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18 June 2008

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Nicholas Weaver

One other factor that can be happening: Speculation on the spot market requires storage. For everyone else, that means tankers and tanks, big, noticable things and something there is a limited supply of.

But for producers, it just means turning off the pump and letting the oil sit in the ground.

Now some producers are obviously getting concerned (like any good drug dealer, you don't want to price your clients into sobriety..), but I wonder if we are seeing anybody quietly holding back?

Fred

Reminds one of the investors in the Compagnie d'Occident.

http://en.wikipedia.org/wiki/Mississippi_Company

Maureen Lang

Another in the excellent series of posts you are doing on this subject, Pat.

Recent developments in the oil market make me increasingly glad I purchased that Prius for your niece back in '03. Even happier I bought one for myself last year. The price for regular @ the Mobil station around the corner from our house is $4.89/gallon as of this a.m.

Robert C

Smells like....capitalism!

Bunbury

Why do you say that supply and demand don't apply at the moment? One thing that is clear is that demand is pretty inflexible -- a quintupling of the price hasn't cut consumption much at all. In these circumstances, econ 101 equilibrium says that if there is a barrel too much the price will be zero and a barrel too little the sellers can name their price.

In the past supply has been limited by refinery capacity which was simply a matter of investment and time to fix. Now there is little under-production and it is not clear that it would be value maximising for anyone to change that even if they could.

It is also possible that the growth of India and China means that the US demand isn't as big a factor as it used to be.

William R. Cumming

Ah! Are speculators part of the efficiency of the the market economy? Clearly mathematics and not the definition of value as "that amount agreed to by buyer and seller each in full possession of the facts" seems to be "making" the market. This will be interesting to watch. Poor speculators. First lost out on subprime mortgages then switched to commodities and may find even these hazardous to their health. Good all those new buildings in NYC financial district and London have windows that don't open. Oh! And the regulators are just guessing because they are not authorized to even collect data that would allow them to make judgements in the arena of oil speculation. Would be of interest to see if the non-NOC's are hedging and speculating on their own supplies and reserves? Congress could ask but will not? No one else has authority to do so? Are the NOC's speculating and hedging in the markets? Again only they know. Much will be lost and gained on this episode of "TUPLIMANIA". Oil is not money but then money is not oil. My guess is that the impatience of the NOC's with the foolishness of NYC/London speculators will forever knock the dollar out of the running for oil contracts, probably before the end of the year. President Bush, Secretary Paulson, and Chairman Bernanke will be pleading for mercy for this all to occur after the election, and not before. They will lose their pleading! Oh! And the gift of 10-15% real inflation (including the core of food and energy which is only honest of course) will be occuring on monthly basis next few months.

martin k

Robert C: Its not capitalism, its hypercapitalism. Its when the money made betting on the money made betting on the money made from deals involving papers of debt supporting firms based on speculations on the market becomes the main drivers of the market. Its when derivates and putstop options are more imnportant than products, and when you have cartels coordinating the milking of the cow according to 1 year plans with no thought for the future. Its capitalism without any restraints, based on a religious ideology that says that man unleashed and with no control from the state is a benign animal, when evidence clearly shows the opposite. Its when the capitalists dont give a shit about the world, because only bleeding hearts and liberals can be bothered with any of that stuff. Its the vision of Ayn Rand brought to its inevitable conclusion. ANd thats what is sad.

VietnamVet

Colonel

The recent spike in oil prices is unrestrained capitalism; market forces gone wild (Enron and California electricity blackouts, writ large). But, the causes of the oil price rise: the Iraq War, declining dollar, and oil shortages cannot be addressed by the Republicans; they are the cause.

As soon as the USA has Energy Independence, withdraws from Iraq, and balances the federal budget; broke speculators will be jumping out of their windows. Republicans, War Mongers and Wall Street, three reasons the USA is in a never ending occupation of Iraq.

mlaw230

Ms. Lang: The reason for a $4.89 price is that the independent dealer cannot afford to capitalize his business with the spiraling cost of fuel. In order to stay open at all he jacks his price up to slow the sale of gas.

Many of these dealers will not be in business in 90 days, particularly in Virginia.

jamzo

the bubbling oil futures look more and more like the other bubbling crises of the past decade plus

denial that there is problematic bubbling

denial of knowledge of how problematic bubbling developed

denial of knowledge of who were the actors in the creating the problematic bubbling

admission that recent in regulation may have played a part in the bringing about the problematic bubbling

admission that there maybe financial institutions who are playing a role in the problematic bubbling

and so on

dot.com, subprime, oil futures

have i missed any?

which of the array of bubbling commodities
will be the next problematic bubbling

Robert C

Let me rephrase: Smells like.....American capitalism.

Clifford Kiracofe

Crude seems to be moving around the planet with no problems at VLCC, SuezMax, AfriMax, etc. shipping levels. Plenty of new safe and efficient double hulled ships coming on line in various categories over the next several years as the order books are built out. Bunker is of course more expensive but then the rates reflect this. Plenty of ships to carry crude and product (various refined products).
For data (note the newsletter for Tanker) on Tanker rates see:
http://swaraajshipping.com/index.php?page=tanker

also,
http://www.intertanko.com/templates/Page.aspx?id=18831


sbj

I see oil prices coming down by as much as 25% by mid September, unless the Jacobins manage to bomb Iran. If that happens all bets are off.

Jose

Check out this link from the Drudge Report:

http://www.iht.com/articles/2008/06/19/africa/19iraq.php

After 4,000+ dead and half a trillion dollar, I'm glad someone is going to make lots and lots of money out of this mess.

Also, explains why 50+ bases that are needed to ensure a victory and establishment of Democracy in the heart of the Arab World.

"Dumbya" has ensured comparison other successful Republican Presidents, Grant (Black Friday 1869) or Harding (Teapot Dome 1921).

Clifford Kiracofe

<"which of the array of bubbling commodities
will be the next problematic bubbling">

jamzo,

1. How about exotic metals?

"SPECULATION DRIVES UP SCARCE METALS PRICES

June 18, 2008--Speculation in special industry metals as
rhenium, chromium, cobalt, and titanium has driven up prices
massively in the last period. This is supposedly due to the
demand by the aircraft industry for super-alloys, to build better
energy-saving planes, which is as much a fairytale as saying,
that the Chinese are driving up the price of milk or oil.
The price of rhenium yesterday surged to a record of $11,250
a kg, more than double of last year's level; in 2006 it was only
about $1000. Chromium, produced mainly in South Africa, jumped
this month to a record of $11,000 per ton, up from about $6,800
last year, and less than $4000 in 2000. And the price of cobalt,
primarily coming from the DR of Congo, doubled its 2006 level up
to $52.50 per pound and is now at the highest price since 1978."

2. How about the stock/credit markets?

Ambrose-Pritchard in the Telegraph (London) says:

"The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks.

"A very nasty period is soon to be upon us - be prepared," said Bob Janjuah, the bank's credit strategist.

"A report by the bank's research team warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as "all the chickens come home to roost" from the excesses of the global boom, with contagion spreading across Europe and emerging markets." http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/18/cnrbs118.xml

3. As for tulips, which I happen to like, an excellent commercial supply house is van Engelen. Prices are reasonable:
http://www.vanengelen.com/tips_e.html
Global floriculture industry news at
http://www.floracultureinternational.com/

Curious

speculation or not these are the fundamental items:

1. there are too much dollar out there. Bush is printing money like crazy. The world can't absorb it anymore.

2. yet, the threat of banking collapse is still here. Now it's moving from "sub-prime" to "recession" as cause of further banking weakening.

3. as a result, Bernanke cannot raise the interest rate. (which is the primary cause of dollar flood)

so... what people suppose to do?

of course they have to retain their wealth? Are they suppose to keep them in sinking dollar?

Pray Saudi doesn't get mad too, because Venezuela, Russia and Iran are all mad at us.

Margaret Steinfels

A good citizen posted this here at "bubble, bubble" the other day; I know more now than I did yesterday.

Since I don't own a car, the practical outcomes have been a bit hazy; this article cleared things up.
http://www.spiegel.de/international/world/0,1518,559550-3,00.html

Duncan Kinder

In a prior post, I predicted an uptick in MEND attacks on Nigerian oil as a response to Saudi efforts to lower oil prices by boosting production.

Precisely this is now happening.

Curious

The full effect of oil spike will hit this winter (collapsing GDP growth) historical data show, we are going to crash.

(budget deficit will double, easy. And banking will start to collapse.)

see chart here.

http://www.financialsense.com/Market/wrapup.htm

Snoop-Diggity-DANG-Dawg

Let's make sure the democratic controlled conrgess continues to do absolutely nothing until we can all agree on the causal reasons for high oil prices.

That way, you know, everything will be fair.

different clue

How much of the buying of oil and contracts might be due to fear as much as greed? Or fear even more than greed? Fear of an ever-shrinking dollar buying
ever less and therfor making
necessary exchanging those dollars for storable commodities while those dollars can buy anything at all? Or "turning dollars into" oil for the same reason that some people buy gold defensively?

Also, isn't China filling
up a strategic oil reserve of its own? And won't China
therefor use its hoard of ever-shrinking dollars to buy all the oil it can, while it can; and store up that oil for China's own future? Oil at any price today, to protect against no
oil no matter what the price
tomorrow?

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