Contradictory Facts

Luke said:

In article <[email hidden]>, vey <[email hidden]>

Quoted message said:

Quoted message said:

Here is the fundamental fact: the supply of *cheap, easily extractable
oil* is diminishing; world demand is increasing. Its price will
continue to rise as long as that equation persists. Fed
intervention/policy can only mitigate the effects of this trend, it
cannot overturn it. And if the trend continues apace $100 per barrel in
a couple of years is a reasonable expectation.

Quite true, but there is a layer of excess of about 33% that has been
showing for some time. No one seems to be able to account for it. Demand
has *not* been exceeding supply, yet it has been constantly there and
doesn't seem to want to go away. Co-incidentally, it was about the time
that the private energy exchanges appeared that the extra layer
appeared. Can anyone say that one caused the other, of course not. Why?
Because there is no info available, it's private.

I don't know what this '33%' excess layer refers to. I take it to mean
the margin by which capacity exceeds demand. Is that it? If so I should
think it can be readily accounted for. Nations and enterprises whose
welfares are bound to the fortunes of the oil industry are behaving in
a predictable manner: they are bent on furthering their interests and
maximizing their profits. It is the prerogative of Russia, Venezuela,
Saudi Arabia, Exxon, BP, Private Equity, etc... to manage and
manipulate the resource so that they may extract the most value. If you
were in their position wouldn't you do the same?

That these interests engage in transactions employing ever opaque
mechanisms and exclusive associations is, again, neither new or
surprising. Robber Barons of the Gilded Age did the same; wealth at
such a rarified level seeks its own, in proceedings beyond public
scrutiny.

When I wrote 'you're free to participate' it wasn't meant to imply the
involvement would be of the same tenor as that restrictive club. I
meant as Joe Sixpack, at the bottom of the food chain, buying oil
stocks or investing in mortgage backed securities -- not a good idea
right now! ;-)

But in spite of all this, the most important determinant of the price
of oil, like any tradeable commodity, is the supply/demand
relationship.

Luke said:

Quoted message said:

Quoted message said:

Here is the fundamental fact: the supply of *cheap, easily extractable
oil* is diminishing; world demand is increasing. Its price will
continue to rise as long as that equation persists.

There will be a small increase, that is true. But only if demand
outstrips supply and so far, that is not happening.

Fed

Quoted message said:

Quoted message said:

Quoted message said:

intervention/policy can only mitigate the effects of this trend, it
cannot overturn it. And if the trend continues apace $100 per barrel in
a couple of years is a reasonable expectation.

Actually, the "experts" project even more. $150 a barrel is not
unreasonable.

Quoted message said:

I don't know what this '33%' excess layer refers to.

It refers to the current price being 33% higher than it "ought" to be
based upon supply and demand.

I take it to mean

Quoted message said:

the margin by which capacity exceeds demand. Is that it?

Nope. It's the excess that I am talking about. I snipped out the
Economics 101 regurgitation.

Quoted message said:

When I wrote 'you're free to participate' it wasn't meant to imply the
involvement would be of the same tenor as that restrictive club. I
meant as Joe Sixpack, at the bottom of the food chain, buying oil
stocks or investing in mortgage backed securities -- not a good idea
right now! ;-)

Joe Sixpack should have every right to participate in any market as an
investor. That is one of the hallmarks of the capital system. Rather
than just a few people controlling things, capitalism says anyone's
money is the same and they have a duty to invest in the system. I'm so
sad that the right-wingers seem to have forgotten that principal.

But unless you don't own, don't rent and pay nothing to live, you are
indirectly affected by these greedy dopes.

Quoted message said:

But in spite of all this, the most important determinant of the price
of oil, like any tradeable commodity, is the supply/demand
relationship.

Let me introduce you to market "Speculation" and his kissin' cousin
"Manipulation." You seem very adept at quoting what you learned in
Economics 101, now it's time for Economics 401.

You may very well say that "Joe Sixpack" may, or may not participate in
the market, but that's not true. Not unless Joe and his family is
willing to take a job a mile from his tent and live without
refrigeration in a tent squatting on land he doesn't own or rent.

Perhaps one lives at home with Mommy paying all the bills. That's about
the same thing.

If Joe owns a house free-and-clear, it's likely that his property taxes
have doubled in the last 5 years. And we are talking thousands of
dollars, not hundreds. What did he do to deserve this? The increase is
due to speculation. Speculation tends to exaggerate normal swings in the
market. Now things are crashing. Not due to speculation, but speculation
made things rise higher and faster and fall faster and harder than the
regular market would cause.

Now we start talking about "Manipulation." Let's say Joe lives in a
house with a normal fixed rate mortgage of 7%. He is watching TV one
night and the advertisement says "re mortgage at 120% and pay off your
credit card bills! Yes, we will loan you more money than your house is
worth, just call this number!" We have all seen these ads and we have
seen them for years. Joe is envious of his neighbor that has a wide
screen TV and says to himself "why not?"

The problem is that the money that Joe borrows has itself been borrowed
and that money was borrowed as well. The new unregulated banks loaned it
because they don't make much money unless they collect interest. This
opens Pandora's box. No one knows exactly who loaned the money Joe got
to buy his wide-screen TV. Likely it came from overseas.

If the only losers in the game were Joe and his mortgage company, 7our
argument would have some weight, but since speculators AND manipulators
are fooling around with borrowed money, the results of their greediness
comes in on you.

Did you know that the UK just suffered the biggest bank run since the
1880's? Why do you think that is? People that had nothing to do with the
crazy lending or borrowing in the US are suddenly afraid to lose their
savings (most people outside the US save money.)
http://www.cbsnews.com/stories/2007/09/17/business/realestate/main3267575.shtml?source=RSSattr=Business_3267575
Do you think you are exempt?

So, you say to yourself, so what if house prices crash? So what if there
is a run on a bank in the UK? Who cares?

Do you have a job? Did you know that your employer relies on borrowed
money to pay you? It's true. People (like you) don't always pay their
bills on time, so how can he pay you on time? Tsk. Most businesses
borrow against their accounts receivable to stay afloat.

So you don't have a job and you work for yourself. Do you think your
customers are always so flush as to pay you on demand? And if their
customers don't pay, then what?

The UK banks loaned money to the US banks. We are all inter-related. US
banks go down, UK banks go down, Singapore banks go down, Japanese banks
go down. If you think it doesn't matter, then try (or have your employer
try) to borrow money after a few of them go down.

So we have seen what has happened to the housing market in the US. It
has shaken the foundation of economies worldwide. Do you think that the
oil market is different?

Quoted message said:

Luke wrote:

Quoted message said:

Quoted message said:

Quoted message said:

> Here is the fundamental fact: the supply of *cheap, easily extractable
> oil* is diminishing; world demand is increasing. Its price will
> continue to rise as long as that equation persists.

vey said:

There will be a small increase, that is true. But only if demand
outstrips supply and so far, that is not happening.

Fed

Quoted message said:

Quoted message said:

> intervention/policy can only mitigate the effects of this trend, it
> cannot overturn it. And if the trend continues apace $100 per barrel in
> a couple of years is a reasonable expectation.

vey said:

Actually, the "experts" project even more. $150 a barrel is not
unreasonable.

Quoted message said:

Quoted message said:

I don't know what this '33%' excess layer refers to.

vey said:

It refers to the current price being 33% higher than it "ought" to be
based upon supply and demand.

Quoted message said:

I take it to mean

Quoted message said:

the margin by which capacity exceeds demand. Is that it?

vey said:

Nope. It's the excess that I am talking about. I snipped out the
Economics 101 regurgitation.

Quoted message said:

Quoted message said:

When I wrote 'you're free to participate' it wasn't meant to imply the
involvement would be of the same tenor as that restrictive club. I
meant as Joe Sixpack, at the bottom of the food chain, buying oil
stocks or investing in mortgage backed securities -- not a good idea
right now! ;-)

vey said:

Joe Sixpack should have every right to participate in any market as an
investor. That is one of the hallmarks of the capital system. Rather
than just a few people controlling things, capitalism says anyone's
money is the same and they have a duty to invest in the system. I'm so
sad that the right-wingers seem to have forgotten that principal.
But unless you don't own, don't rent and pay nothing to live, you are
indirectly affected by these greedy dopes.

Quoted message said:

Quoted message said:

But in spite of all this, the most important determinant of the price
of oil, like any tradeable commodity, is the supply/demand
relationship.

vey said:

Let me introduce you to market "Speculation" and his kissin' cousin
"Manipulation." You seem very adept at quoting what you learned in
Economics 101, now it's time for Economics 401.
You may very well say that "Joe Sixpack" may, or may not participate in
the market, but that's not true. Not unless Joe and his family is
willing to take a job a mile from his tent and live without
refrigeration in a tent squatting on land he doesn't own or rent.
Perhaps one lives at home with Mommy paying all the bills. That's about
the same thing.
If Joe owns a house free-and-clear, it's likely that his property taxes
have doubled in the last 5 years. And we are talking thousands of
dollars, not hundreds. What did he do to deserve this? The increase is
due to speculation. Speculation tends to exaggerate normal swings in the
market. Now things are crashing. Not due to speculation, but speculation
made things rise higher and faster and fall faster and harder than the
regular market would cause.
Now we start talking about "Manipulation." Let's say Joe lives in a
house with a normal fixed rate mortgage of 7%. He is watching TV one
night and the advertisement says "re mortgage at 120% and pay off your
credit card bills! Yes, we will loan you more money than your house is
worth, just call this number!" We have all seen these ads and we have
seen them for years. Joe is envious of his neighbor that has a wide
screen TV and says to himself "why not?"
The problem is that the money that Joe borrows has itself been borrowed
and that money was borrowed as well. The new unregulated banks loaned it
because they don't make much money unless they collect interest. This
opens Pandora's box. No one knows exactly who loaned the money Joe got
to buy his wide-screen TV. Likely it came from overseas.
If the only losers in the game were Joe and his mortgage company, 7our
argument would have some weight, but since speculators AND manipulators
are fooling around with borrowed money, the results of their greediness
comes in on you.
Did you know that the UK just suffered the biggest bank run since the
1880's? Why do you think that is? People that had nothing to do with the
crazy lending or borrowing in the US are suddenly afraid to lose their
savings (most people outside the US save money.)
http://www.cbsnews.com/stories/2007/09/17/business/realestate/main3267575.shtml?source=RSSattr=Business_3267575
Do you think you are exempt?
So, you say to yourself, so what if house prices crash? So what if there
is a run on a bank in the UK? Who cares?
Do you have a job? Did you know that your employer relies on borrowed
money to pay you? It's true. People (like you) don't always pay their
bills on time, so how can he pay you on time? Tsk. Most businesses
borrow against their accounts receivable to stay afloat.
So you don't have a job and you work for yourself. Do you think your
customers are always so flush as to pay you on demand? And if their
customers don't pay, then what?
The UK banks loaned money to the US banks. We are all inter-related. US
banks go down, UK banks go down, Singapore banks go down, Japanese banks
go down. If you think it doesn't matter, then try (or have your employer
try) to borrow money after a few of them go down.
So we have seen what has happened to the housing market in the US. It
has shaken the foundation of economies worldwide. Do you think that the
oil market is different?

That something is possible doesn't mean it's prevalent or inevitable
even if popular. I know plenty of people like me who've completed a
mortgage commitment and do not finance receivables, nor in fact have any
formal debt against their businesses. My employees have always been paid
promptly every other Tuesday without fail and without exception for 37
years.

Sell your rope to another 'capitalist'!

Choices: profligate, prudent, whatever. Choices.
--
Andrew Muzi
www.yellowjersey.org
Open every day since 1 April, 1971

A Muzi wrote:

I know plenty of people like me who've completed a

Quoted message said:

mortgage commitment and do not finance receivables, nor in fact have any
formal debt against their businesses.

That's excellent. Good for you. A small business completely without
debt. I'm the same way. I don't have inventory and I don't want
employees. I am in the service biz.

Consider the small shop. According to your plan you don't even borrow
against inventory. Your capital is in your inventory, but is that a good
place to put it? How much interest does it earn there sitting on a shelf?

How many large or medium sized ones (over `1,000 employees) can you
point to that do things the way you do? And when the speculators crank
up your property taxes, it doesn't matter?

A Muzi said:

Choices: profligate, prudent, whatever. Choices.

Something else I should mention is that last year my property taxes went
up $5,000 because of these speculators. The "comps" they bought with
borrowed money are sitting around me empty -- too expensive to rent and
too overpriced to sell.

That's $5,000 I have to pull out of my back pocket and exactly how do
you think I will do that? Only one way I know to do it . . . my prices
will go up.

But my price increase (multiplied by a million others in the same boat
as I am) won't have any effect on the economy as a whole, will it? I
didn't think so.

But you believe in "the market" whatever that means. Swell. People
believe in fairy tales, too.

In article <[email hidden]>, A Muzi

Quoted message said:

Choices: profligate, prudent, whatever. Choices.

Whew! I choose to go for a bike ride....

Peak oil. The big question is "Has the world production of crude oil
peaked?" We all know that it will. It's just a matter of when.
Probably already in the midst of it now. I'm not worried about running
out of crude. Because when crude goes over a hundred bucks and more,
that's when people will get their heads out of the sand and start to
conserve. As I see it, transportation will see the biggest hit with
ever decreasing supplies of crude, because transportation uses up 70%
of crude oil production. Airplanes, trains, cars and ships will need
to evolve. America's cities will have to be redeveloped to make
transportation more efficient. In a word change. Which brings up
another question. As was when the steam engine brought forth the
industrial revolution which in turn urbanized the industrial nations,
what will the future be like when the fuel for the internal combustion
engine becomes cost prohibitive?

http://en.wikipedia.org/wiki/Peak_oil

vey said:

Quoted message said:

I don't know what this '33%' excess layer refers to.

It refers to the current price being 33% higher than it "ought" to be
based upon supply and demand.

What makes you think the price is 33% higher than it should be based
on supply and demand?

Robert

Quoted message said:

What makes you think the price is 33% higher than it should be based
on supply and demand?

Robert

Not just me. People that have more experience than I do in the oil biz
have been saying that for more than 3 years. They used to chalk it up to
fear and uncertainty in the market because of the war, but now they
wonder since the war has settled down to a dull roar.

It's past my bed time. I'll get you some links tomorrow.

Quoted message said:

vey said:

Quoted message said:

I don't know what this '33%' excess layer refers to.

It refers to the current price being 33% higher than it "ought" to be
based upon supply and demand.

What makes you think the price is 33% higher than it should be based
on supply and demand?

Robert

' Opec chief Abdalla Salem El-Badri said on Friday that the current oil
price of US$80 **did not reflect the fundamentals** and was unlikely to
last long.

“I don't think US$80 (per barrel) will last,” he told journalists at the
Vienna headquarters of Opec. “The fundamentals do not support the price.” '
http://biz.thestar.com.my/news/story.asp?file=/2007/9/18/business/18918494&sec=business

ABSTRACT from an IMF published paper 2007:
Crude oil prices have been on a run-up spree in recent years. Their
dynamics were characterized by high volatility, high intensity jumps,
and strong upward drift, indicating that oil markets were constantly
out-of-equilibrium. An explanation of the oil price process in terms of
the underlying fundamentals of oil markets and world economy was
provided, viewing pressure on oil prices mainly as a result of rigid
crude oil supply and an expanding world demand for crude oil. A change
in the oil price process parameters would require a change in the
underlying fundamentals. Market expectations, extracted from call and
put option prices, anticipated no change, in the short term, in the
underlying fundamentals. Markets expected oil prices to remain volatile
and jumpy, and with higher probabilities, to rise, rather than fall,
above the expected mean.
http://ideas.repec.org/p/imf/imfwpa/06-299.html

That's geek speak for prices aren't fitting the supply/demand curve and
the market isn't working right.
http://ideas.repec.org/p/imf/imfwpa/06-299.html

Excess Oil Supplies Continue to Build
6/21/07
Michael Evans
IndustryWeek Columnist

The Energy Department announced today that crude oil supplies last week
rose to their highest level in 8 years -- since May 29,1998. Motor
gasoline and distillate inventories also rose to higher than normal
levels, although not an 8-year record.

In that case, why is crude oil still around $70/bbl?

It seems to me the current situation has some similarities with 1985.
Oil was clearly overpriced then, and supplies were increasing. Demand
was down. The famous Plaza Accord meeting on September 22, 1985 decreed
that interest rates should move down. A sidebar to the argument was that
inflation was now officially licked (which was true enough) and oil
prices should also fall.

But for a while they didn't. Benchmark crude oil prices, which had been
$28.29 in September, actually rose to $29.54 in Oct and $30.58 in Nov.
They then slackened a bit in December but the decline was not considered
noteworthy. Then the roof caved in (on oil producers) as prices fell as
low as $12.62 in March 1986 before rebounding slightly.

I'm not predicting another 60% drop in oil prices, although that would
bring them back to about $28/bbl, which is where the Saudis said they
thought equilibrium prices should be before the recent runup. But when
speculators and hedgers become convinced that that prices are headed
lower instead of higher, the huge buildup of supply will act to reduce
prices very quickly.
My best guess is that will happen late this summer.
http://forums.industryweek.com/showthread.php?t=233

Going back to 2005 when the oil bubble started:
"Oil is a bubble because the strong demand reflects the global liquidity
bubble."
http://www.tompaine.com/print/the_oil_bubble.php

The impact of high oil prices on China’s economy and on profit margins
in general is a key risk in the current global boom. If current oil
prices persist, the windfall for oil exporters may exceed the total
earnings of S&P 500 companies, and China will have to pay 2% of GDP more
in 2005 than last year for oil imports.

China is a low-income economy and cannot sustain its rapid growth at
current oil prices, in my view. Although current oil prices are still
half as high as their peak during the oil shock in the late 1970s,
China’s per capita income is less than one-tenth of that among the OECD
economies at that time.

The global property bubble has covered up the impact of high oil prices
so far. Anglo-Saxon consumers have leveraged their rising property
values to overcome sluggish income growth and high oil prices, thus
sustaining consumption growth. Chinese investors expect massive profits
from property inventory in a rising market and are willing to absorb the
higher materials costs as a result.

Oil is a bubble because the strong demand reflects the global liquidity
bubble. At the same time, financial investors have poured into this
commodity. When the demand-supply balance is tight in a strong global
economy, demand from financial investors can push up prices rapidly.
Hence, even though financial investors lose some money for carrying a
commodity without yield, the price increase in the short term can still
make the trade very profitable. Without the demand from financial
investors, the current oil price could be US$15/barrel lower, in my view.

The oil and property bubbles are aspects of the global liquidity bubble
that has arisen from the combination of a low US Federal funds rate and
the willingness of Asian central banks to accumulate foreign exchange
reserves. The property bubble is the primary manifestation of this
liquidity. The oil bubble is a secondary aspect. Oil, however, could
destabilize the equilibrium through its contractionary redistributing
effects.

Continue reading...

On Sep 19, 6:41 am, vey <[email hidden]> wrote:

First of all, don't believe anything the Saudis or oil company execs
or pr flacks say about oil supplies.

"An explanation of the oil price process in terms of
the underlying fundamentals of oil markets and world economy was
provided, viewing pressure on oil prices mainly as a result of rigid
crude oil supply and an expanding world demand for crude oil."

Quoted message said:

Continue reading...

The price of oil is rising because, despite what oil company people
are telling the American public, the peak in global production is at
hand. Unlike in decades past, there is no excess capacity.

Previously you mentioned Simmons' book Twilight in the Desert. I
suggest you read it.

Robert

Quoted message said:

On Sep 19, 6:41 am, vey <[email hidden]> wrote:

First of all, don't believe anything the Saudis or oil company execs
or pr flacks say about oil supplies.

Don't believe the Energy Department, either? If the market price is
correct, that is great news. It's the "irrational exuberance" by
speculators that is the big worry. It is not good to have an unjustified
run-up, nor a crash because those hurt more than just the people that
have money in the kitty. Those things cause recessions.

In article <[email hidden]>,

Kenny said:

Peak oil. The big question is "Has the world production of crude oil
peaked?" We all know that it will. It's just a matter of when.
Probably already in the midst of it now. I'm not worried about running
out of crude. Because when crude goes over a hundred bucks and more,
that's when people will get their heads out of the sand and start to
conserve. As I see it, transportation will see the biggest hit with
ever decreasing supplies of crude, because transportation uses up 70%
of crude oil production. Airplanes, trains, cars and ships will need
to evolve. America's cities will have to be redeveloped to make
transportation more efficient. In a word change. Which brings up
another question. As was when the steam engine brought forth the
industrial revolution which in turn urbanized the industrial nations,
what will the future be like when the fuel for the internal combustion
engine becomes cost prohibitive?

http://en.wikipedia.org/wiki/Peak_oil

I think we're already on the descent of the bell curve. As to what the
future holds? You've already summed it up nicely.

Hubbert et al predicted this scenario for decades (his forecast of U.S.
production peaking in the early 70s initially provoked disbelief until
proven correct).

The big mystery to me is 30+ years after the (first?) Energy Crisis,
and the acknowledgement of oil as a resource that could undermine
national security and who's end was in sight, our society is utterly
profligate in its oil consumption, still building energy sucking
communities (suburbs) and driving gas guzzlin' SUVs.

In article <[email hidden]>,

Quoted message said:

Quoted message said:

It refers to the current price being 33% higher than it "ought" to be
based upon supply and demand.

What makes you think the price is 33% higher than it should be based
on supply and demand?

Robert

With that one statement vey lost me -- too simplistic. And by that I
don't mean that the price could be lower if the obligatory speculatory
and collusive interests were absent. But the world doesn't work that
way.

Luke said:

In article <[email hidden]>,

Quoted message said:

Quoted message said:

It refers to the current price being 33% higher than it "ought" to be
based upon supply and demand.

What makes you think the price is 33% higher than it should be based
on supply and demand?

Robert

With that one statement vey lost me -- too simplistic. And by that I
don't mean that the price could be lower if the obligatory speculatory
and collusive interests were absent. But the world doesn't work that
way.

Here is another quote for you:

"As you might realize there are three factors that contribute the price
of oil. Supply of oil, demand for oil and speculation. Looking at these
factors may help provide a better understand of where the price of oil
might go."
-snip-

"Speculation

Traders in oil futures trade on the fear of the lack of supply and a
surfeit of capital looking to profit from that fear. Commodity futures
speculation has a property that other kids of speculation perhaps do
not, or at least it has it in greater measure. That property is the
extent to which it is tied to future physical events: actual projections
of oil supply rates, which determine, really, whether the speculator is
going to win or lose money, particularly on the longer-term contracts.

While total consumption has increased, the western economies are less
reliant on oil than they were twenty-five years ago. This is due to
substantial growth in productivity and the growth of sectors of the
economy with little oil dependence such as finance and banking, retail,
etc. The decline of heavy industry and manufacturing in most developed
countries has reduced the amount of oil per unit GDP; however, since
these items are imported anyway, there is less change in the oil
dependence of industrialized countries than the direct consumption
statistics indicate.

In the United States, for instance, each $1000 dollars in GDP required
2.4 barrels of oil in 1973 when adjusted for inflation this number had
fallen to 1.15 by 2001. For calendar 1981, United States oil consumption
was 5,861 million bbl and GDP was $5,291.7 billion, a ratio of
$902.86/bbl. In 2005, consumption was 7,539 million bbl and GDP was
$11048.6 billion, a ratio of $1465.45/bbl.

Traders in oil express the reason for price increases was perceived
fears of supply disruptions. ***However, despite those fears in the
recent past, the physical market remained very well supplied with
sufficient inventories to meet demand. *** Perhaps this speculation is
helping to encourge the supply-demand balance, as many economists believe.

vey said:

Luke said:

In article <[email hidden]>,

Quoted message said:

> It refers to the current price being 33% higher than it "ought" to be
> based upon supply and demand.
What makes you think the price is 33% higher than it should be based
on supply and demand?

Robert

With that one statement vey lost me -- too simplistic. And by that I
don't mean that the price could be lower if the obligatory speculatory
and collusive interests were absent. But the world doesn't work that
way.

Here is another quote for you:

"As you might realize there are three factors that contribute the price
of oil. Supply of oil, demand for oil and speculation. Looking at these
factors may help provide a better understand of where the price of oil
might go."
-snip-

"Speculation

Traders in oil futures trade on the fear of the lack of supply and a
surfeit of capital looking to profit from that fear. Commodity futures
speculation has a property that other kids of speculation perhaps do
not, or at least it has it in greater measure. That property is the
extent to which it is tied to future physical events: actual projections
of oil supply rates, which determine, really, whether the speculator is
going to win or lose money, particularly on the longer-term contracts.

While total consumption has increased, the western economies are less
reliant on oil than they were twenty-five years ago. This is due to
substantial growth in productivity and the growth of sectors of the
economy with little oil dependence such as finance and banking, retail,
etc. The decline of heavy industry and manufacturing in most developed
countries has reduced the amount of oil per unit GDP; however, since
these items are imported anyway, there is less change in the oil
dependence of industrialized countries than the direct consumption
statistics indicate.

In the United States, for instance, each $1000 dollars in GDP required
2.4 barrels of oil in 1973 when adjusted for inflation this number had
fallen to 1.15 by 2001. For calendar 1981, United States oil consumption
was 5,861 million bbl and GDP was $5,291.7 billion, a ratio of
$902.86/bbl. In 2005, consumption was 7,539 million bbl and GDP was
$11048.6 billion, a ratio of $1465.45/bbl.

Traders in oil express the reason for price increases was perceived
fears of supply disruptions. ***However, despite those fears in the
recent past, the physical market remained very well supplied with
sufficient inventories to meet demand. *** Perhaps this speculation is
helping to encourge the supply-demand balance, as many economists believe.

http://www.marketoracle.co.uk/Article1549.html
dated July 16, 2007 and titled:
Crude Oil Going To $80 a Barrel?

Luke said:

In article <[email hidden]>,

Quoted message said:

Quoted message said:

It refers to the current price being 33% higher than it "ought" to be
based upon supply and demand.

What makes you think the price is 33% higher than it should be based
on supply and demand?

Robert

With that one statement vey lost me -- too simplistic. And by that I
don't mean that the price could be lower if the obligatory speculatory
and collusive interests were absent. But the world doesn't work that
way.

It'll never pass.
http://uk.reuters.com/article/oilRpt/idUKN1734307320070918

US senator aims to stop energy market manipulation

WASHINGTON, Sept 17 (Reuters) - Sen. Carl Levin introduced legislation
on Monday to allow U.S. regulators to track trading of energy futures
contracts on currently-exempt electronic exchanges to help prevent price
manipulation and excessive speculation of oil, natural gas and other
energy commodities.

The legislation comes a day before the Commodity Futures Trading
Commission holds a hearing on government oversight of regulated
exchanges like the New York Mercantile Exchange and exempt markets like
the IntercontinentalExchange in Atlanta, though both trade similar
energy contracts.

The CFTC has full oversight of the NYMEX, but the agency gets bogged
down in a regulatory blackhole when it tries to find out what's going on
at exempt electronic exchanges like the ICE, which operates without the
full reporting requirements imposed on the competing NYMEX.

Congress passed legislation in 2000 exempting from most government
oversight electronic exchanges that trade energy products, as is the
case with ICE.

But with more hedge funds using these exempt markets to bet on energy
prices -- with the potential to rack up big profits or suffer huge
losses -- lawmakers are pushing for more government oversight.

Levin's bill would close the loophole by requiring all energy trading
facilities to register with the CFTC and comply with the same standards
that apply to regulated futures exchanges.

"We need to put the cop back on the beat in all U.S. energy markets with
effective tools to stop price manipulation, excessive speculation and
trading abuses," Levin said.

Under the legislation exempt markets would have to impose position
limits that would set a ceiling on the amount of energy contracts a
single trader could control. Continued...

In article <[email hidden]>, vey <[email hidden]>

Quoted message said:

Luke said:

In article <[email hidden]>,

Quoted message said:

> It refers to the current price being 33% higher than it "ought" to be
> based upon supply and demand.
What makes you think the price is 33% higher than it should be based
on supply and demand?

Robert

With that one statement vey lost me -- too simplistic. And by that I
don't mean that the price could be lower if the obligatory speculatory
and collusive interests were absent. But the world doesn't work that
way.

Here is another quote for you:

"As you might realize there are three factors that contribute the price
of oil. Supply of oil, demand for oil and speculation.

<Big snip>

I do realize this fact and have already acknowledged it.

Quoted message said:

Quoted message said:

Quoted message said:

> I don't know what this '33%' excess layer refers to.

Quoted message said:

Quoted message said:

vey said:

It refers to the current price being 33% higher than it "ought" to be
based upon supply and demand.

Quoted message said:

Quoted message said:

What makes you think the price is 33% higher than it should be based
on supply and demand?

vey said:

' Opec chief Abdalla Salem El-Badri said on Friday that the current oil
price of US$80 **did not reflect the fundamentals** and was unlikely to
last long.

“I don't think US$80 (per barrel) will last,” he told journalists at the
Vienna headquarters of Opec. “The fundamentals do not support the price.” '
http://biz.thestar.com.my/news/story.asp?file=/2007/9/18/business/18918494&sec=business

ABSTRACT from an IMF published paper 2007:
Crude oil prices have been on a run-up spree in recent years. Their
dynamics were characterized by high volatility, high intensity jumps,
and strong upward drift, indicating that oil markets were constantly
out-of-equilibrium. An explanation of the oil price process in terms of
the underlying fundamentals of oil markets and world economy was
provided, viewing pressure on oil prices mainly as a result of rigid
crude oil supply and an expanding world demand for crude oil. A change
in the oil price process parameters would require a change in the
underlying fundamentals. Market expectations, extracted from call and
put option prices, anticipated no change, in the short term, in the
underlying fundamentals. Markets expected oil prices to remain volatile
and jumpy, and with higher probabilities, to rise, rather than fall,
above the expected mean.
http://ideas.repec.org/p/imf/imfwpa/06-299.html

That's geek speak for prices aren't fitting the supply/demand curve and
the market isn't working right.
http://ideas.repec.org/p/imf/imfwpa/06-299.html

Excess Oil Supplies Continue to Build
6/21/07
Michael Evans
IndustryWeek Columnist

The Energy Department announced today that crude oil supplies last week
rose to their highest level in 8 years -- since May 29,1998. Motor
gasoline and distillate inventories also rose to higher than normal
levels, although not an 8-year record.

In that case, why is crude oil still around $70/bbl?

It seems to me the current situation has some similarities with 1985.
Oil was clearly overpriced then, and supplies were increasing. Demand
was down. The famous Plaza Accord meeting on September 22, 1985 decreed
that interest rates should move down. A sidebar to the argument was that
inflation was now officially licked (which was true enough) and oil
prices should also fall.

But for a while they didn't. Benchmark crude oil prices, which had been
$28.29 in September, actually rose to $29.54 in Oct and $30.58 in Nov.
They then slackened a bit in December but the decline was not considered
noteworthy. Then the roof caved in (on oil producers) as prices fell as
low as $12.62 in March 1986 before rebounding slightly.

I'm not predicting another 60% drop in oil prices, although that would
bring them back to about $28/bbl, which is where the Saudis said they
thought equilibrium prices should be before the recent runup. But when
speculators and hedgers become convinced that that prices are headed
lower instead of higher, the huge buildup of supply will act to reduce
prices very quickly.
My best guess is that will happen late this summer.
http://forums.industryweek.com/showthread.php?t=233

Going back to 2005 when the oil bubble started:
"Oil is a bubble because the strong demand reflects the global liquidity
bubble."
http://www.tompaine.com/print/the_oil_bubble.php

The impact of high oil prices on China’s economy and on profit margins
in general is a key risk in the current global boom. If current oil
prices persist, the windfall for oil exporters may exceed the total
earnings of S&P 500 companies, and China will have to pay 2% of GDP more
in 2005 than last year for oil imports.

China is a low-income economy and cannot sustain its rapid growth at
current oil prices, in my view. Although current oil prices are still
half as high as their peak during the oil shock in the late 1970s,
China’s per capita income is less than one-tenth of that among the OECD
economies at that time.

The global property bubble has covered up the impact of high oil prices
so far. Anglo-Saxon consumers have leveraged their rising property
values to overcome sluggish income growth and high oil prices, thus
sustaining consumption growth. Chinese investors expect massive profits
from property inventory in a rising market and are willing to absorb the
higher materials costs as a result.

Oil is a bubble because the strong demand reflects the global liquidity
bubble. At the same time, financial investors have poured into this
commodity. When the demand-supply balance is tight in a strong global
economy, demand from financial investors can push up prices rapidly.
Hence, even though financial investors lose some money for carrying a
commodity without yield, the price increase in the short term can still
make the trade very profitable. Without the demand from financial
investors, the current oil price could be US$15/barrel lower, in my view.

The oil and property bubbles are aspects of the global liquidity bubble
that has arisen from the combination of a low US Federal funds rate and
the willingness of Asian central banks to accumulate foreign exchange
reserves. The property bubble is the primary manifestation of this
liquidity. The oil bubble is a secondary aspect. Oil, however, could
destabilize the equilibrium through its contractionary redistributing
effects.

Continue reading...

If you are convinced oil is arbitrarily and temporarily high, sell oil
short now!
If you're convinced some cabal is going to keep oil prices high and
continually rising, buy oil futures now!
If you think these fluctuations relate to changing dollar value,
inflation, new large markets in India and China, less output from Mexico
and Venezuela while simultaneously more output from Russia and Canada,
along with other conflicting factors in all directions, buy a paper or
two every day and enjoy the read (yawn).
--
Andrew Muzi
www.yellowjersey.org
Open every day since 1 April, 1971

Luke said:

In article <[email hidden]>, vey <[email hidden]>

Quoted message said:

Luke said:

In article <[email hidden]>,
<[email hidden]> wrote:

>> It refers to the current price being 33% higher than it "ought" to be
>> based upon supply and demand.
> What makes you think the price is 33% higher than it should be based
> on supply and demand?
>
> Robert
With that one statement vey lost me -- too simplistic. And by that I
don't mean that the price could be lower if the obligatory speculatory
and collusive interests were absent. But the world doesn't work that
way.

Here is another quote for you:

"As you might realize there are three factors that contribute the price
of oil. Supply of oil, demand for oil and speculation.

<Big snip>

I do realize this fact and have already acknowledged it.

So, if supply is not the problem, and demand is not the problem, what is
left?