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documentation of speculations impact on current oil prices from yesterday's wsj
From: David Farber <dave () farber net>
Date: Sat, 24 May 2008 06:45:59 -0700
________________________________________ From: paul foldes [pfoldes () interhelp com] Sent: Saturday, May 24, 2008 8:17 AM To: David Farber Subject: for IP if you agree, documentation of speculations impact on current oil prices from yesterday's wsj Dave, for IP if you like If Senators this week really wanted to know what was responsible for the sudden jump in prices for gas, it was not recent dramatic increases in demand for oil, as the oil industry would like us to believe. Most oil used by refineries is sold on long term contracts. But only the spot price (for spot delivery) is being reported in the news daily (spot prices form a convenient 'price signal' to producers, signaling how much the market is willing to pay in the near future). What's screwing up things right now is that - as the Wall Street Journal reported, yesterday on page C1 of the print edition ... " speculators, and <<long term contract sellers>> are unwinding their positions, driving up prices dramatically. " Evidence that the short term high futures prices will have major impacts in the long term oil contract market soon. This and the reporting in Business Week earlier this week provides much more substantive and reliable news than the pablum shown on TV this week where the Senators did their public flogging of Big Oil CEO's just so the politicians can grandstand for the voters in an election year without doing anything to help curb the speculation; which is in their power to do! As the Wall Street Journal and other papers have also reported recently, the reason speculators in oil futures are able to swing the market so much - as they are also doing on the Minneapolis grain exchange - is a loophole in Commodity Futures Trade Commision rules, which is not being closed, regulatorily - as the Bush Administration is so against any regulation; even regulation which affects home heating oil prices, and food prices so directly. The relevant news pieces are clipped below: Bad Oil Bets Come Back To Haunt Speculators By *ANN DAVIS* May 23, 2008; Page C1, WSJ Surging energy prices are wreaking havoc on producers and speculators who made bets on lower oil prices, forcing some to buy oil to exit their positions. That, in turn, is helping push up oil prices. <<<Producers who long ago struck deals to sell oil in future years are finding they locked in prices at as little as half what oil fetches in today's red-hot market. Some companies are unwinding these deals by buying back their oil contracts>>>>>>........ snip.... NYT 4 24 08 " Typically, gasoline sales rise before Memorial Day weekend. But gasoline sales dropped nearly 7 percent last week compared with the same week in 2007, according to an estimate by MasterCard <http://www.nytimes.com/mem/MWredirect.html?MW=http://custom.marketwatch.com/custom/nyt-com/html-companyprofile.asp&symb=MA>. Gasoline prices almost always rise in the summer, as demand increases. On Friday, gasoline prices reached yet another record, a nationwide average of nearly $3.88 a gallon. That figure was up 4 cents in one day and is 65 cents higher than this time last year, according to AAA. Diesel hit $4.65 a gallon on Friday, up $1.73 a gallon in a year. "All this has led to a vast transfer of wealth from American drivers to domestic and foreign oil producers. Every one-cent increase in gasoline prices means Americans pay $1.42 billion more a year for gas, according to Stephen P. Brown, an economist at the Federal Reserve Bank of Dallas. Nearly two-thirds of that goes to foreign producers." <snip> WORLDWIDE DEMAND FOR OIL DIDNT INCREASE 40% IN JUST LAST FEW MONTHS AS HAVE SPOT OIL FUTURES PRICES. DEMAND FOR OIL FUTURES CONTRACTS INCREASED DRAMATICALLY AS SPECULATORS PILED INTO THE MARKET TO MAKE A KILLING. THIS DEMAND IS BEING FUELED BY PENSION FUND, AND OTHER INSITUTIONAL COMMODITY SPECULATORS, AND PARTIES WANTING TO MAINTAIN THE PURCHASE POWER OF THE RAPIDLY DECLINING US DOLLAR WHICH THE ADMINISTRATION HAS ALLOWED TO DECLINE IN VALUE -- AS REPORTED BY BUSINESS WEEK EARLIER THIS WEEK. Capitol Hill May 21, 2008, 12:01AM EST Are Pension Funds Fueling High Oil? A Senate hearing weighs charges that speculation by big investors and sovereign wealth funds is behind the rise in commodities and energy prices by Moira Herbst, BUSINESS WEEK <http://www.businessweek.com/print/bios/Moira_Herbst.htm> If you're wondering why driving to work has gotten so expensive, you might want to peruse your pension fund's investments. That's because speculation by institutional investors pouring money into the commodities market may be largely to blame for spiking oil prices, according to testimony on May 20 before the Senate Committee on Homeland Security & Governmental Affairs. Crude oil, a so-called hard asset, is viewed as a buffer against inflation—a foe of longer-term investment returns. At the hearing, "Financial Speculation in Commodity Markets: Are Institutional Investors and Hedge Funds Contributing to Food and Energy Price Inflation?," senators heard from those defending the role of speculators in oil and commodities markets as well as those who argue that excessive speculation is the root of global price surges. "[Commodities] are experiencing demand shock from a new category of speculators: institutional investors like corporate and government pension funds, university endowments, and sovereign wealth funds," said Michael Masters, managing member of Masters Capital Management <http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?capId=22504368>, a Virgin Islands-based hedge fund. "Index speculators are the primary cause of the recent price spikes in commodities." <snip> above provided under the applicable fair use exceptions to copyright law, for educational for discussion purposes only. Paul Foldes email: pfoldes () interhelp com ------------------------------------------- Archives: http://www.listbox.com/member/archive/247/=now RSS Feed: http://www.listbox.com/member/archive/rss/247/ Powered by Listbox: http://www.listbox.com
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