Pelosi on reducing gas prices

[Baitman]

You have to watch which figures you read on the internet about oil There are some that are very right or left of center Some only report crude producers and leave bitumen producers out. The tar sands will produce lots of oil but are usually not figured into any reports.

[Charon]

If there wasn't a supply/demand issue, there would be no point in speculating, as no money could be made.

There is a philosophy out now that starting in about 2004 it was suddenly realized that supply and demand were tight, and when tied to peak oil theory -- theory -- a new paradigm exists. Now, to me that brings back memories of the "new economy" of the tech bubble since the world has not changed all that dramatically either economically, supply and demand or geopolitical in the past 4 years. Supply and demand are slightly tighter than historical and outputs are down, but it's really hard to see the current prices reflected in the fairly minor current shift. Last time I checked were were not in a full scale shooting conflict with Iran or facing another Katrina or anything that should generate today's prices.

All the conventional oil analysts like Beutel and Kloza who have been around for years and whom I have personally talked to about such issues and heard talk at meetings don't see what the big institutional investors see. Guys like Greenberger (who I have also worked with editorially: http://www.law.umaryland.edu/about/news_details.html?news=353 ) and Masters ( http://hsgac.senate.gov/public/_files/052008Masters.pdf ) offer expert testimony as to how excess speculation is impacting the markets. Doesn't mean that the new future hasn't caught the old dogs off guard, but again, you get all those same tech bubble vibes where conventional economists just didn't "get it" either.

But, even the new worlders grudgingly acknowledge in most cases that the sudden heavy influx of trading dollars into the space are building on these fundamentals along with the fact that these futures contracts are simply being rolled over rather than sold. And the fear and herd mentality by institutional players that were largely uninvolved in the market 2 years ago seems out of control. As Beutel said on the radio recently: "I could change my oil and let it be known I threw out a half quart and the markets would react..."

As for EIA and IEA, well, their economic modeling based almost exclusively on supply and demand didn't see this year's prices either. They still stick to the conventional basis in pricing, but both acknowledge that they lack the mechanism to analyze the impact of the dark exchanges (see Enron Loophole) to even really know what's going on outside the NYMEX.

# The IEA doesn't correctly take into account speculative demand. It only admits that speculation can have a day-to-day impact on price moves. The facts presented by Masters and others in the US Senate hearings are essentially ignored. If, in the magnitude of 150B$ has been "invested" in oil via futures, indexes and other instruments over the past three years – up from close to zero before, that has had more than a day-to-day impact on prices. Such additional demand has lifted cash prices via all kind of arbitrage activities without immediately appearing in official (and only partially known) inventory data. The IEA has, by the way, only an incomplete view about what is going on in global oil inventories, as the agency has acknowledged. Following the Senate testimony of professor Greenberger, financial speculation currently accounts for 80% to 90% of trading volumes. Those who try to prove the contrary avoid looking at the unregulated markets, where the action takes place, and qualify the related activities of investment houses like Goldman Sachs as "commercial". The conclusion, that speculative demand and not consumer demand determines prices and price trends, is obvious. http://seekingalpha.com/article/83546-iea-s-oil-market-outlook-off-the-mark

Supply and demand are tight. IMO, for what little it's worth, $70 bbl or so tight. The rest is perhaps coming from the $250b moving into the commodities markets after the real estate collapse compared to $15b 5 years ago.

[Baitman]

I have read that we should expect to see in our lives a $250 barrel this maybe quicker than expected with the amount of speculation in the market.

[Nashwan]

If, in the magnitude of 150B$ has been "invested" in oil via futures, indexes and other instruments over the past three years – up from close to zero before, that has had more than a day-to-day impact on prices

I'm not so sure about that. $150 billion might sound like a lot of money, but it's peanuts to the oil trade.

The world consumes about 85 million barrels of oil a day, and has done so for the last 3 years. Say an average price of $100 a barrel over the last year.

That's $8.5 billion a day, $255 billion a month, over $3.1 trillion a year. $150 billion might have been invested in oil markets in the last few years, but in the same period about $7 trillion has flowed from oil consumers, through the market, to oil producers.

Now, to me that brings back memories of the "new economy" of the tech bubble since the world has not changed all that dramatically either economically, supply and demand or geopolitical in the past 4 years. Supply and demand are slightly tighter than historical and outputs are down, but it's really hard to see the current prices reflected in the fairly minor current shift.

Two points about that.

One, if prices are artificially high, then oil stockpiles should be increasing. The higher prices have undoubtedly led to demand reduction in the developed world. That would have fed through in to increased stockpiles unless the demand reduction matched the tightness in supply.

I just don't see how an artificially high supply can't result in higher stockpiles. Put it another way, if oil cost $70 a barrel, how much more would we be using?

Regarding the fundamentals, 2002 - 2007 saw strong world economic growth. Oil production grew very slowly.

Year - GDP - Oil
2003 - 3.7% - 3.4%
2004 - 5.2% - 4.3%
2005 - 4.7% - 1.2%
2006 - 4.7% - 0.5%
2007 - 4.5% - -0.2%

Just a quick glance at those figures suggests oil supply should have risen about 12% over the last 3 years, and has actually risen by less than 1.5%. Oil supply is probably about 10% below what it should be based on demand at 2004 prices.

Put it another way, we could be 8 - 9 million barrels a day short of what we would like.

I know very little about the markets (as you can tell ) but the fundamentals seem to support higher prices. I also don't understand how the effect of artificially high oil prices wouldn't be increased stockpiles as price drives demand below supply.

[Holden McGroin]

http://www.abc.net.au/news/stories/2008/03/17/2191035.htm

'Speculation' causing oil price hike

A report the U.S. Congress released Monday showed that, in January 2000, 37 percent of the NYMEX crude futures contracts were held by speculative traders; but in April 2008, the number has soared to 71 percent. Meanwhile, the proportion of contracts held by commercial traders greatly declined.

From you source:

Crude futures have jumped about 15 per cent this year in part due to a steep decline in the US dollar, which has helped push up the nominal value of all commodities prices in the currency.

And from your quote, "37 percent of the NYMEX crude futures contracts were held by speculative traders; but in April 2008, the number has soared to 71 percent.", while 100% (not just 71%) of the crude was pumped from the earth.  Perhaps it is pumping and the earth itself which caused the price rize... it is 29% more possible... no?

What somebody guesses is not necesarily the truth.  If somebody truely understood the stock volitility of just a single corporation, he could make some serious cash.

[lazs2]

yep.. there may be a component of speculation to the price but it would not even be happening if supply was greater.   you sit on your phony stocks of non oil forever and no one would care if we had a glut of oil.

There is plenty of oil.. at some point in price it will be worthwhile and unquestionably necessary to get it.

I say we do it now.    If we had done it ten years ago we would not be in this fix.. if we don't do it now.. we will be in real trouble ten years from now.

No matter how you slice it.. the democrats are to blame.   

lazs

[Saurdaukar]

http://www.foxnews.com/story/0,2933,378241,00.html

Didnt read thread.  Operating under the assumption that someone has already indicated why this is a plan more worthless than our currency (thanks Ben!).

[Charon]

I know very little about the markets (as you can tell  ) but the fundamentals seem to support higher prices. I also don't understand how the effect of artificially high oil prices wouldn't be increased stockpiles as price drives demand below supply.

Supply is still ahead of demand (and the Saudi oil minister said there is plenty of supply back in May), surplus production capacity still exists and while all of these have tightened what we are seeing today has been trending since 2000 at least. There is nothing I am aware of now that is all that different from 2005 or 2004 that would be in line with what we have seen in the past year -- aside from the tremendous move of major institutional dollars into the commodities futures markets. We are seeing the same thing in a range of commodities during the same period and inventories in many cases are building in those areas. Inventories of gasoline and distillates are building now and inventories of crude are in the average range. Low average, but that is apparently by choice according to this e-mail I received from OPIS:

Crude oil stocks fell by a much larger-than-expected 5.9 million bbl last week, putting them at 293.9 million bbl or nearly 59 million bbl below year-ago levels. That's about 18.8 days' supply of crude, compared with about 22.6 days a year ago, and sources would not be surprised to see the year-on-year deficit widen. The cash flow requirements for some independent refiners, and the risk inherent in holding inventory at $135-$145/bbl should both counteract any thoughts about building inventory.

   Consider the challenge facing refiners from this standpoint. The 293.9 million bbl of crude surveyed on Friday could be valued at about $42.6 billion, if one plugged in WTI quotes at the time. The 352.6 million bbl of crude held in storage one year ago had a value (based on WTI quotes at the time) of $25 billion. Matching last year's inventory would be incredibly costly for refiners.

I'll probably try to talk to some of the analysts next week to create some editorial on the subject to get a more refined position on just what is fundamental and what is speculation and how much of a role each play.

Charon

[Ripsnort]

Does anyone remember back in 2003 when Awhack-ama-job in Iran predicted $150 per barrel ?

[Torque]

other than uncle sam's worthless paper nickel... you have banksters and hedgies gaming the futures market for a mere 8 bucks per barrel buying on margin... since the real estate market has crashed they need to make their money back from the sub prime fiasco.

[angelsandair]

Well considering we only contain about 2% of the worlds oil supply yet consume 25% of it on the one hand drilling offsore or even in alaska would probably to little to nothing to ease gase prices in the immediate future if at all.

On the other hand we arent allowed to drill for oil off our own coast yet China is drilling for oil 50 miles off our own coast.
I see no reason why. If other countries are doing it anyway. Why we cant. or why we shouldnt drill for oil off our own coast.

Envoronmental concerns? Hogwash.

When we think of environmantal disasters due to oil what is it we think about? Exxon valdez.
not oil rigs.
When katrina hit it damaged some rigs.
Was there an environmental disaster due to oil? No.

We base all our fears on E V. and that happened in large part because of a drunk captain.

Drill for the damn oil rather then let other countries grab it

From what I've read, there's an estimated 30 Billion barrels of Crude Oil in Alaska.

[Sandman]

I noticed gas went down today by $0.06.

[Captain Virgil Hilts]

I noticed gas went down today by $0.06.

It'll go back up, immediately. Iran is rattling their little saber again.

[Baitman]

It'll go back up, immediately. Iran is rattling their little saber again.

Is it Iran that is the problem or are we lead to believe that Iran is the problem.

[Excel1]

the world running out of oil soon, peak oil been and gone, i think its bollocks.. oil is just over priced through speculation and regulation. the tail wagging the dog  like iran for example doesn't help either.

in just one little corner of the world that's had minimal attention up to now, exxon/mobil is doing exploratory work in new zealand's great south basin which combined with the taranaki field have estimated potential reserves of 60 billion barrels of crude oil. actual yields from drilling might only be a third of that figure using current technology, but it's like lazs says.. there's still plenty of the stuff out there, it just has to be recovered.