Politics and Religion
If oil hits $150 again simply on fear, without any real "event" the market might crash back to $50
Which would be almost as overkill as in 2008-9 when oil fell to $30.
Fundamentally oil needs to trade at well over fify of all that oil coming from the Canadian Oil Sands and all that American Shale oil will evaporate.
Both the tar sands and the shale oil have lift costs in the $50 bbl range, if oil drops below that they will not only not get any return on investment, but they will actually lose money on the operations side. The only thing they will be able to do is cease production until prices rise.
There is really nothing new about this, everytime a drought is predicted, corn and wheat go up, everytime a severe freeze in Fla is predicted orange juice futures soar. I don't hear anyone screaming to stop speculation in those markets.
I don't know much about this, since investing isn't my thing, but it would be interesting what GaG and Saint have to say about this. Is gas going up because of speculation on Wall Street?
Yes, speculation is what's driving the price of oil, and by extension gasoline. The true cost of oil should be more in the $80 range. The problem is, even if Wall st completley forbade speculation of commodities, oil is a world wide commodity not an American one. The "casino" would simply change venues and trading would continue unabated.
Right now there is a huge "fear premium" built into the market which is causing crude to trade at these levels, there are other factors such a QE2 which helped to weaken the dollar and oil trades in inverse to the dollar. That asided the commodities market is a necessary evil, without it farmers could not lock in prices for their crops, airlines would be completely at the mercy of the "spot" market for the billions of dollars of fuel that they use, etc.
The futures market was designed to allow an orderly and liquid means for consumers and producers alike to lock in prices today in anticipation of huge price increases or decreases in the future. In spite of all the flaws in the system and the potential for abuse, limiting or eliminating speculation would make the markets less liquid and create more problems that it would solve, not to mention the fact that even closing down the NY and Chicago Mercantile exchanges would simply shift the action offshore and kill another American industry.
In answer to your question. Yes gas is going up because of speculation, but Wall St has no monopoly on speculation. We live in a global commodity and we produce less than 10% of the worlds oil, so "we" certainly don't set the price.
so he sent a memo to MSNBC.
according to CNBC.
The weak dollar as well as the fear premium is playing a major role.
I posted last week that we did not have the same amount of futures activity in oil now as in 2008 but clearly I was wrong. The options traders are predicting $80 a barrel by June and I've learned they are a canny bunch. But right now, you have got to be long oil.
Incredibly, CNBC had one expert yesterday who said that on fundamentals oil should be selling a $50 a barrel. If and when the fear premium vanishes, there is going to be a crash and I need to figure out when that is going to be.
Which would be almost as overkill as in 2008-9 when oil fell to $30.
Fundamentally oil needs to trade at well over fify of all that oil coming from the Canadian Oil Sands and all that American Shale oil will evaporate.
Both the tar sands and the shale oil have lift costs in the $50 bbl range, if oil drops below that they will not only not get any return on investment, but they will actually lose money on the operations side. The only thing they will be able to do is cease production until prices rise.
There is really nothing new about this, everytime a drought is predicted, corn and wheat go up, everytime a severe freeze in Fla is predicted orange juice futures soar. I don't hear anyone screaming to stop speculation in those markets.
How dare you give a rational and substantive answer on this board! LOL!
I think I need to go to the bar and get drunk and wathc NCAA BB.
At least if I'm drunk I'll have an excuse to be civil.
also Willy did preface his question with the disclaimer that investing really wasn't his thing, so I felt an honest and civil answer was deserved. If he had insisted he had all the answers and had opined that his position was the correct one and was wrong, my response probably would have been much less civil in return.
One thing that a lot of people on this board forget, some of us actually do this shit for a living. I rarely work by the hour, but when I do I charge as much as any upper end law firm for my evaluations. Which I guess is about the same as a high dollar hottie on TER.
Wow, I make the same rate as a prostitute who might not even have a GED, that's kind of deflating when you think of it, but I guess it's better than making less than the aforementioned dropout hooker. lmao
As I said, I don't know shit about this, but as far as I know this didn't used to be a problem until the last 10 years or so.
What would happen if we just got rid of the Commodity Futures Modernization Act of 2000? Would it likely offshore futures trading since the US consumes so much oil?
I don't have a problem with futures trading of oranges since I don't need to buy them to get to work, ya know?
And is this a sign that the market isn't very strong since people are putting money into commodities instead of stocks?
Not really. Cute idea but it's riddled with errors and over-simplifications. Should have been titled "QE2 explained BY a 12-year-old."
The cartoon of Mr. Hobby and the Hooker was much better! LOL!
-- Modified on 3/10/2011 7:34:08 AM
It is simplified, as you have to make it in a cartoon. But the principles are correct.
The biggest mistake the Fed, and monetarist and Keynesian economists make is equating the fall of prices in a growing economy with monetary deflation. They don't distinguish between a fall in prices caused by increased productivity and a fall in prices caused by a drop in the money supply. So what looks to them like low inflation is actually pretty high inflation. Even zero inflation by their measures would represent real positive inflation if there is an increase in productivity.
So they keep inflating the economy, wrecking it, and trying to re-inflate it. Its a cycle of stupidity.
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