The Oil Drum | DrumBeat: July 9, 2008

374 comments on DrumBeat: July 9, 2008

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Moe_Gamble on July 9, 2008 - 9:47am

Right. The only way they were able to manipulate the silver market was by insisting on physical delivery of silver.

The only way oil speculators would be able to manipulate the price of oil would be by insisting on physical delivery of oil, and they couldn't do that because there's no way to store it. It's not something you can store in your garage.

The CFTC has done studies on the positions held by large funds, and they found that as the number of longs held by the funds grew, the number of shorts held by other market participants grew.

This is just more ignorance from someone who doesn't understand the markets at all.

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jokuhl on July 9, 2008 - 11:01am

Hey Moe;
Off Topic, but if you're still dropping in at the RIO for the World Series events, come by the ESPN final table and say hello. I'm on the camera crew. Noon to 1am most days..

We just bid adieu to Ray Romano last night. Nice Guy, did a lot with a short stack.

Bob

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Geckolizard on July 9, 2008 - 11:05am

The point (and benefit) of speculation is that it helps to moderate prices and prevent wild swings... By speculating, buyers can (try to) lock in a low price for a longer term, and sellers can (try to) lock in a high price for a longer term. These two forces help stabilize prices in the long term (although 'stabilize' is a relative term when oil prices are rising about 1% a week). Without speculation, both the buyer and seller are subject to the forces of the market at the time of the transaction... The buyer could pay much higher (or lower) on one day than the previous day, and the seller could do the same, which would result in wild price swings.

The uncertainty that wild price swings would bring could force the seller to produce less, and the buyer to consume less; in the case of oil, it would mean that oil producers would pump less and/or refiners would refine less, causing more serious issues for the end consumers (us).

By having speculation present (but no hoarding), all of the bumps are smoothed, the markets operate more efficiently than they would without speculation, and in the end the consumer benefits by having more stable (relatively) prices for gas, diesel, distillates, etc. It is to the end consumer's advantge to have speculation present in the market, and if/when (probably when) it's taken away, the results are going to have some nasty consequences for all involved... Like, I'd be willing to bet $20/day swings in oil prices could begin to happen...

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ET on July 9, 2008 - 11:29am

The point (and benefit) of speculation is that it helps to moderate prices and prevent wild swings... By speculating, buyers can (try to) lock in a low price for a longer term, and sellers can (try to) lock in a high price for a longer term.

Well, it's important to make a distinction between speculation and hedging. An actual consumer of oil might hedge by locking in a long term contract. This helps them in planning long term finances for the company (see SouthWestern Airlines for example). Both buyer and seller in this situation value the stability of a longer term price than the opportunities for short-term profits on day-to-day market swings.

I don't believe (though I could be wrong) that congress is aiming at hedgers, but only at the speculators who are not actual consumers/producers of crude oil or its derivatives.

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shargash on July 9, 2008 - 11:36am

Every contract requires 2 parties. When a hedger wants to hedge one way or the other, they need someone to take the other side of the contract. That's where speculators come in. Without speculators, it becomes harder to hedge, and harder to hedge at the economically efficient price. The volume traded on the exchanges goes down and volatility goes up.

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The Dude on July 9, 2008 - 12:09pm

JD has a post on FUTURES PRICES DETERMINE PHYSICAL OIL PRICES. ACK, WISH HE'D LOSE THE CAPITALS. He says futures actually do have a role to play:

Thus, instead of using dated Brent as the basis of pricing crude exports to Europe, several major oil-producing countries such as Saudi Arabia, Kuwait and Iran rely on the IPE Brent Weighted Average (BWAVE).

The BWAVE is the weighted average of all futures price quotations that arise for a given contract of the futures exchange (IPE) during a trading day. The weights are the shares of the relevant volume of transactions on that day. Specifically, this change places the futures market, which is a market for financial contracts, at the heart of the current pricing system.

That's from OPEC Pricing Power (PDF). This is what Paul Krugman et al don't know about, sez JD. What think you?

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shargash on July 9, 2008 - 12:45pm

Some private sales are set based on futures prices. Some are not. That's old news, and it doesn't mean that futures prices determine oil prices. The Saudis, for example, change the formula all the time when they don't like it. There was just a headline this week that they were raising prices.

The thing JD misses is that, if fundamentals don't support the price the Saudis want to charge, NO ONE WILL BUY THE OIL. In fact, exactly this is happening to Saudi Arabia (light sour oil) and Iran (heavy sour oil). They are asking more than people are willing to pay, so people aren't buying.

Prices are set by supply and demand. I just don't get why that is so hard for people to understand. If there is excess supply, suppliers will undercut each other until the price falls far enough. If supply is unconstrained, prices will usually fall to close to the production price. Otherwise, suppliers will ALWAYS charge the maximum price the market will bear. That's what businesses do. And that's what is happening with oil now.

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LJR on July 9, 2008 - 11:57am

You propose that by taking away the flood of hot cash that speculators use to take positions in the market the volatility will INCREASE?

I would recommend that we all stop talking about whether the "philosophy" of speculation is good or bad and start looking the actual issue at hand - oil prices. Pragmatics and the ability to look at a situation with "soft eyes" should trump ideologies.

Historically the oil futures market was dominated by oil producers who sold forward to end users such as refineries and airlines who needed to lock in a price in order to do proper accounting. They were buying insurance policies, so to speak, that allowed them to determine what their costs would be several months in the future. I have no problem with this kind of market. It serves a useful purpose.

Now enter the "speculators." These are everyone from pension funds to purchasers of USO shares who wish to buy a claim on oil but will never take possession of the product. These "speculators" are in direct competition with the original hedgers - the airlines and refineries. If an airline needs to lock in a price for oil three months hence they have to make a bid even though the price is much higher than it would have been had the non-using speculators with their hot money were not in the market.

Because of the inelasticity of the market (changes in actual oil consumption due to price changes takes significant time to develop) the speculators can force the actual buyers to pay a premium due strictly to the fact that they have bid up the price on a product they have no intention to use. The "speculator" is free to enter and leave the market at will - there is no inertia because there is no product changing hands.

The real issue is HOW to remove the speculators. That's a very tough issue. If we pass a law saying that pension funds can't invest directly in oil futures and force them to divest their holdings it could have a temporary effect of driving prices down a bit. But the real "speculators" in the sense of controlling the market just may be the national oil companies. Consider how many US Dollars are being sent to OPEC and Russia right now. Wouldn't the sovereign investment funds of those countries have an interest in using the incoming dollars to take a position in oil futures if they believe oil is going up? In effect they would be exchanging dollars for a claim on oil. It's what I would do in their position.

If that's so then they can invisibly regulate the price of their product. When the price gets too high they can sell off their positions and force it lower. But, given their vast reserves of cash, they remain firmly in control.

I think governmental attempts to regulate speculation that eliminate ETF's and pension fund investment or require oversight of OTC exchanges will fail simply because the big players in the market are outside the US borders. All the US can do is make it impossible for the little guys to play.

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GreyZone on July 9, 2008 - 12:25pm

False statement. They are not in direct competition and until you understand why, you are missing how the market works. Since this has been explained repeatedly here and you have apparently ignored it, I'm not going to explain it yet again.

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DownSouth on July 9, 2008 - 2:10pm

Greyzone,

LJR is just echoing an argument made here:

http://www.nakedcapitalism.com/2008/07/hussman-likelihood-of-60-oil.html

I don't know anything about LJR, but there are some of us who are new to the game and would like to see a rebuttal. Most of the commenters on Naked Capitalism agree with Hussman's analysis and think it shows some wonderful new insight. I suspect Hussman's argument is flawed, but don't know enough myself to make an intelligent rebuttal. Naked Capitalism has become such a hot bed of bubble and conspiracy theorists that one can no longer have an intelligent, dispasionate discussion there concerning oil prices.

I read all of Hussman's piece, and I see some serious deficiencies in his overall framework of inflation vs. deflation into which he fits oil prices. He seems to think there is little probability that those countries who already hold huge reserves of U.S. dollars and continue to accumulate them will either stop accumulating them and/or want to divest their accumultions. Hussman's real blind spot seems to reside in his failutre to notice that the US is no longer captain of its own ship. It's like the guy who wants to buy a new car. If he has the cash in the bank, he can just go down and write a check. However, if he doesn't, he is dependent on someone else to loan him the money. There's a big difference, which seems to be lost on him.

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River on July 9, 2008 - 4:03pm

Down South...Thanks for your post. I read Hussman's article at Naked Capitalisim and purpously avoided posting a link to it here because TOD has become, to a large degree, a hot bed of anti-bubble posters.

No one can mention the fact that tons of money has fled into commodities markets because there is no other area of the economy where a return over inflation is available. Granted their are a few stocks that are doing ok but who is good enough to pick them consistently?

No one can mention that some of the excess liquidity created by the Fed and intended to help out Wall St and eventually Main St instead found it's way into the commodities markets.

The slightest hint from a poster here that oil prices might be somewhat effected by refinery constraints or huge liquidity flowing into the commodities brings cries of derision.

There is no intelligent debate, only rage by those bent on retaining their imbedded notions. If it looks like a duck, walks like a duck, and quacks like a duck, it is probably a duck. The same is true of bubbles. I have seen a lot of bubbles come and go and this steep commodity run up, in all commodities, in such a short time span certainly has aspects I have witnessed in past bubbles. Even Greenspan famously said that bubbles are difficult to identify except in hindsight.

Then there are the posters on TOD that are talking their book. They have no place in the debate and should butt out. Otherwise, they are simply charlatans.

One last thought...

'In the choice between changing ones mind and proving there's no need to do so, most people get busy on the proof.'
John Kenneth Galbraith

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MacDuff on July 9, 2008 - 4:52pm

or YOU could be wrong and it's not speculators (since we have seen demonstrated again and again that lately there have been net SHORTS, not longs) - explain to me again how more $ betting that oil is going to fall, than rise, results in the price going up?

you can mention "all the $ pouring into commodities" as much as you like - and when you demonstrate in any coherent fashion how that effects the market I will sit up and take notice - until then I will listen to people like Moe who actually put their $ at risk every day and actually prove their points with references and links - rather than yet more shrill cries of "I'm being shut out! We aren't allowed to express ourselves at TOD!!!" - hmmm, maybe if you actually tried to prove your point with #'s and charts and links, your conspiracy of speculation would be taken more seriously

it's all a conspiracy! and the TOD posters who patiently explain to you over and over again that speculation can't really drive the price up much at all are all a part of it!!!

or am I just trying to kill debate?

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shargash on July 9, 2008 - 5:18pm

Even Greenspan famously said that bubbles are difficult to identify except in hindsight.

But you can do it without hindsight, right?

'In the choice between changing ones mind and proving there's no need to do so, most people get busy on the proof.'

I agree wholeheartedly. It is why I'm so harsh on the bubble types -- not a shred of proof, just a lot of untrue and misleading statements based on a lack of understanding of markets. But then you don't need proof if you can identify bubbles without hindsight, I suppose.

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DownSouth on July 9, 2008 - 7:04pm

Hey River,

Yes, I've seen how they beat up on you here on TOD sometimes. It's unfortunate that it's broken down into these two Manichaean camps. But I suppose that's just human nature. As Jacques Barzun writes:

[T]he human intellect is imperialist. In spite of the occasional, perfunctory "I may be wrong," all assertors defend their position like wolverines their cubs.

Gauging by her comments that accompany her posts, I don't think Yves is quite so extreme, and most of the topics that she posts on don't evoke such passion. But when she posts on oil prices the discussion becomes entirely too one-sided. Everybody wants to be part of the chorus. I personally don't believe that, anything short of a prolonged world-wide recession, we will ever see prices drop below $100 per barrel again. And we might not even see them then, as things are not exactly the same as they were back in the 80's when prices came crashing down. But no, some insist that we can have continued economic growth and abundant, cheap oil for at least another 50 years. Life is all cherries and cream!

As to speculation, I saw an article on Fortune yesterday that said the reason the controversy cannot be resolved is that there just isn't enough information. I suspect that comes closer to the truth than either one of the warring camps would like to admit. The recomendation was to put some surveilance in place to better observe what is going on. Wouldn't that tell us once and for all what's going on? Would that be so unlike the frequent calls from Peak Oil advocates to send auditors in to do reserve assesments in Saudi Arabia?

And as to oil prices, I beleive there are entirely too many wild cards. Will China and/or the OPEC countries de-peg from the dollar? Will Bush and/or Olmert bomb Iran? Would OPEC curtail production in order to defend some price floor? Will the Fed raise interest rates sufficiently to provide a real positive rate of return? These and many others are all policy decisions that entail human actors. A broad range of human emotions will therefore come into play, making the outcome all that much more unpredictable.

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Doom and Gloom Dad on July 9, 2008 - 7:09pm

"I personally don't believe that, anything short of a prolonged world-wide recession, we will ever see prices drop below $100 per barrel again." And such a recession would surprise you? I hope you are right but I'm not betting on it.

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DownSouth on July 9, 2008 - 9:34pm

No, Doom and Gloom Dad, it wouldn't surprise me at all. But the flip side of that is, instead of deflation, we could just as easily have run-a-way inflation. And I can't think of any better hedge against inflation than oil in the ground. So if it's deflation, cash is the better investment. But if it's inflation, oil reserves are the better investment.

It all goes back to what Niccolo Machiavelli said in The Prince:

And let no state suppose that it can choose sides with complete safety. Indeed, it had better recognize that it will always have to choose between risks, for that is the order of things. We never flee one peril without falling into another.

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tstreet on July 9, 2008 - 6:38pm

I don't think I will ever be certain one way or another what the impact of speculation is. I do the best I can in reading the various analyses and then trying to reach some sort of tentative conclusion based on that. Sometimes, what seems like common sense or what looks like a duck just isn't.

Everyone is free here to give their best shot supporting their position. I don't think you have done that and have decided just to attack TOD and people that hold a position different than years. Give the argument your best shot. Then let the chips fall where they may. Don't complain just because people don't agree with what you think is obvious. That won't cut it here. People here are just too damn smart for that.

If there is derision, deal with it and then make your best argument. This is a tough crowd.

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River on July 10, 2008 - 1:24am

TstreeT, Down South, I was out checking on a rental. All ok, I replaced a hw heater. I have a couple of rentals that I should have sold some time ago but did not. Luckily they are on beach side and renting them is easy and they are not costing me much. :)

I do not mind derision, I do not mind tough crowds, I do mind personal insults but I can and do dish them out as well when I receive them. I believe that the line should be drawn at personal insults and snide but meaningless remarks. That is up to the board monitors to control or not.

I cannot prove that we are in a commodities bubble and with some demand destruction going on in the US and probably elsewhere one more factor has been added to an already very difficult analysis. We have an administration that is full of former oil people. Cheney conducted a lot of secret energy meeting before becoming VP and after. This admin has stood by and in some cases aided in the rape of the US economy and the debasement of the dollar. I do not believe for a second that they would not manipulate commodities if there was a dollar to be made doing it. I do not believe that there is any market anywhere that is immune to manipulation...shrewd people will find a way.

I believe that we are in an oil bubble based on the speed of the run up and the amount of hot money that has rushed into the oil sector compared to the amount of demand increase (which is really anybodys guess based on a bunch of guys gauging the tanker levels sitting in bays around the world and other inacurate and partial data from various questionable sources). In the past I have seen these two simaltaneous actions create bubbles. Hence, I am saying that I have a hunch we are in a bubble in oil. Nothing scientific about a hunch, just a feeling based on what I have seen happen in the past. Take it or not, I don't care...But I would be extremely careful about taking long positions in oil now, regardless of the claims of some on TOD that crude oil prices are going to the moon. Some are talking their book. BTW, I have never held any position in any commodity. Read 'Way of The Turtle' and then read 'The Black Swan' and then tell me about experts in the commodities, stock, bond, insurance or any other market. I am a gold bug and have delt in physical gold for a very long time.

As far as future prices of oil...who can say. PO is a fact but the timing is unknown and I contend that it is unknowable except in hindsight. That does not mean that preparations should not be underway. I think high oil prices have the benefit of encouraging some to prepare. Down South is right about all of the variables that he pointed out. Anything might happen and it will depend on the actions of those that we have no influence over. Just sayin...

Peace, brothers...Remember, I am pulling for ya', we are all in this together. Red Green.

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WNC Observer on July 10, 2008 - 8:51am

My operating assumption is that oil is a commodity, and like all commodities its price goes up and down. I am also assuming that the long term trend will be up, meaning that there will be more ups than downs, and the ups will be up more than the downs will be down.

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BobCousins on July 9, 2008 - 1:48pm

You assume that all the speculators are buying oil. If that was so, then that probably would drive up prices. But most, if not half, of the speculators are selling oil, so the whole theory fails.

The idea of distinguishing between hedgers and speculators is absurd and completely unworkable. Every individual and every company, even pension funds, directly buys oil derived products, therefore everyone could legitimately claim to be hedging.

If you want, go ahead and close the oil exchanges for 2 months, and see if it makes any difference. I predict that won't happen, because it will remove a convenient excuse for inaction, and people might then have to deal with the real issues.

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jbunt on July 9, 2008 - 4:43pm

LJR - all garbage. If you and I bet on the price of oil, say you bet up and I bet down, we are not driving the price of oil either up or down are we? Did all of those people who bet on the New England Patriots drive the team to victory? How about the triple crown Big Brown bettors - did they drive Big Brown to victory? Bettors, gamblers, speculators, whatever you want to call them do not determine the outcome - that is why it is a bet, that is why they play the game. These people are just bystanders trying to make a buck.

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shargash on July 9, 2008 - 4:59pm

You propose that by taking away the flood of hot cash that speculators use to take positions in the market the volatility will INCREASE?

Exactly. We have at least one historical case, as described at this Wall Street Journal article: The Onion Ringer.

Also take iron. There is no futures market for iron. Iron has gone up as much as oil has (BTW, that's a real problem for the "blame the speculators" types, but you won't hear them talk about iron). The global iron market is in the process of creating a futures market for iron to restrain prices and reduce volatility.

I will try to explain this once again. Supply and demand drive prices. The product that is traded on oil futures markets is oil futures contracts, i.e. pieces of paper. If the supply of paper was limited, and lots of money flowed into the market, then the price of the paper would go up.

This is what happens with stocks. The number of shares outstanding is limited. If you want to buy a share of stock, you need to outbid the other people who want to buy a share. This drives up the price.

This is not what happens on oil futures markets. The supply of contracts is not limited. Anyone can create a new one at any time. The people who talk about the "hot cash" flowing into oil futures invariably point to the huge increase in "open interest" as evidence of this. However, an increase in open interest represents an increase in the supply of futures contracts, not an increase in demand. One can reasonably infer an increase in demand from the increase in contracts, but one cannot reasonably infer any change in the balance between supply and demand. Remember: contracts are the product traded on futures markets. Therefore an increase in open interest represents an increase in the supply of what is traded.

Furthermore, every futures contract has one person betting prices are going up and one person betting prices are going down. That, coupled with the dynamic supply, means that money flows are neutral. Prices respond to other things, but they do not go up just because money is flowing in. What makes the idea even more absurd is that speculators are now net short. How can people shorting something drive the price up?

In short, the "hot cash" flowing into futures markets isn't "hot cash". It is liquidity (in the proper sense of the word). It makes it easier to buy a contract and easier to convert a contract into cash. It greases the wheels of the market and makes it more efficient. But guess what? The price of oil is going up. Liquidity isn't going to keep it down. Shooting all the speculators isn't going to keep it down.

I can understand how a peak oil denialist would look to blame the high prices on anything but supply problems. What I don't understand is why people who are peak oil aware can't accept the basic principles of Econ 101. Production has been flat for 2+ years. Net exports are down. Net energy is down even more. Demand over that time has increased. Reserve oil capacity is almost non-existent, and what there is, is mostly heavy and/or sour. What more evidence do people need that the driver behind oil prices is (at least in large part) a supply-demand imbalance? This is almost exactly like global warming denialism: the evidence is right out front, but people are still digging around in every bush looking for an exaplanation other than what is right in front of their face.

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Consumer on July 9, 2008 - 5:28pm

Would you mind emailing the above explanation to our elected officials? My senators don't seem to get it. This is the most clear explanation I have seen to date.

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goldmund52 on July 9, 2008 - 10:11pm

The issue of whether large amounts of investment money from index commodity funds has contributed to high oil prices is being tested in the NYMEX crude oil contract as we speak. In fact I think it's giant unreported news! The total open interest in crude oil peaked in July of '07 at 1549425 contracts. It is now down 16 percent to 1294480. That drop is explained by the steady liquidation of commercial long positions, a category that I believe has included index fund positions for the past several years. The commercial long position has not been this low since January of 2007! In the normal interpretation of the commitments of traders report this would be very bearish. I believe that the rising prices in spite of this trend reversal is stunning and probably speaks to the fundamentals.

The other interesting (scary)speculation for me is the possibility that the "authorities" are getting ready to nuke the NYMEX somehow to punish speculators but the smart (or inside info) money is wise to it and is getting out as suggested by the linked article at the top.

By the way, it's possible to be smart enough to grasp the fundamentals of peak oil and also realize that trends in futures markets tend to get overheated by speculation and rise and then fall more than the fundamentals explain. The two aren't mutually exclusive.

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shargash on July 10, 2008 - 12:26am

Give me an example of a base commodity futures market that got "overheated by speculation and rise and then fall more than the fundamentals explain". And absent the growth of inventory or some other physical factor, how could you possibly know it is more than fundamentals explain?

What you're basically saying is that someone can understand peak oil, understand that peak oil has put upwards pressure on price, but they just know, despite having no expertise in the area, that the price of oil has gone up "more than fundamentals can explain", so it must be speculation, despite not being able to give a coherent explanation as to how speculation is driving up prices.

What I want to know is how they know that the price rise is unsupported by fundamentals. Give me some evidence that the decline in net energy coupled with the rise in demand is insufficient. Don't tell me you "know a bubble when you see one". Such pronouncements are worth doodly squat.

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goldmund52 on July 10, 2008 - 9:17am

There are dozens of examples of that. But I notice that you seem to have staked out the position that you are right by definition (Econ 101 says it all) until someone proves you wrong to your satisfaction. I suspect I’m not going to be able to do that.

The sugar bull market of 2005 is an example of a market that got overheated. It got so crazy that the floor brokers were only taking market orders for a few weeks. When it went parabolic at the top it rose 4 cents in 2 weeks and then dropped back down just as fast. Now you will do some Google research and come back with the fundamentals that got that bull market rolling. (I got into October 2006 around May of 2005 on fundamental arguments. Sold prematurely at 12 cents.) I’m with you that market trends are driven by fundamentals. But I’m not the one being an absolutist and I didn’t use the phrase “I know”. I started trading futures in 1992 and to say that markets can’t overshoot on the upside because of speculation seems silly to me.

I’m not going to be a good straw man to knock down for claiming that oil isn’t rising on fundamentals. I’ve been long since Christmas of 2004.

The list of markets that went crazy for a while is endless.

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River on July 10, 2008 - 1:59am

Shargash...thanks for your reply. I have read it before and I comprehend what you are saying.

I am saying that there is no market in the world, and never has been, that is not subject to manipulation by very shrewd people with large amounts of money and very close contacts with producers and control over vertical management structures, thus, the end users. The situation is an invitation to manipulation because on the surface it looks legit. So does three card monte.

Shrewd people are like casino owners. The odds are always in their favor, even though a very good black jack player can cut the house odds to about 1 1/2%. I am not talking about card counters because that does not work with six deck shoes and resuffles halfway through the shoe. How does the casino owner avoid getting wiped out by a high roller that is an excellent black jack player? The house sets the table limit so that a very good black jack player cannot bet $1 billion on one hand and then split a pair or go down for double on an eleven or whatever. Table limits are in place today but when Benny Binion was still alive he was the only owner in Vegas that would cover any bet placed by a gambler. Benny almost lost his casino a couple of times. Casino owners today do not do what Benny did.

The administration could be working in concert with SA or any oil producer to game the commodities system. These guys are not above anything and that sould be obvious to anyone that has followed their economic policies and foreign policy. Call me a conspiracy theorist and you will be right. Conspiracies happen every day. As Gobbels said: 'The bigger the lie the more easily it is accepted.' Are there any posters here that would claim that this administration has not lied, and lied consistently, about just about any topic one would care to mention?

We have an admin that is stacked with oil people that have close contacts with some OPEC producers. We have a crashing economy. We have an economy that offers few prospects to earn a return above inflation. Lots of liquidity offered by the Fed has managed to enter the commodities markets because that was the one area left where decent ROIs were possible. We have had hot commodity markets...But I am the only one that smells this combination and decide that it stinks? I don't think you guys have taken lumps like I have. I learned from those lumps and when I smell a dead fish I stay away. Good luck to the oil longs...and the shorts.

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totoneila on July 9, 2008 - 1:03pm

Hello Moe_Gamble,

Your quote: "It's not something you can store in your garage."

Just wait until the First World feels the need to store and hoard bags of I-NPK in their garages [plus bigbuck$ speculators hoarding large amounts in megawarehouses]--> it will effectively price most of the poor farmers and gardeners out of the market. Time will tell.

Did you see my earlier weblink that POT just announced a $250/ton price increase? Don't forget to add the rising transport cost, which in some far inland locales can now be cost prohibitive.

Recall my earlier link that said there was 3 gallons of gasoline equivalent energy-embedded in a forty lb bag of I-NPK fertilizer. Can you think of a better way to hoard FF-energy?

Bob Shaw in Phx,Az Are Humans Smarter than Yeast?

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Geckolizard on July 9, 2008 - 1:43pm

Recall my earlier link that said there was 3 gallons of gasoline equivalent energy-embedded in a forty lb bag of I-NPK fertilizer.

Timothy McVeigh would agree with that statement wholeheartedly...

...Which brings up an interesting point: In a post-peak world, would you want tons of ~~I-NPK fertilizer~~ explosive material lying around in people's garages? Would the government? I can imagine the government using this reasoning to round the stuff up and keep it 'under guard', and maybe it would be for a good reason...

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totoneila on July 9, 2008 - 2:18pm

Hello Geckolizard,

Thxs for responding. Ammonium nitrates are a specialized subclass of I-NPK. Even then, it takes diesel and an explosive to set it all off [as Timothy McVeigh sadly demonstrated].

Any Home Depot, or Lowes, has lots of I-NPK & O-NPK on shelves, perfectly safe. If a fire gets started, I think the Fire Dept is more worried about exploding paint cans, and the other tightly contained household, pool, and construction chemicals, than the possible dangers in the plant & nursury dept.

Most fertilizers are in bags that will quickly melt; further precluding a high explosive risk. Another example: I have never heard/read of a batcave full of guano spontaneously erupting into a huge subterranean explosion. Yet, this guano may be thousands of years old.

My thinking is the Govt, then eventual warlords, want to eventually control I-NPK so as to eventually control the people--"makes us your slaves, just feed us". Tadeusz Borowski, #119198, shows what can be accomplished by this method.

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Geckolizard on July 9, 2008 - 2:45pm

OK, so I'm wrong... Happens from time to time... :) Yeah, I knew about the diesel fuel part as well, and in retrospect diesel probably won't be something to easily come across in a post-ff world.

But hey, it doesn't mean that the government won't want to do a 'background check' on folks with orders of I-NPK. It'll be another level of control, if the government chooses to excercise it, just like all the post 9/11 levels of control.

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