 | DrumBeat: October 31, 2007 | The Oil Drum | A Few Charts of the US Crude Oil Supply and Stocks Situation |  |
32 comments on This Week in Petroleum 10-31-07
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32 comments on This Week in Petroleum 10-31-07
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Exactly. Spec demand would show up in the longer dated contracts and the markets would be in contango as they were in 2006. Now, the price is clearly being driven higher by the spot market and the near month. This is all supply and demand for physical crude.
Unless you take delivery, you simply cannot affect the price, ultimately. You are just making a bet on the direction of future prices. For every long there is a short and they cancel each other out, it just ends up that one is right and the other wrong (or perhaps the other is hedging and is still very happy, thank you!)
The Saudis need SOMETHING to explain the high price other than that they are post-peak and cannot drive the price down by doing the normal thing which would be to pump more oil. Hence, all the nonsense about markets being well supplied, terror premiums, speculative demand and all the rest of it. The price is determined at the wellhead and at the pump. All the rest is propaganda.
It seems as though getting the truth through to the ordinary consumer will be next to impossible. Simple answer: production is in decline. And yet we get all this nonsense, day after day.
But what do we really expect the Saudis to do? Tell the truth? LOL!!!
I think its a little bit more complex thus my Whack-A-Mole theory. Enough real buyers are now forced to buy under duress that the speculators eventually have quite a few real buyers that will take delivery. Speculators are providing the peak prices but the floor price is being driven up strongly by desperate real buyers. Basically the real buyers are being forced to buy on the spot market at any cost as they wait till the last minute to purchase oil.
Its not quite as simple as you make it but if you consider the housing bubble for example speculators cannot drive up the price unless real demand is increasing.