Re: Did Speculation Fuel Oil Price Swings?, 60 Minutes: Speculation Affected Oil Price Swings More Than Supply And Demand - CBS News

[David Farber <dave () farber net>]

Begin forwarded message:

From: "Ed Gerck, Ph.D." <egerck () nma com>
Date: January 12, 2009 8:57:39 PM EST
To: dave () farber net
Cc: ip <ip () v2 listbox com>
Subject: Re: [IP] Did Speculation Fuel Oil Price Swings?, 60 Minutes:  
Speculation Affected Oil Price Swings More Than Supply And Demand -  
CBS News

When access to cash was easy, companies in the sector were able to  
generate cash flow by continuously /borrowing/ and /repaying/ money  
with  a cost (interest rate) that was lower than the return from the  
relentless price increase that was /created/ by controlling and  
reducing the fuel supply. When credit dried up, the companies were  
forced to sell fuel in order to meet their obligations, when price  
started to drop not because demand dropped but because cash was needed  
by the seller.

But not just with oil companies. The financial sector of many  
companies was also able to generate more cash than the production  
sector. The present crash was mostly a "reset" to a saner model, but  
not for all actors. This perverse inversion, where sales is not as  
important as the financial schemes that are created to exploit the  
moment, has been the major factor sustaining insurance companies for  
years.

Best regards,
Ed Gerck

--
<www.gerck.com>




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