Politics

Obama's Energy Policy

zyxwvutsr.

Posted to Politics on Wed May 02, 2012 at 01:44:28 PM EST (promoted from Diaries by port1080). RSS.

A couple weeks ago, President Obama proposed spending as much as $52 million to increase regulatory supervision of "speculators" that Democrats apparently believe have increased the price of gasoline. Now that gas prices have dropped, I eagerly await the president's public thanks for the "speculators'" altruistic losses on their trades.

Ha ha - just kidding! The president doesn't understand basic economics! Damn, he's ignorant!

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1

Re: Obama's Energy Policy

joshv.

Wed May 02, 2012 at 05:54:58 AM EST

5.00 (ignorant)

Come on Ken, obviously the speculators were intimidated by the presidential bluster, and have hunkered down in their Caymen Island tax shelters.

2

Re: Obama's Energy Policy

port1080.

Wed May 02, 2012 at 07:48:45 AM EST

5.00 (ignorant)

I'm confused - isn't Obama to blame for high gas prices?  How can it be the fault of speculators?

Allons-y!

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Re: Obama's Energy Policy

zyxwvutsr.

Wed May 02, 2012 at 09:09:23 AM EST

5.00 (ignorant)

I'm confused...
Is that why you support Democrats?

...isn't Obama to blame for high gas prices?
Indirectly, and only just a tiny bit.

How can it be the fault of speculators?
It can't be and anyone who claims it is is either ignorant or lying.

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Re: Obama's Energy Policy

port1080.

Wed May 02, 2012 at 10:02:16 AM EST

5.00 (ignorant)

It can't be and anyone who claims it is is either ignorant or lying.

"There's a certain speculator effect here; how big that is is impossible for me to judge,'' McCain said in an interview on Bloomberg television today. "There should be a thorough investigation.''

Allons-y!

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Re: Obama's Energy Policy

zyxwvutsr.

Wed May 02, 2012 at 10:12:48 AM EST

5.00 (ignorant)

Of course it is impossible for him to judge. If it were true, and possible to judge, someone would be gaming the system and making a lot of money.

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Re: Obama's Energy Policy

HidingFromGoro.

Thu May 03, 2012 at 10:12:52 PM EST

none

Is that why nobody in the energy industry is making lots of money or...?

I got more styles than prison got bricks- ain't that some shit?

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Re: Obama's Energy Policy

joshv.

Fri May 04, 2012 at 03:56:54 AM EST

none

Yeah, it's only filthy rich that are allowed to own stock in publicly traded companies.

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Re: Obama's Energy Policy

HidingFromGoro.

Fri May 04, 2012 at 09:54:53 PM EST

none

So it's not just the big players who aren't making any money, but the little guys as well?  The market must be freer than I thought!

I got more styles than prison got bricks- ain't that some shit?

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Re: Obama's Energy Policy

zyxwvutsr.

Sat May 05, 2012 at 06:33:37 AM EST

none

It's speculation: some folks make money, some folks lose money.

4

Re: Obama's Energy Policy

improper.

Wed May 02, 2012 at 09:59:21 AM EST

5.00 (ignorant)

From a link in the OP:

Still, seeing a potential problem with speculators is not limited to Obama or Democrats or this election season. When gasoline hit $3 a gallon in 2006, George W. Bush launched an investigation, declaring Americans "don't want and will not accept ... manipulation of the market. And neither will I."

So I guess GWB was ignorant as well.

5

Re: Obama's Energy Policy

improper.

Wed May 02, 2012 at 10:01:42 AM EST

5.00 (ignorant)

Apparently airlines are also ignorant:

In an open letter to all airline customers, CEOs from 12 of the nation's airlines said lawmakers must curb excessive speculation to scale back record fuel costs.

"Normal market forces are being dangerously amplified by poorly regulated market speculation," the letter said. "The nation needs to pull together to reform the oil markets and solve this growing problem."

The airline industry said that Congress' previously established regulations to control excessive market speculation have largely been weakened or removed in the past two decades.

"We believe that restoring and enforcing these limits, along with several other modest measures, will provide more disclosure, transparency and sound market oversight," the letter said. "Together, these reforms will help cool the overheated oil market and permit the economy to prosper."

7

Re: Obama's Energy Policy

improper.

Wed May 02, 2012 at 10:04:32 AM EST

5.00 (ignorant)

And PolitiFact, Analysts at Goldman Sachs, and Forbes writer Robert Lenzner are ignorant:

But today, there are more than twice as many financial speculators in the oil markets as there are hedgers, he said, and consequently the spot price of oil has become "unmoored" from actual supply and demand fundamentals.

The spot price is what someone pays today for immediate delivery of a commodity.

In March 2011 report, Goldman Sachs analysts wrote that unrest in the Middle East and the possibility of disruptions to the oil supply added a $10 per barrel "risk premium" to the price of crude oil.

Fast forward to this February. Forbes writer Robert Lenzner blogged that if not for speculators, oil would trade at just under $75 a barrel instead of the $108 price at the time.

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Re: Obama's Energy Policy

Ephraim Gadsby.

Wed May 02, 2012 at 12:57:58 PM EST

5.00 (ignorant)

"Goldman Sachs analysts wrote that unrest in the Middle East and the possibility of disruptions to the oil supply added a $10 per barrel "risk premium" to the price of crude oil."

Complaining about oil prices adjusting based on future expectations is grossly ignorant.  

9

Re: Obama's Energy Policy

tjb.

Wed May 02, 2012 at 11:09:58 AM EST

5.00 (ignorant)

As noted right winger Paul Krugman put it:

"If the price is above the level at which the demand from end-users is equal to production, there's an excess supply -- and that supply has to be going into inventories. End of story. If oil isn't building up in inventories, there can't be a bubble in the spot price."

But hey, let's go after those eeeevvuuullll speculators - damn them for ripping off ExxonMobile and selling gas for higher prices than the oil companies can!  Maybe after we're done with this, we can finish off the boogey man once and for all!

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Re: Obama's Energy Policy

improper.

Wed May 02, 2012 at 11:32:36 AM EST

5.00 (ignorant)

I would read the comments as they seem to be more nuanced than the elementary textbook economics of free market law and demand.

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Re: Obama's Energy Policy

tjb.

Wed May 02, 2012 at 11:46:06 AM EST

5.00 (ignorant)

Ah yes, let's listen to the random internet commenters, not the Nobel prize winner.  Really, it boils down to this:

In order for speculators to be causing a price bubble, you must believe that they are buying oil cheaper from BigOilCoInc than they can sell it for on the open market (generally because middlemen would be stockpiling the oil), in which case BigOilCoInc is really the one getting ripped off.  

Now, you are welcome to believe that ExxonMobile, Royal Dutch Shell and BP are run by idiots who like selling their oil for less than the most they possibly could, but, quite frankly, I find that to be a rather implausible position.

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Re: Obama's Energy Policy

improper.

Wed May 02, 2012 at 11:54:54 AM EST

5.00 (ignorant)

Did you read the comments at all? And I'm pretty sure you're a random internet commentator too. lol

The consensus is more nefarious than that (and not implausible). There are saying that producers can be speculators (and are) and they could intentionally manipulate the market by halting/limiting production (actually didn't OPEC do exactly that?) by leaving oil in the ground. Also, there are other comments about countries that hoard oil, which the US certainly does (and not all of it is on paper obviously). Krugman's analysis relies heavily on OECD inventory estimates.

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Re: Obama's Energy Policy

tjb.

Wed May 02, 2012 at 12:16:30 PM EST

5.00 (ignorant)

There are saying that producers can be speculators (and are) and they could intentionally manipulate the market by halting/limiting production (actually didn't OPEC do exactly that?) by leaving oil in the ground.

That very well could be, but it is entirely irrelevant to the type of speculation that people get their panties in wad about.  Good luck forcing companies in other countries to drill baby drill via legislation.

Also, there are other comments about countries that hoard oil, which the US certainly does (and not all of it is on paper obviously).

Certainly if there is hoarding by the middlemen the price could go up, but there is simply no evidence that this is actually happening at the moment.

Ok, let's simplify - you explain the mechanism by which you believe that financial speculators are raising the price oil and enriching themselves at the same time without actually taking delivery of the oil and storing it.  Not just Speculation! Bad!, but the actual mechanism and how it could be eliminated legislatively and maybe I'll listen.

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Re: Obama's Energy Policy

improper.

Wed May 02, 2012 at 12:34:37 PM EST

5.00 (ignorant)

Well the hands of other countries can be twisted via other methods. They hold oil we hold aid or other things (as what has happened in the past anyway).

What would be a type of evidence of hoarding by middlemen if the whole point is to avoid showing evidence of it?

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Re: Obama's Energy Policy

tjb.

Wed May 02, 2012 at 12:42:14 PM EST

5.00 (ignorant)

What would be a type of evidence of hoarding by middlemen if the whole point is to avoid showing evidence of it?

They would have to be storing it somewhere.  Where are they putting it?

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Re: Obama's Energy Policy

rickb928.

Wed May 02, 2012 at 05:48:37 PM EST

none

"explain the mechanism by which you believe that financial speculators are raising the price oil and enriching themselves at the same time without actually taking delivery of the oil and storing it"

I think this is how the futures markets work.  Real or not real?

Oh, and prices go up and down on the futures market.  Ultimately these contracts do get delivered, and what happens to prices as that delivery date gets closer is interesting, so, from what I understand from a few heating oil dealers I did work for is:

  • In April (or soooner)they would go on the market and, based on contract committments from their customers for so many gallons at a certain price over a period of time, they would buy futures contracts for #2 oil at fixed prices.

  • Their customers knew in advance the price and amount, choosing an amount based on their past usage and a wild guess as to weather in the coming season.  The dealer shared with them records of their usage inm the past.

  • An advance deposit sometimes was required.

  • When the heating season drew closer, the dealer started taking delivery of the oil.  As the weather turned cold, they woudl receive more oil on schedule to satisfy demand.

  • If the weather caused increased demand, customers would indeed be exposed to higher prices at the end of the season, as contracted oil ran out, but they had locked in their prices and, presumably, did not have to suffer the price increases throughout the season that others did.  

  • If the weather was milder, they would find themselves paying for oil they could not use, but had the benefit of not paying more due to weather and supply/demand pricing.

  • The dealer had the advantage of selling all of the fuel he had contracted for.  And happier customers that had predictable pricing for at lest the majority of their heating oil.

  • And in this scenario, the speculators would hope that the weather turned bad.  If so, their later contracts would be sold for more money. Profit!

  • If the speculators had the bad fortune to gamble on bad weather and it was mild, they would sell their contracts before delivery, and potentially at a loss, since they couldn't have that oil dumped on their palatial grounds very well, could they? Much less pay to have it trucked in.  So they have to sell, or default and maybe never be trusted again - not good.  

Futures.  For the wise, good things.  For the speculators, a tool.  Sometimes win, sometimes lose.

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Re: Obama's Energy Policy

zyxwvutsr.

Wed May 02, 2012 at 06:04:53 PM EST

none

Exactly: those who believe that speculators have caused an increase in gasoline prices are victims of their own muddled thinking.

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Re: Obama's Energy Policy

improper.

Wed May 02, 2012 at 12:03:03 PM EST

5.00 (ignorant)

In our businesses we get cold calls and guys that show up from companies like "Energy Plus", who are basically (as I understand it) guys that buy electricity in bulk from Electricity companies and sell it back to us at a lower rate than the energy company. So is this legitimate? Because you're saying it's stupid of the electricity companies to do that, since they could directly sell it to us without the necessity of a middleman (Energy Plus). I agree with that, but why does it happen anyway?

And as I further understand it, you have to sign an agreement with fixed rates with Energy Plus, while you are in the hands of the market if you go directly with the electricity company.

I have heard stories in the past where people expected lower rates but were hit with higher rates because then they increase the delivery charge or the market rate went down (or people were issued refunds) and they didn't see any of the lower rate. In this scenario, Energy Plus seems to be a speculator that adds little or no value and instead causes prices to increase.

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Re: Obama's Energy Policy

tjb.

Wed May 02, 2012 at 12:22:07 PM EST

5.00 (ignorant)

In our businesses we get cold calls and guys that show up from companies like "Energy Plus", who are basically (as I understand it) guys that buy electricity in bulk from Electricity companies and sell it back to us at a lower rate than the energy company. So is this legitimate? Because you're saying it's stupid of the electricity companies to do that, since they could directly sell it to us without the necessity of a middleman (Energy Plus). I agree with that, but why does it happen anyway?

That happens because the electricity producer is effectively selling risk to Energy Plus.  They sell electricity to the distributor at a lower rate because they have a guaranteed buyer and if Energy Plus cannot find an end buyer, they are the ones who eat the cost.  This is how almost every producer-to-wholesale-to-retailer-to-consumer logistic train on the planet works, it just strikes you as odd here because you don't generally think of electricity as something that can be traded as such.  If you really want to go with that logic, though, then your local supermarket is also a speculator and must be stopped at all costs from raising the prices of apples.

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Re: Obama's Energy Policy

improper.

Wed May 02, 2012 at 12:30:15 PM EST

5.00 (ignorant)

I never bought a contract for apples (as a consumer) so I don't see the analogy. But, there was no market like this before, so how all of a sudden? Deregulation, eh. I just don't think electricity (any energy) should be traded as such because then people can amass vast amounts of it and ripoff people at high rates. I mean there's sort what happened with Enron and California right?

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Re: Obama's Energy Policy

zyxwvutsr.

Wed May 02, 2012 at 12:40:06 PM EST

5.00 (ignorant)

No, what happened with Enron and California was caused by price controls.

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Re: Obama's Energy Policy

tjb.

Wed May 02, 2012 at 12:41:11 PM EST

5.00 (ignorant)

I never bought a contract for apples (as a consumer) so I don't see the analogy.

Sure, but your supermarket probably is.  The producer gets a stable contract, and the supermarket then parts them out at a higher price to consumers, but if they can't sell them all, they have to eat the cost.  Stop the speculation!  We need to regulate this market!

I just don't think electricity (any energy) should be traded as such because then people can amass vast amounts of it and ripoff people at high rates. I mean there's sort what happened with Enron and California right?

The Enron thing in California had to do with utterly retarded regulation that forced(!) everyone(!!) to buy at the highest bid(!!!) on the spot market.  The fact that this was called "deregulation" doesn't mean it had anything to do with actually deregulating the energy market, it just regulated the market differently in an easily exploitable way.

Also, please explain how you can (cost-effectively) hoard vast amounts of instantaneous load power?  If you got that figured out, there may be a Nobel prize in it for you.

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Re: Obama's Energy Policy

improper.

Wed May 02, 2012 at 12:50:32 PM EST

5.00 (ignorant)

I'm not sure then how you can say they eat the cost, is there energy just unused and sitting around?

I'd like to see more about the Enron thing, do you have links?

And the hoarding of load power is my point, how are they taking a risk if that power is "on-demand"? It seems to me that someone somewhere will be using that power so why do you need to pre-package it wholesale anyway? I don't buy the risk argument, though it's seem very convenient for any type of hoarding to throw it in, even in cases where the product functions as "Just-in-time" inventory.

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Re: Obama's Energy Policy

tjb.

Wed May 02, 2012 at 01:05:42 PM EST

5.00 (ignorant, interesting)

I'm not sure then how you can say they eat the cost, is there energy just unused and sitting around?

No, they have to sink it to ground or generate less than peak.

Energy Plus and their ilk will make a deal to purchase, say, 10MW of electricity for a certain amount of time at price x.  They then sign up customers to purchase electricity from them at, say, a 10% markup.  For every hour that their customers are using an aggregate of at least 9MW-Hr, they are making money.  For every hour that their customers are using less than 9MW-Hr, they are losing money.  The electricity producer is guaranteed their sale of 10MW-Hr every single Hr (even if they don't need to produce that much) and they don't have to worry about the vagaries of customer demand.

(obviously, actual contracts are more complicated and are adjusted for time of day and the like)

You can read more about the retarded California energy "deregulation" here:

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

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Re: Obama's Energy Policy

joshv.

Wed May 02, 2012 at 01:51:41 PM EST

5.00 (ignorant)

Yeah, the physical generation actually has to match demand quite closely - so if 9MWhs are being consumed, 9MWhs are being generated - it's just that Energy Plus has to pay for 10 (or whatever their agreed upon amount).  

I am not sure how such contracts work, but Energy Plus might also have to take on the risk of excessive demand driving up real time pricess.  For example if the weather forecast is bad, and a day is much hotter than expected, electricity usage will be much higher than the utilities were prepared for.  In these cases electricity needs to be imported from other locations over the grid (at a higher price), or the difference needs to be met with higher cost "peaking" facilities that use gas turbine generators and can respond to changes in load much more quickly than a coal or nuclear plant (though as gas prices have fallen, peak generation costs are getting close to base load costs).

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Re: Obama's Energy Policy

Shy Elf.

Wed May 02, 2012 at 06:54:27 PM EST

none

As I understand it, they're acting as a broker between specific natural gas generating plants and consumers.  They have long-term contracts with the generating plants, who have either long-term natural gas contracts or long-term hedges on natural gas costs.  Except under unusual circumstances, they aren't exposed to the spot electricity or natural gas markets at all. Certainly there is some exposure to average demand, but this rarely changes much.

The basic idea is that lower natural gas costs have resulted in long-term electricity market prices well below the regulated utility rates.  Under current regulations in many states, these companies are able to capture this windfall which would otherwise go to the regulated utility.  When market conditions change, these companies can temporarily go out of business, and their customers can go back to the regulated utility, which will have to bear the loss resulting from buying power at higher rates than it can sell it for.

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Re: Obama's Energy Policy

Ephraim Gadsby.

Wed May 02, 2012 at 12:39:05 PM EST

5.00 (ignorant)

On the one hand, we need higher gas prices, in order to reduce carbon emissions, make "green" energy viable, and save the planet. On the other hand, we need to investigate evil SpeKKKulator$ driving up gas prices.

26

Barry in love

Ephraim Gadsby.

Wed May 02, 2012 at 03:38:35 PM EST

5.00 (ignorant)

Speaking of Obama, there are some new revelations about and from his former girlfriends.

The girlfriend Genevieve Cook is connected to the the Jessup family (I'd heard about her in 2008, but was never able to verify it). I'm surprised he's read Eliot's "Tradition and the Individual Talent", and even more surprised by his statement "Remember how I said there's a certain kind of conservatism which I respect more than bourgeois liberalism--Eliot is of this type". As I've mentioned in the past, it's funny he changed the pronunciation of his name, and it is also interesting he worked for a CIA front company.

This part made me laugh:

"Obama's application seemed intriguing, though it gave no indication of his race. The ré­sumé noted his Hawaiian childhood. The sur­name sounded Japanese. Kellman's wife was Japanese. He knew that Obama could be a Jap­anese name...It would take a conversation to find out more, so he reached Obama in New York and they talked on the phone for about an hour. Kellman came to the realization that Obama was black. It was even more apparent to him that this applicant was smart and engaging and interested in social issues. Definitely worth a deeper look."
I can easily imagine that liberal's palpable excitement when discovering a negro who talk's white and is "engaging and interested in social issues".

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Re: Barry in love - it gets weirder

Ephraim Gadsby.

Fri May 04, 2012 at 05:58:17 PM EST

none

Cook may have attended the Bankstreet College of education at the same time as Bill Ayers.

The other girlfriend went on to marry Bob Bozic.  

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Why 2-Year-Olds are Smarter Than Corporations

Shy Elf.

Thu May 03, 2012 at 07:11:33 AM EST

5.00 (interesting, informative, informative)

Classical economics takes assumption that people generally make smart decisions as an unexamined postulate, and calls this postulate "rational expectations".  That assumption has repeated here, that of course neither XOM or speculators in general would ever make make bad decisions.

The oil industry is very capital intensive in that is output is highly dependent on long lead time long-term investments, which then become sunk costs.  There is another major industry which shares this characteristic while having much less random fluctuations from resource discovery and political factors, and hence being easier to analyze, and this is the airline industry.  The airline industry has a well-known periodic cycle of capacity and profits, and it turns out that major airlines only make major capacity investments when they are virtually certainly to lose money, and that they avoid making capacity investments when they would be virtually certain to make money.  If they did not do this, there would be no periodic capacity/profit cycle.  They would be very much better off if they made their investment decisions by handing a multi-year calendar to a 2-year-old and investing wherever the 2-year-old decided to doodle on the calendar, because then at least they would be making their investments randomly and not only when they were guaranteed to lose money.  Certainly liquidity constraints play a major role, in that the proper time to invest is when the airlines are losing money, but under the rational expectations hypothesis, this would not matter because banks would also be willing to lend money only when airlines were losing money (and hence when the new capacity would come online a time when it was profitable), and this is hypothesis can be seen to be false by comparison with actual investment decisions and credit availability.

Friedman's conjecture that profitable speculation is necessarily stabilizing is known to be false under certain circumstances, but it remains the case that in most cases strongly profitable speculation will be stabilizing, and due to the concavity of the marginal utility curve will result in a net positive benefit.  It would be a mistake, however, to simply assume that because speculation exists, it must be both profitable and stabilizing.  In the case of the oil market we have very good (though significantly delayed) data on both physical inventories (page 3) and financial speculation.

These data show that total crude inventories increased leading into the price peak in 2008, and by >1M barrels per day leading into the recent crude oil peak.  Also, net long non-industry speculation clearly both drove up the price and lost money during the 2008 price peak, the Jan 2011 mini-peak, and the recent crude price peak.  On the other hand non-industry speculation both stabilized the price and made money during the price during the price 2009 price bottom.

The narratives on speculation from both sides really seem to be considerably off the mark, in that relatively little industry speculation exists, and what speculation exists both within and without the industry appears to be neither especially profitable nor stabilizing.

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Re: Why 2-Year-Olds are Smarter Than Corporations

zyxwvutsr.

Thu May 03, 2012 at 08:44:06 AM EST

none

What is your distinction between industry and non-industry?

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Re: Why 2-Year-Olds are Smarter Than Corporations

Shy Elf.

Thu May 03, 2012 at 12:16:19 PM EST

none

Industry = oil industry, refiners, even airlines, basically anyone who actually creates or uses the stuff in large volumes.  Non-industry = Goldman Sachs, JPM and their clients, basically everyone else.

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Re: Why 2-Year-Olds are Smarter Than Corporations

zyxwvutsr.

Thu May 03, 2012 at 12:17:36 PM EST

none

Who does Goldman Sachs buy their futures from?

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Re: Why 2-Year-Olds are Smarter Than Corporations

Shy Elf.

Mon May 07, 2012 at 08:05:54 AM EST

none

I take your point that all trades have two sides, and if you define speculation to be the total volume or total net position of trades then yeah, the net speculation of industry and non-industry players must by definition be equal, but I don't find this to be particularly informative.  I mean, if one side has a set price/position volume curve, and the other side suddenly comes in and buys and buys and buys, then, yeah, net open interest is the same, but it's pretty clear that it's the side buying as the price rises that's doing the speculation as people understand the word.

It's only when it causes changes in physical holdings that speculation will move the spot price.  There are some physical holdings by traders, usually heavily concentrated at Cushing or held offshore in oil tankers contracted to sit around full.  They're fairly small, but have large fractional changes.  

When I was talking about speculation by industry being small, I was mostly thinking of speculation in the physical market, relative to the side of the market.  Except for the products with high seasonality, for the most part the oil industry just doesn't think about speculation as being the industry it's in.

Total profits from holding a volume V at a price P will be the integral of V dP  = PV - integral P dV.  Over any closed path any constant PV (or PVnormal) has no effect on profits, so the instantaneous profit can be thought of equivalently as V dP or -P dV or (V-Vormal) dP.  So long as you keep changes in the volume you hold small, you aren't exposed to losses due to volatility, even if you must hold large volumes, and much of the oil industry runs on this basis.

Where there are large oil industry stock changes, they're mostly either imposed by factors outside of their control, or are hedged against futures markets so that they can view departure from their normal amount of stocks as something which gives a virtually guaranteed profit.   This is where futures prices (including industry hedging activity) change the spot price.  Of course the oil companies are still exposed to changes in the price basis of what they actually pay or receive relative to reference oil basket, but these are usually comparatively small.

This is a very different price setting mechanism from how I imagine people think oil prices are set.  I think people imagine some guy in XOM looking at the markets and saying, "OK, what price can we get away with?  Let's set it to that."  That's pretty much how prices for cars and many other items are set, but they can only do that for cars because cars are not exactly the same, and because they're willing to shut in car production or increase their car stocks for their particular model until they get the price they asked for.

There's very little shutting in of wells, except for OPEC, and even they're down to UAE, Kuwait and Saudi Arabia being the only ones that ever shut in wells, and in not terribly large volumes any more either.

Mainly, though the price volatility results from the fact that there's so little storage variation that if we produce 1.3% more oil than we consume as we did in the 1Q 2012, that's a huge imbalance.  If there were people with a large volume of physical storage who could actually predict the price accurately, we wouldn't have the price volatility we do.

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Re: Why 2-Year-Olds are Smarter Than Corporations

zyxwvutsr.

Mon May 07, 2012 at 09:18:26 AM EST

none

It's only when it causes changes in physical holdings that speculation will move the spot price
What is the mechanism for that effect?

Mainly, though the price volatility results from the fact that there's so little storage variation that if we produce 1.3% more oil than we consume as we did in the 1Q 2012, that's a huge imbalance
Exactly. Demagogues, however, would have us believe that speculation overwhelms normal supply and demand forces. (And monetary policy, too.)

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"The fallacy of blaming oil `speculators'

zyxwvutsr.

Thu May 03, 2012 at 11:44:25 AM EST

none

Robert J. Samuelson explains:

Despite periodic debunking, it returns whenever oil prices surge. In mid-2008, with crude prices approaching $150 a barrel, the Commodities Futures Trading Commission (CFTC) created a task force to study whether speculation caused the run-up. The task force included experts from the Agriculture, Energy and Treasury departments, the Federal Reserve, the Federal Trade Commission and the Securities and Exchange Commission.

Here's the main conclusion:

"Current oil prices and the increase in oil prices between January 2003 and June 2008 are largely due to fundamental supply and demand factors. . . . The Task Force's preliminary analysis to date does not support the proposition that speculative activity has systematically driven changes in oil prices."

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Re: Obama's a Socialist? Naw!

zyxwvutsr.

Thu May 03, 2012 at 11:49:23 AM EST

none

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Re: Obama's Energy Policy

tjb.

Wed May 09, 2012 at 11:22:49 AM EST

none

Speculators are currently getting killed in the market, so I guess they must be both evil AND stupid.

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