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Originally posted by StellarX
I don't know and i'm still not sure why you think they will have to take physical delivery of the resource? Do you understand that contracts can be traded as easily as the commodity itself?
Originally posted by dbates
No, just because you hear that more speculators are buying oil, doesn't make you want to go out and drive cross country trips. The news that more people are buying oil won't cause truck drivers to drive 100 miles out of their way to use more diesel.
Demand is only coupled to price. Increasing prices will lower demand.
That's what doesn't make sense about this whole bit of racket. If prices are rising simply because of speculation, they why isn't demand falling due to rising prices?
This is simple ecomomics. Just because you change the name of the commodity doesn't mean the rules are any different.
Would hearing that market speculators were buying contracts of wheat make you run out and eat more bread than normal? No, if anything it would make you look for cheaper alternatives for dinner.
Again, speculators are simply reacting to what some people have been soap box preaching about for years. Supply can not meet demand.
Why else would Saudi Arabia be making new promises to deliver extra oil?
Are the speculators going to take this extra 200,000 barrels of oil a day and sit on it without selling it? Of course not.
The extra oil is in the market. The problem is that this extra oil doesn't account for the falling supply from other countries.
Saudi Arabia’s decision to pump more oil than it has in nearly 30 years risks being completely negated by the sharp drop in output caused by attacks on production facilities in Nigeria.
Nigeria now pumps less than 1.5m barrels a day, its lowest level in 25 years, rather than the 2.5m b/d it has the ability to produce
This is what the main stream media isn't reporting on. Their talking heads simply state "Saudia Arabia to increase supply by 200,000 barrels a day".
They seem to leave out the fact that Nigeria is down over 1,000,000 barrels a day in it's output. Nigeria isn't the only country that has issues keeping pruduction at full tilt. Mexico, Russia, the U.K. are all slipping in their production supplies.
Declining production in a number of non-OPEC nations, including Mexico, United Kingdom, and Norway, is largely offsetting increases in other countries. Slow growth in non-OPEC supply is coinciding with disruptions in supplies from some OPEC countries, such as Nigeria. Ongoing geopolitical concerns in several producing countries, including Venezuela and Iran, have contributed to oil price volatility.
The market remains concerned that the cushion of surplus production capacity of less than 2 million bbl/d (almost all located in Saudi Arabia) and/or stocks is insufficient to protect against possible changes in supply or consumption, especially as we enter the summer hurricane season. The absence of a Saudi commitment to add capacity beyond its current goal of 12.5 million bbl/d adds to the uncertainty about the adequacy of future supply capacity growth.
Wouldn't it be a no brainer that if demand stays the same or keeps increasing (Look at auto sales in China) and supply is flat and declining that prices will continue to rise?
Why is Iraq such a prize? Not only does it have the potential to become the world's largest producer, but no other country can do it as cheaply. That's because, for geological reasons, Iraq boasts the world's most prolific wells. In 1979, the year before Iraq's oil fields were devastated by the first of three wars, its wells produced an average of 13,700 bbl. each per day. By contrast, each Saudi well averaged 10,200 bbl. U.S. wells, which are gradually drying up, averaged just 17 bbl. It would take more than 800 U.S. wells to pump as much oil as a typical Iraqi well. Consequently, production costs in Iraq are much lower. The average cost of bringing a barrel of oil out of the ground in the U.S. is about $10. In Saudi Arabia, it's about $2.50. And in Iraq, it's less than $1, according to Fadhil Chalabi, executive director of the Center for Global Energy Studies in London and former Under Secretary of Oil in Iraq. What's more, most of Iraq's known oil deposits are waiting to be developed. That's why everyone has cast a covetous eye on the country. And why each one of the world's major powers and international groups has an agenda for Iraqi oil.
"We ought to be able to get their production back up in order of 2.5 (to) 3 million bbl. a day within, hopefully, by the end of the year." For now, at least, U.S. policymakers envision Iraq as a swing producer, one that can provide just enough oil to even out world supply and demand and prop up prices. (If there were a truly free market in oil, crude would sell for $12 a bbl. or less instead of $26, and gasoline would go for less than $1 a gal.)
But would the U.S. actually throttle a country's production to keep the peace? In Iraq, restricted production is an old story. It has often been the victim, ever since oil was discovered near Kirkuk in 1927, within miles of the biblical fiery furnace of Nebuchadnezzar. The Iraq Petroleum Co., jointly owned by U.S., British, French and Dutch oil giants, drilled the first well. It gushed at a rate of 100,000 bbl. a day. That much cheap oil was the last thing the international oil companies wanted. They clamped a lid on the well and sat on the field through the 1930s because the world was awash in oil, and prices were already depressed. Texas crude had fallen from $1.30 per bbl. to 5(cent). Issam Al-Chalabi, Iraq's Oil Minister from 1987 to '90 and a private energy consultant since in Amman, Jordan, told TIME that for Iraq to get production up to 6 million bbl. daily, "we will be talking (of an investment) in the region of $30 billion to $40 billion." A measure of Iraq's potential: only 17 of 80 discovered oil fields have even been developed. Another former Iraqi oil official estimated Iraq could produce as much as 12 million bbl. daily, easily making it the world's No. 1 producer.
It's only obvious. The people investing millions in oil aren't fools. They've been watching all of this take place and are simply buying shares now because a rise in prices is a sure thing.
Originally posted by dbates
"If all of the supply of oil is really being consumed at the current prices, then it does not make sense to blame those prices on financial investors who are neither supplying physical oil nor consuming physical oil"
- Severin Borenstein, director of the UC Energy Institute
Although these high prices are often attributed to the forces of supply and demand, the report demonstrates that supplies have been more than adequate to meet demand. Since late 2004, the amount of stored oil in the United States has been increasing. Oil inventories recently reached 347 million barrels – an eight-year high and the largest U.S. inventory since 1998, when oil was $15 per barrel. Similarly, oil inventories in Organisation for Economic Co-operation and Development (OECD) countries recently reached a 20-year high. As the report explains, the traditional factors of “supply and demand” do not tell the whole story on oil and gas prices.
What is new, according to the Levin-Coleman report, is that over the past few years market speculators have poured tens of billions of dollars into the energy commodity markets. For example, the International Monetary Fund reports that over the past three years approximately $100-$120 billion has been invested in energy markets worldwide. Over this same period about $60 billion has been invested in oil futures on the NYMEX.
Many analysts believe these speculative investments have significantly raised the price of oil futures. While it is not possible to determine the precise dollar increase in the price of oil attributable to market speculation, some analysts have estimated that speculation has added as much as $20-$25 to the price of each barrel of oil, thereby pushing up oil from about $50 to around $70 per barrel. As former Federal Reserve Chairman Alan Greenspan recently stated, “with the demand from the investment community, oil prices have moved up sooner than they would have otherwise.”
Are the speculators actually driving up the prices? How? By creating a shortage? If so, then were are they storing all the oil from the contract that they are buying up? In their back yard?
As Borenstein states, what we're calling "speculators" are in reality simply commodity investors. Any investment in a commodity is a specualtion. They're hoping that the price goes up.
When a speculator buys contracts for 100,000 barrels of oil to be delievered in August, he's buying in at say $130 a barrel hoping that the price will go up. How does the purchase of a futures contract create an actual market shortage?
It doesn't. When August comes around, the speculator has to sell his contract to a company such as Exxon or Shell. If not then he is the proud owner of an oil tanker with 100,000 barrels of crude oil.
The only way speculators could be driving the prices is if they affected the supply side or the demand side.
Since they neither produce oil, or consume the oil they actually make a minimal amount of difference in the selling price.
To state otherwise is junk economics that would be soundly laughed at in any real economics class in the country.
I submit, that we have more investors (speculators) in the oil market because there is in fact an actual growing gap between supply and demand.
The investor on Wall Street see this.
Why doesn't Congress or the Main Stream Media point this out. What we have is a shortage of oil.
Putting the breaks on investing isn't going to change this fact at all.
Increased speculation is merely a symptom of Peak Oil, not the cause.