Gas prices - The CA Energy Crisis all over again?

[JrSyko]

This seems to make a lot of sense now that its coming to light and given what's happeneing. Same thing happened to CA a few years back after deregulation. Those of you who live in CA will love the part where the Enron guys are talking about how they raped us and Grandma Millie. Thoughts?

For those that don't like to read:

http://www.msnbc.msn.com/id/3036677/25252591#25252591

For you readers out there:

http://www.latimes.com/news/nationworld/world/la-fi-traders21-2008may21,0,7273503.story

http://www.baltimorechronicle.com/2008/051908Leopold.shtml

http://www.consortiumnews.com/2008/051908a.html

[scottm]

Thats the 'enron loophole' where energy is traded with less regulation than other commodiites. I recently read that 70% of oil contracts are now held by investors, rather than energy buyers like oil refiners. So just as investers ruined the housing market, they are now jumping into commodities to make a fast buck. And just like the housing market, they will jump out when the price starts to turn, causing the pyramid scheme to collapse on the smaller investors that are late to the party. But its also true that pension, IRA and other fund managers are jumping in to follow the rising money. Its only a matter of time before they decide its getting risky and start to bail. And once the prices fall, everyone will start to sell short, and the bubble will burst. Oil may be back down to $60-80/barrel within a few months, just by congress threatening action.

[Ramsey_ElWardani]

Great post! I've been talking this up with anyone that will listen for the last several months and predicting $85 a barrel oil in the future when the bubble busts.

[JrSyko]

Great post! I've been talking this up with anyone that will listen for the last several months and predicting $85 a barrel oil in the future when the bubble busts.

This is one bubble I wouldn't mind seeing burst! Hopefully it does, we need the relief.

This begs the question though that even if it does, do you thing the oil companies will really lower prices knowing that they can charge this much and people will still pay it?

[bajafox]

This is one bubble I wouldn't mind seeing burst! Hopefully it does, we need the relief.

This begs the question though that even if it does, do you thing the oil companies will really lower prices knowing that they can charge this much and people will still pay it?

Exactly, I was going to ask IF the price of oil went down that much, how long would it be, if at all, that would we see the difference at the pump

[Offspring]

How about a little balance to the sources listed above?...It is far from a complete beat down of "the big, bad oil companies..."

http://www.humanevents.com/article.php?id=27207

[JrSyko]

How about a little balance to the sources listed above?...It is far from a complete beat down of "the big, bad oil companies..."

http://www.humanevents.com/article.php?id=27207

You completely missed the point and I'm not sure grasp what the articles are saying. Its not the "big bad oil companies", its the system that has been created to let energy speculators purchase oil futures and consequently drive up the price. Moreover, did you really cite Ann Coulter as rebuttal to these sources?

[Offspring]

Moreover, did you really cite Ann Coulter as rebuttal to these sources?

Did you really post something with Keith Oberman? I got the same reaction as you did with my post....it's all good, and status quo...

The cost of oil is more complex than it was laid out by those 'news' articles...I was simply attempting to lay out some other issues that also have to do with the current state of oil/fuel situation we face...

Also when Al Gore gets up and makes his global warming claims, when the environmentalists continue to block any attempt we make to become more independent of foreign oil, do they have any impact on the fluctuating oil cost? Policies or lack of policies, have their own impact on this situation, this can create a situation where those that speculate on price of oil can then get in and drive the prices where we see them now.

[scott-dsms]

Regarding Speculators...

Taken from www.stevemain.com

Who is as sick as I am of hearing politicians blurt nonsense out of their mouths? These people are really dumb or think the people they are talking to are really dumb. Personally I think it is both.

Here is the latest coming from Washington. “Speculators are driving up the price of oil”. Once again I am surprised that no one is articulating common sense. Here is mine. I have not heard anyone say this.

Anyone that understands the futures markets knows how a commodity like oil is purchased. Anyone speculating that the price of oil will go up, must buy oil contracts and sell them before the oil is actually delivered to their doorstep. The only way to affect the price of oil is to affect supply or demand. People who consume oil or store it indefinitely affect the supply. They have taken supply out of the market. If demand remains constant or increases, this will drive the price up.

Speculators are not consuming or storing oil because they have to sell it back into the market before the contract expires. If they do not sell it, the barrels of oil will be deliver to their doorstep. When a speculator buys, the price goes up. When a speculator sells, the price goes down. Speculators must buy and sell before the contract expires. 1 - 1 = 0. GET THE PICTURE WASHINGTON?


I have traded commodities before and this is how it works. I never took delivery of anything I bought. Speculators have a minimal effect on the futures market (long term) unless you are a dude like Warren Buffet or George Soros and actually have the money to take delivery of the commodity. All the futures market is, is leveraging a large amount of something for very little money up front but, if you get caught on the wrong end of the trade you can lose more than your initial stake. Actually pretty exciting stuff. The kind of thing that makes people leap out high rise buildings on Wall street. Go to bed rich and wake up broke. Ever heard the saying...Invest like Warren Buffet, Live like Jimmy Buffet.

Blaming speculators is the politicians easy way out from placing blame where it rightly belongs...on themselves.

[Gadget]

Good post Scott, but..
As I understand the process, each one of those 1000 barrel futures when purchased is "off the market". Delivery taken or not.
This happens 10s of thousands of times daily.
Each time a future is off the market it changes the supply and demand equation, thus lessening supply, encreasing demand and ratcheting the price per barrel up slightly.
The broker then sells at new price making a profit.
Next trading day he does the same, systematically driving the price per barrel up.
This is why they do it, to "make" money, not just play a cat and mouse game with the future.
This is also why there was regulation placed in this country on the amount oil barrel futures could be speculated on and why the market moved off shore to London to get away from regulation.
I have been beating this drum for a year now and I am at least pleased that someone is talking about it.
The solution is less obvious. All the entities who are now firmly attached to this *** will be very reluctant to let go, just because a bunch of impotent politicians say so.

[pjc]

Its not the "big bad oil companies", its the system that has been created to let energy speculators purchase oil futures and consequently drive up the price.

The money has to go somewhere and there is a lot of it in this world. Dot.com, Real Estate, Energy Futures..... Next = Another stock market frenzy around alternative energy and energy efficiency technologies.

[charlie_brown]

i guess i need to get a locking gas cap. can you steal gas out of a cell with foam?

[HotRod82]

All this talk about speculators, oil companies, etc is pointless!!! The fact is gasoline will never come back down significantly because no matter what the USA does the demand from the rest of the world is skyrocketing. We could cut our consumption by 50% and it will make no difference because China, India, etc. will still buy up all they can. The USA really screwed up by allowing globalization....we let China and India develop real economies and now we are paying for it. We should have kept them in the stone ages. I know this sounds a little mean, but I really enjoyed being at the top of the food chain......

[Ramsey_ElWardani]

Oil will be below $100 (I think around $85) again and gas below $3.00 - mark my words, we will all know if I was right or wrong within 18 months.

[HotRod82]

Oil will be below $100 (I think around $85) again and gas below $3.00 - mark my words, we will all know if I was right or wrong within 18 months.

I would absolutely LOVE to wrong about this, but I do not see how the price is magically going to go down. Something will have to CHANGE in order for prices to recede. Another curveball that is coming is the global warming tax that Obama will push for when he wins the WH.

[bajafox]

Oil will be below $100 (I think around $85) again and gas below $3.00 - mark my words, we will all know if I was right or wrong within 18 months.

I dont know if my pockets will last another 18 months of this...already getting interest in people wanting to buy my Tundra. It took me years to finally get a Tundra and now I'm barely holding on to it

[scottm]

Some rdc'ers and network talking heads have defended speculators as not being responsible for the high price of oil. But this article mentions several reasons why investors are jumping in and out of the oil market lately and how its effecting the price. Like I said in this thread a couple weeks ago, the price of oil will plunge when investors decide its time to get out. Oil users are only 30% of the holders of oil contracts.



By ADAM SCHRECK, AP Business Writer
54 minutes ago

NEW YORK - Oil prices plunged Tuesday as worries about the nation's economic health moved to the fore and OPEC warned that high pump prices are likely to erode global demand for crude.

Prices at one point dropped more than $10 a barrel from the day's high. By early afternoon, light, sweet crude was down $7.33 to $137.85 in an extremely volatile session.

The turnaround may not signal a lasting shift in sentiment — prices have swung violently in recent days as they flirted with record highs. But it does underscore investor uncertainty about the sustainability of sky-high prices and potentially long-lasting effects on the broader economy.

"They're slamming this pretty good. But remember, these (big) moves are becoming a little more commonplace," said Phil Flynn, analyst at Alaron Trading Corp. in Chicago.

Earlier, the contract rose as high as $146.73 and fell as low as $135.92.

Mounting worries about the health of the U.S. economy helped spur the sell-off.

Federal Reserve Chairman Ben Bernanke told Congress that "numerous difficulties" are racking the economy of the world's largest oil consumer, and warned that rising prices for energy and food are heightening the risk of inflation accelerating.

At the same time, the Labor Department reported that wholesale inflation jumped by 1.8 percent last month, a larger-than-expected gain. Over the past year, wholesale prices have risen 9.2 percent, the most since 1981.

Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates, said economic worries likely contributed to Tuesday's declines.

"Traders get spooked and simply sell positions," he said. "The threat of recession, at some point the market's going to plug that in."

Bernanke's sobering comments helped drive stocks down sharply, although they recovered by midday as oil prices fell. Lingering concerns about the health of the financial sector continued to weigh on banking stocks in particular.

The energy markets are not immune to the credit problems rattling financial service companies.

"Since investment banks have been increasing their ... exposure to commodities, their current distress can have (a) significant impact on oil prices if they are forced to liquidate commodity positions in a run for cash," Olivier Jakob, an analyst at Petromatrix in Switzerland, said in a research note.

The latest monthly market report from the Organization of Petroleum Exporting Countries gave traders further reason to unload oil.

The cartel predicted world oil demand will rise by 900,000 barrels a day in 2009, or 100,000 barrels per day less than this year. OPEC blamed the slowdown on a slumping economy and high pump prices in richer industrialized countries.

Retail gas prices in the U.S. remained at a record near $4.11 a gallon, according to auto club AAA, the Oil Price Information Service and Wright Express. Diesel rose six-tenths of a penny to its own high of $4.83 a gallon.

Meanwhile, a five-day strike by Brazilian oil workers that began early Monday is having less effect on output than feared. The labor action cut production of government-run Petroleo Brasileiro SA, or Petrobras, by only about 4 percent by Monday evening. Petrobras produces about 1.6 million barrels of oil a day.

"We are not making a big case of the strike in Brazil as it is well defined in time, hence carries little un-priced risk. Furthermore the output loss estimates have been continuously revised down," Jakob said.

The dollar fell to a new low against the euro, but that did little to halt oil's fall. A weaker dollar has been a major factor driving prices sharply higher in recent months, enticing investors to pump money into oil as a hedge against inflation and making crude cheaper for overseas buyers.

General Motors Corp., the leading U.S. automaker, said it is assuming oil prices will hover between $130 to $150 a barrel next year. The company made the prediction as it laid out plans to slash jobs and truck production, suspend its dividend and borrow up to $3 billion as it grapples with an ailing U.S. economy and record high fuel prices.

In other Nymex trading, heating oil futures fell more than 16 cents to $3.903 a gallon, while gasoline futures tumbled nearly 19 cents to $3.3684 a gallon. Natural gas dropped 45.4 cents to $11.505 per 1,000 cubic feet.

In London, August Brent crude fell $6.22 to $137.70 a barrel on the ICE Futures exchange.

[Ryno]

People are driving less. I know we (bridge carpenters) carpool every chance we get, when last year we all drove to Indio. If it means getting up an extra hour early, we all do it. Even the foreman are packing their trucks with their guys now, they never used to.

We got hit @ a job about 6 weeks ago. 1500 gallons of diesel stolen, they took some from every piece of equipment we had. They cut the locking gas caps off with a sawzall. It was great to hop in the forklift Monday morning and have it die. Funny how something like that will shut down a 30 million dollar job for a day.

I think it will bounce like it did from housing. When this taps out, they will have to find something else. It all comes back to Greed, and people feeding on BS.

[bajafox]

Another article on oil going down

http://biz.yahoo.com/ap/080715/oil_prices.html

Oil prices plummet more than $6 amid economic fear
Tuesday July 15, 4:44 pm ET
By Adam Schreck, AP Business Writer
Oil plunges in huge sell-off fueled by economic fears; biggest drop since Gulf War


NEW YORK (AP) -- Oil prices fell harder than they have in 17 years Tuesday, as fears that record fuel prices are spreading broad economic pain exacerbated the third big sell-off in just over a week.
Light, sweet crude plunged $6.44, or 4.4 percent, to settle at $138.74 a barrel in an extremely volatile session. Prices at one point plummeted more than $10 from the day's high.

[Ryno]

Oil was under $128 today. Under $120, and gas will be under $4.00/gallon per MSN money. If you think about it, alot of supply, less demand. Everybody went full throttle to produce while the getting was good.

[scottm]

Oil will be below $100 (I think around $85) again and gas below $3.00 - mark my words, we will all know if I was right or wrong within 18 months.

We called it, Ramsey, and it only took 3 months!