just said they lose their shirts on occasion, so clearly that doesn't stop the speculators. Speculators, like gamblers, take huge risks, which can either result in big wins or big losses.

Speculators do not really seem to have the price influence that everyone wants to argue they do in my opinion.

Speculators operate on a herd mentality, creating market bubbles in an attempt to get in on "the next big thing". Once they realize, as you put it, "demand was not present to justify the price", the speculators begin panic selling to avoid, or limit, losses and the market bubble bursts. There are other factors to market bubbles, such as Fed policy and our fractional reserve banking system, but they are merely the wand and the soap, speculators provide all the hot air.

 

[pocketfullofshells]

I do not believe that is correct. I cannot remember the exact source or I would post it but I read that there used to be a law regarding futures trading that has since been rescinded. That law stated that in order for someone to bid on a futures contract for a commodity, they would have to have proof of their ability to take possession of the commodity. For example, in order for me to bid on a contract for 100 barrels of oil, I would need to have proof that I had the means to take possession and store the product. This law kept many people out of the speculation market. Once that law disappeared, the market was wide open to anyone.


What? You just said they lose their shirts on occasion, so clearly that doesn't stop the speculators. Speculators, like gamblers, take huge risks, which can either result in big wins or big losses.


Speculators operate on a herd mentality, creating market bubbles in an attempt to get in on "the next big thing". Once they realize, as you put it, "demand was not present to justify the price", the speculators begin panic selling to avoid, or limit, losses and the market bubble bursts. There are other factors to market bubbles, such as Fed policy and our fractional reserve banking system, but they are merely the wand and the soap, speculators provide all the hot air.

you know I feel dead inside when I have to agree with you....

 

[BigRob]

I do not believe that is correct. I cannot remember the exact source or I would post it but I read that there used to be a law regarding futures trading that has since been rescinded. That law stated that in order for someone to bid on a futures contract for a commodity, they would have to have proof of their ability to take possession of the commodity. For example, in order for me to bid on a contract for 100 barrels of oil, I would need to have proof that I had the means to take possession and store the product. This law kept many people out of the speculation market. Once that law disappeared, the market was wide open to anyone.

Well, you don't have to take actual delivery...but you do have to find someone else to buy the contract that will take delivery...but in essence, when the contract comes due, you have to do something with it.

What? You just said they lose their shirts on occasion, so clearly that doesn't stop the speculators. Speculators, like gamblers, take huge risks, which can either result in big wins or big losses.

My point is simply that if the risk did not justify the reward, they would not be doing it....and to illustrate that the "evil" speculators do in fact bet on the wrong end of things at times.

Speculators operate on a herd mentality, creating market bubbles in an attempt to get in on "the next big thing". Once they realize, as you put it, "demand was not present to justify the price", the speculators begin panic selling to avoid, or limit, losses and the market bubble bursts. There are other factors to market bubbles, such as Fed policy and our fractional reserve banking system, but they are merely the wand and the soap, speculators provide all the hot air.

But if speculators are able to sell their contracts for a profit, then demand was in fact present to justify the price...so it seems to me that if speculators are in fact making money, then demand levels do in fact justify the current price....otherwise they would be losing money.

 

[Dr.Who]

someone needs to get a billionair to start a non profit oil company to compeat with the big ones.

You don't need a billionaire to do that. You and lots of friends can start a company right now. In fact, at least half of all the money on wall street was not put there by billionaires but by companies that invest the 401ks of average folks. I bet non-profit investing companies already exist so just go out your money in one. Of course if you put your money in a non-profit investing company then you won't make any profit on your retirement plan.

 

[GenSeneca]

But if speculators are able to sell their contracts for a profit, then demand was in fact present to justify the price...so it seems to me that if speculators are in fact making money, then demand levels do in fact justify the current price....otherwise they would be losing money.

OK, I posted a reply to this but it vanished... Just realized that it was not here.

Bigrob, if what you just said were true, market bubbles could never form, much less bust, because the price, or value, would always be the equilibrium price (which is the convergence point where actual supply and demand meet). Market bubbles do form and when they bust, the price retreats to the point of equilibrium. Everything between the equilibrium price and the price at the peak of a bubble is artificial inflation - i.e. a bubble.

At the start of a bubble, some investors get in and the value appears to rise, so more investors jump on the bandwagon, thus raising the apparent value further, and a positive feedback loop is created. The result is a stock market frenzy. This positive feedback loop continues until the bubble bursts, at which point the negative feedback loop takes over and manifests itself as panic selling. The negative feedback loop continues until the point of equilibrium, that's when the price stabilizes as it aligns with actual supply and demand.

All the speculators who got in early and got out early, will have made a profit. The ones who came in late and got out late, all lose their shirts. All the other speculators fall somewhere between those two extremes, some profiting and some losing. So pointing to the profits of speculators leading up the point where the bubble bursts and holding it up as proof that the price was not artificially inflated, sounds like a lot of hot air.

 

[pocketfullofshells]

You don't need a billionaire to do that. You and lots of friends can start a company right now. In fact, at least half of all the money on wall street was not put there by billionaires but by companies that invest the 401ks of average folks. I bet non-profit investing companies already exist so just go out your money in one. Of course if you put your money in a non-profit investing company then you won't make any profit on your retirement plan.

as someone who has written buisness plans and taking classes on owning your own buisness....I can only guess at what the start up cost would be to make a oil company that was non profit and big enough to make a difference...and I am willing to bet the bank is not going to loan me anything to get started on that.

 

[BigRob]

OK, I posted a reply to this but it vanished... Just realized that it was not here.

Bigrob, if what you just said were true, market bubbles could never form, much less bust, because the price, or value, would always be the equilibrium price (which is the convergence point where actual supply and demand meet). Market bubbles do form and when they bust, the price retreats to the point of equilibrium. Everything between the equilibrium price and the price at the peak of a bubble is artificial inflation - i.e. a bubble.

Look at it this way. If I am able to sell my supply of something at my asking price, then was demand not present to justify my price?

I don't think you can really look at the entire "bubble" and make the claim that demand didn't justify the price. I think you have to look at snapshots to really see if that is true or not.

At the start of a bubble, some investors get in and the value appears to rise, so more investors jump on the bandwagon, thus raising the apparent value further, and a positive feedback loop is created. The result is a stock market frenzy. This positive feedback loop continues until the bubble bursts, at which point the negative feedback loop takes over and manifests itself as panic selling. The negative feedback loop continues until the point of equilibrium, that's when the price stabilizes as it aligns with actual supply and demand.

But is it really the "start of a bubble" when demand is clearly present to justify the asking prices?

Perhaps you can argue demand is artificially inflated as well, but if it is, then supply and demand are really still meeting right?

All the speculators who got in early and got out early, will have made a profit. The ones who came in late and got out late, all lose their shirts. All the other speculators fall somewhere between those two extremes, some profiting and some losing. So pointing to the profits of speculators leading up the point where the bubble bursts and holding it up as proof that the price was not artificially inflated, sounds like a lot of hot air.

I think this is a good example. The speculators who made money got out when demand was present to justify their asking prices....the speculators who lost money made a bad bet, and demand didn't justify their asking price, hence they lost money.

Ultimately, my question is this:
Is the price really inflated if there is a buyer at that price?

 

[pocketfullofshells]

some oil exc a few days ago basicly said that 30-40% or something like that of gas prices if from speculation...wish I could find clip but got to run in like 2 min...will check later tonight see if can find it.

 

[BigRob]

some oil exc a few days ago basicly said that 30-40% or something like that of gas prices if from speculation...wish I could find clip but got to run in like 2 min...will check later tonight see if can find it.

I hate to agree with Krugman, but I think he has a point here:

From 2008, but still relevant.

One of the things I find puzzling about the whole oil market discussion is how complicated people seem to make it. They get all wrapped up in stuff about forward markets, hedge funds, etc., and lose sight of the fundamental fact that there are only two things you can do with the world’s oil production: consume it, or store it.

If the price is above the level at which the demand from end-users is equal to production, there’s an excess supply — and that supply has to be going into inventories. End of story. If oil isn’t building up in inventories, there can’t be a bubble in the spot price.

The Weekly Petroleum Status Report for last week shows that inventories are high, but not really increasing...which would be the case if we were in a true oil bubble.

 

[Hobo1]

One of the things I find puzzling about the whole oil market discussion is how complicated people seem to make it. They get all wrapped up in stuff about forward markets, hedge funds, etc., and lose sight of the fundamental fact that there are only two things you can do with the world’s oil production: consume it, or store it.

Do you remember when you believed in Santa Claus and Christmas was so simple? Then you learned the truth, and everything became complicated?

The same thing is happening in the oil markets. You must educate yourself about the commodities market, but let me give you a quick example.

Suppose you are president of Air BigRob. Suddenly you see something that makes you believe the price of aviation gas will go up in the future. To protect yourself against a future price rise, you go to the commodity exchange and buy 100,000 barrels of aviation gas to be delivered in two months. Fortunately for you, the price of oil is the same on the future's market as it is today. In other words, nobody else is worried about a future price hike in oil.

In two months, war has broken out in Mexico, Brazil, in the Middle East, and a hurricane is threatening to blow through the Gulf of Mexico. The price of oil has tripled. At the same time all the airlines are paying higher prices for aviation gas, and airplane ticket prices have doubled.

Because you were clever, and bought oil in the past, you are taking delivery of aviation gas at low prices. You are rich.

Now suppose you are somebody who has no need for oil, but is simply a trader. That means you are a gambler. You buy and sell oil because you have inside information that Obama is going to send in troops to Libya soon.

So, you buy 10,000 barrels of oil to be delivered in two months at a low price.

As expected, Obama expands the war with Libya and oil goes up in price. You don't want all that oil, so after 1 1/2 months you sell that oil contract to someone who needs it soon. You will make a big profit on your oil because we are now at war.

Now envision thousands of traders who all think war is going to break out in two months. And they all rush in to buy oil at a low price. But after the first few hundred traders buys oil, the price of oil delivered in the future starts to go up. The next week, more traders buy oil and the prices rise even faster.

Finally, the local gas station is seeing prices rise and he raises the price of gasoline. And the Oil Companies are in hog heaven because they can sell their oil at higher prices!

But look. This all happened because of speculation. Oil is still being pumped in at its regular schedule, storage tanks are moderately full, NOTHING HAS CHANGED! But the price has doubled!

That is why the future's market and the traders have such an impact on prices. A lot more going on than "consume it, or store it."