Oil Watchdog
04-02-2009
by dugan
A project of 
04-02-09 by dugan
Oil, being a commodity that people buy and consume, ought to be priced according to supply and demand. Of course, we know that's not true. But it's still a little surprising to see oil prices rise close to 10% in a day, to about $53 a barrel, just because the stock market made a smiley face. The industry publication Oil Express (subscription barrier) noted that speculators (known in the lingo as "noncommercial traders") were the ones pushing up the market.
From Oil Express:
Again, there were no fundamental news items to account for today's rally. It was
triggered by strong buying in the London market, and U.S. traders (mostly non-
commercial entities) chased prices higher through most of the formal NYMEX session.
Today's optimism may give way to even greater zeal, or it could prove to be yet another
mood swing in what has been a very inconsistent spring.
A big oil price spike like that usually carries through to gasoline prices faster than an equivalent drop, unless the oil price goes right back down. The underlying issue is that speculation still drives price.
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"Of course, we know that's not true....... The underlying issue is that speculation still drives price."
Who is "we?" The Oilwatchdog staff? It can't mean everyone, because there are some folks who disagree with you. Quotes from 2008.
Deutsche Bank:
"The rally in non-exchange traded commodity prices since the end of 2002 has been similar if not greater in magnitude," the bank's analysts wrote in a research note. "We believe this refutes the claim that speculators have been the primary drivers of rising commodity prices during this cycle."
The International Energy Agency, CNN Money, July 1, 2008:
"There is little evidence that large investment flows into the futures market are causing an imbalance between supply and demand, and are therefore contributing to high oil prices," the report said. Instead, the IEA put the blame for higher crude prices squarely on strong growth in demand coupled with limited growth in supply. "If supply is constrained and demand is increasing, prices have to rise," read the report. The IEA argues that if speculation drives prices too high, the market would be unbalanced. Either demand would fall off, or stockpiles would rise. Neither has happened.
Commodity Futures Trading Commission:
Economists at the CFTC have testified that after studying all the numbers on who is trading what, there is no evidence speculators of any kind are significantly driving up the price of crude. In the time that the price of a futures contract for oil increased from about $75 to $130 per barrel (ending June 18), net speculative positions decreased from slightly above 6% of open interest to slightly under 4%.
Société Générale:
'You can't just point the finger at speculators," said Michael Haigh, head of U.S. commodities research at the investment bank Société Générale and a former economist at the CFTC. "Fundamentally, the markets are where they are supposed to be."
Haigh said that big-money funds are not just dumping their money onto the market - only betting prices will go up. He and others say these funds are sophisticated investors and take a variety of positions in the market.
PFC Consultancy:
There is only one type of customer for crude: refineries. If speculators on the futures markets get carried away, pushing prices so high that refineries run at a loss, they will simply shut down, causing the price to fall again. Moreover, speculators do not always assume that prices will rise. As recently as last year, the speculative bears on NYMEX outweighed the bulls.
PIMCO:
PIMCO argues against speculation as an important factor in oil's rise and in looking for culprits says that even index funds make unlikely suspects. For one thing, they too invest in futures, rather than in physical supplies of oil. So every month, they must trade contracts that are about to fall due for ones that will not mature for several months. That makes them big sellers of oil for prompt delivery.
04-02-2009 | USER: KimRegio