Oil Swings Go Beyond Fundamentals

This article has 14 comments:

•  
  Eric Fox

  Jun 11 02:23 PM

  My Website
  Do you mean WTI the company, or WTI - West Texas intermediate. I think SA thought WTI was the ticker symbol.
•  
  wcmillionnai
  rre

  Jun 11 02:30 PM
  Excuse me - did you say something?
•  
  Sophisse

  Jun 11 02:31 PM
  I think people expect prices to go up in some proportion to demand going up. And maybe they are right.
  
  But consider this thought: what if, up till now, supply has basically been sufficient to satisfy every mile that anyone wanted to drive. I.e. there's extra capacity that could be ramped up. In that world, prices are a function of costs, plus some decent profit to suppliers. If suppliers want more profit, they have to organize a cartel, i.e. OPEC.
  
  Now imagine that we have just crossed the line to a world where there are a few more miles people want to drive than there is gas to power them. Now, the prices have to rise to the point where some people who want to drive some miles, decide not to. I.e. prices are determined by value to the customer.
  
  Cost + profit is a totally different number than utility value to the customer. Flipping from one to the other could involve a small amount of oil but a huge swing in prices. Like we're seen.
  
  Analogy: if 10 guys come in from the desert dying of thirst and there's a whole costco full of water there, they are going to get their water for a buck a bottle like anyone else. But if 10 guys come in from the desert and there are only 9 bottles of water for sale, whoever sells those bottles is gonna get their whole wallets and credit cards because someone is going thirsty.
  
  Read the IEA report. People are going thirsty. The big question to me is, will new production get us back into the lovely world we have been so used to for all these years? Or are we in a world where every extra gallon burned in BRIC has to be balanced by a gallon less burned in US/Europe?
  
  Course, maybe it's just a bubble /shrug
•  
  forchione

  Jun 11 02:33 PM
  WHO OWNS THE OIL BEING TRADED? INVESTMENT HOUSES, IRAS& 401KS? IT SEEMS THE AVERAGE PERSON IS GETTING THE SHAFT BY TRADERS AND THEY ARE USING OUR MONEY TO DO IT. WHAT IS THE MARGIN ACCOUNT REQUIREMENT FOR OIL, GAS AND NATURAL GAS TRADERS?
•  
  realist42

  Jun 11 02:35 PM
  Everyone should ask one simple question, "Who benefits most from these absurd prices?" The answer is not the oil producers, they are being criminalized each day in the media. Commodities markets are the winners at this point in time. If Goldman claims $200 barrels are comming soon they get lots of commissions on trades and make their biggest clients a little more rich. And who could blame them? This is how they make their money.
  
  Simultaneously Bernanke and the Fed seem not to fully appreciate the impact of keeping interest rates artificially low. 15 percent of the increase in oil prices can be tied directly to the weakening of the dollar relative to the Euro in the last year. So that $138 barrel would cost only $120 if the dollar were stronger and that doesn't even take into account the speculators that are trying to protect themselves against the weak dollar by buying oil.
  
  Finally, lets not forget that the Riyal is tied to the Dollar, the weak dollar has made it more expensive to live in Saudi Arabia, not giving them any incentive to increase oil production and risk further weakening the Dollar.
  
  
•  
  Roger
  Nusbaum

  Jun 11 02:40 PM

  My Website
  Eric, I am talking about WTIC, crude oil. If the editors put in a stock, if that is what W&T Offshore is, then it needs to be removed. Just talking about crude oil.
•  
  you_can_call
  _me_Al

  Jun 11 02:50 PM
  Someone correct me if I'm wrong, but if gas inventories are up, and oil inventories are down, doesn't that mean that refiners aren't buying new oil supplies because they aren't selling as much gasoline?
  
  Errr, why on earth would oil rise on this news.
  
  Looks like another bubble to me. My prayers have been answered.
•  
  pockyclips
  2020

  Jun 11 05:56 PM
  Last I looked, margin requirements were 7%. I'm checking (pokerwise) for now. I can't figure if oil is 40% overpriced, or gold and natural gas are 40% underpriced.
•  
  oil myth

  Jun 11 06:41 PM
  The daily fluctuation in oil futures is indicative that this is no longer a supply/demand story. In the last week we have seen futures moving an average $5-$9 within a day. With reference to the oil price forecasts made by Goldman, Boone, Morgan Stanley, etc, this signifies that there are big vested interests involved in keeping oil higher and also take it even higher. Pension Funds, Hedge Funds and Invesment banks have lost a lot of money in the subprime debacle, so the money flows have been routed to commodities. I am not understating that there is increased demand in the world but just the magnitude and the pace of this price shift in such a short span of time is not justified by a simple demand/supply argument. Also, the price forecasts primarily coming from sources which stand to benefit from this momentum raises the question of bias and credibility. Unless, somebody in the Government rationally and logically looks at these issues, this trend is going to stay bullish. But, then again, rationality and common sense by the Government is wishful thinking !!.
•  
  Prognostic

  Jun 11 07:48 PM
  I just spoke to the Oil genie.
  
  She told me tomorrow marks the beginning of the end of the great oil boom this decade.
  
  Oil will go down to less than hundred dollars a barrel in 6 months.
•  
  A von
  Altendorf

  Jun 11 08:11 PM

  My Website
  War risk is $30 or more. Big swings are reaction to news, rumors.
•  
  GH

  Jun 12 09:31 AM
  Myth:
  
  "Unless, somebody in the Government rationally and logically looks at these issues, this trend is going to stay bullish."
  
  The Senate Commerce Committee heard all about it last Tuesday 3-Jun (video may still be on C-Span's web site). A couple days ago a Republican filibuster prevented debate on a bill that would have returned to the Commodity Futures Trading Commission the power to regulate oil market, which was removed from it by Phil Gramm (creating the "Enron Loophole") in 2001.
  
  Those represented in the Senate by Republicans need to write their reps a letter or send an email thanking them for their nice high gas prices.
•  
  winojohn

  Jun 12 11:32 PM
  "We're not running out of hydrocarbons,” insists Tony Hayward, the boss of BP, one of the world’s biggest oil firms. There are 1.238 TRILLION barrels of known reserves!! There is crude stored in tankers sitting in the persian gulf and elsewhere. The only hint of a shortage of crude I have seen anywhere is at the output end of Shell's Nigerian pipeline!!! Have you had any trouble buying oil, gas, heating oil, any sort of petroleum product??? Nobody is running out!!! The price of oil has come unhinged from the supply/demand reality!!! There are now folks investing in oil futures because they "know" crude prices will rise, and there will always be "somebody" willing to pay more than I did. Another fool. Classic bubble.
•  
  winojohn

  Jun 12 11:39 PM
  "We're not running out of hydrocarbons,” insists Tony Hayward, the boss of BP, one of the world’s biggest oil firms. There are 1.238 TRILLION barrels of known reserves worldwide. There is crude stored in tankers that are parked in the Persian Gulf and other places. The only place I have found a "shortage" of crude oil (and I've looked!) is at the output end of Shell's Nigerian pipeline. Have you had any trouble buying petroleum products?? NO! Nobody is running out! The price of oil has come unhinged from the supply/demand reality. The "greater fool" theory is at work. Classic Bubble.