<DrumBeat: May 18, 2008The Oil DrumA quote from Obama in Oregon..."We can't eat as much as we want...and then expect other countries...to say OK">

105 comments on POLL: Oil Breaks $127, Now What?

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the_rage on May 16, 2008 - 10:44pm Permalink | Subthread | Parent | Comments top

The term "speculator" is probably too broad when used by the media - they should use "investor" instead. A lot of investment banks like Morgan Stanley are big players in the physical oil market (they own Transmontaigne). They are the real speculators when they take physical delivery and then store it in the hopes of selling it at a higher price in the future.

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Jaymax on May 17, 2008 - 9:46am Permalink | Subthread | Parent | Comments top

Exactly - speculator driven price increases have to be accompanied by increased holdings of the physical goods associated with the contract. Stocks are not building significantly QED no speculative bubble.

I'm stunned that so many OD'ers are buying the spin being put out by CERA and OPEC that speculators are driving this price run up. Normally around here we're a bit more skeptical than that. But because this line is 'easy' and 'convienient' it's been picked widely by the media and other commentators.

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CrystalRadio on May 17, 2008 - 10:20am Permalink | Subthread | Parent | Comments top

Hi Jaymax,

Have you a source for your statement: Stocks are not building significantly. Thanks.

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shargash on May 17, 2008 - 12:49pm Permalink | Subthread | Parent | Comments top

From Paul Krugman in the NY Times

The only way speculation can have a persistent effect on oil prices, then, is if it leads to physical hoarding — an increase in private inventories of black gunk. This actually happened in the late 1970s, when the effects of disrupted Iranian supply were amplified by widespread panic stockpiling.

But it hasn’t happened this time: all through the period of the alleged bubble, inventories have remained at more or less normal levels. This tells us that the rise in oil prices isn’t the result of runaway speculation; it’s the result of fundamental factors, mainly the growing difficulty of finding oil and the rapid growth of emerging economies like China. The rise in oil prices these past few years had to happen to keep demand growth from exceeding supply growth.

I understand that is not a primary source, so take it for what it is worth. I think, however, that a lot of people are putting too much emphasis on what is essentially noise in the US inventory numbers or (worse) reading US gasoline inventories as proxies for oil inventories.

Edit: On a personal note, I made a trip last fall to visit my parents in FL. We took peak oil videos and literature with us and spent the week talking about the coming rise in oil prices. They are Fox News Republicans, and I wanted to get to them before Fox propaganda turned to peak oil.

Well, they came to visit us this week. Instead of "Gee! You sure were right about oil prices!," my father last night said, "It is all speculation. If they reign in speculation, the price of oil will be cut in half." *sigh* I think my mother gets it, but I'm afraid my father is lost to iron triangle propaganda.

I can't understand why so many people don't "get" supply & demand. Unless you can affect either supply or demand, you're not going to have a significant effect on prices. Unless there is hoarding, speculators have no effect on supply, and the only effect they have on demand is opposite to the direction of their speculation.

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CrystalRadio on May 17, 2008 - 1:14pm Permalink | Subthread | Parent | Comments top

Thanks shargash,

That NY times article may not be primary but it sounds as if they are reading from primary sources ... maybe:)

(Actually though my question to Jaymax and a similar question to yartrebo (below)sprang more from amusement that the two diametrically opposed views came so close together on the thread without blows being struck).

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Gwydion on May 18, 2008 - 7:50am Permalink | Subthread | Parent | Comments top

Here's a link to the EIA web page where each week they report the stocks of crude oil being stored at major facilities. You'll notice there's not an excessive amount for this time of year. I suppose there could be some stocks that aren't being accounted for, but you'd have to find them.

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BaSE on May 19, 2008 - 7:21am Permalink | Subthread | Parent | Comments top

Well the largest inventory is probably floating around or in transit in tankers. It is possible to change where ships go and how long it takes to get there to manipulate prices. Here's an interesting article.

http://www.bloomberg.com/apps/news?pid=20601109&sid=aQZcc1kgLb8k&refer=h...

By the way, I'm with Smith(above) all the way to $140. Woohoo! What a rush.

At least we get to fight al'Cia in Iraq, now that they finally got a foothold. Hopefully, McSame will steer us on a clear path to victory, or something.

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netfind on May 17, 2008 - 6:59pm Permalink | Subthread | Parent | Comments top

I'm working on a chart that shows the history of actual storage of oil in the U.S. and it's relation to oil price. It sheds some light on this "speculation" thing. Rising inventories are billed as meaning nobody wants any oil and any price increase is pure speculation . But history shows that oil storage goes up when there's a shortage and everyone wants it. This happened big time in the 70s. It is hardly happening at all now when we have the mother of all shortages setting in. The difference between price run up and storage patterns between the 70s, the Gulf War, and now is ridiculous.

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