Article: 60% of oil price is speculation

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JohnP
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Article: 60% of oil price is speculation

Post by JohnP »

Should come as no surprise. Here's a link to an interesting article exploring why the cost of a bbl of oil has gone up so fast. http://www.marketoracle.co.uk/Article4573.html

MSimon
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Post by MSimon »

If it is a bubble it will deflate. Or else the traders are expecting a big war.

In the mean time people are being more economical with fuel and buying more fuel efficient cars.
Engineering is the art of making what you want from what you can get at a profit.

scareduck
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Post by scareduck »

Nonsense. Paul Krugman's NYT column explains why such bubble talk is just that. This is real and getting worse and not going away. (I should also mention that I disagree with Krugman's comment at the end about how riding the bus wouldn't be such a bad thing; it values individuals' free time as essentially of zero value to them and society, something that is patently untrue.)

MSimon
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Post by MSimon »

From what I read inventories in the USA are rising and refineries are running at 85% capacity - down from 95%.

If there was world wide demand those refineries would be selling to the export market.

Something is up. BTW sometimes even when everyone knows we are in a bubble prices keep rising. Remember the housing jokes starting 2 years before the bubble collapsed?

Because of the long lags in oil production/refinement the cycles can build for a long time before they collapse. Then they fall off a cliff.

BTW Krugman was once a sharp analyst. However, he (like most economists) does not understand lags and the relation of control theory to economics. More is the pity.
Engineering is the art of making what you want from what you can get at a profit.

Roger
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Post by Roger »

Considering we just set a record for liquids production, I hope the hedge funds are getting it while its good.

MSimon, Whats the context ?

Dont refineries make gas, building inventory up..for summer... then they switch to home heating oil, building inventory for the winter....

There is world wide demand, we just set a world record for liquids production. Venezuela takes its heavy sour crude (API 10-15) and refines it to syncrude (API 30), then exports. The rest of the world deals with mostly med crude (API 30-35) which is easy to refine to diesel or #2.
I like the p-B11 resonance peak at 50 KV acceleration. In2 years we'll know.

MSimon
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Post by MSimon »

Roger,

I wish I knew the context.

I don't think the shift to winter heating fuels happens until the beginning of September.

Typically the rise in prices causes structural changes in the market. These accumulate slowly. At the same time producers find new supplies. The rising prices also increase reserves. New drilling happens. All this builds while prices are rising. Then comes the tipping point. Then the fall in prices is sharp.

It has been the way of the oil market for over 100 years. I do not believe this time will be different. The only thing in doubt is when the break will come and how sharp it will be.

Simon
Engineering is the art of making what you want from what you can get at a profit.

OneWayTraffic
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Post by OneWayTraffic »

MSimon wrote:Roger,

I wish I knew the context.

I don't think the shift to winter heating fuels happens until the beginning of September.

Typically the rise in prices causes structural changes in the market. These accumulate slowly. At the same time producers find new supplies. The rising prices also increase reserves. New drilling happens. All this builds while prices are rising. Then comes the tipping point. Then the fall in prices is sharp.

It has been the way of the oil market for over 100 years. I do not believe this time will be different. The only thing in doubt is when the break will come and how sharp it will be.

Simon
The problem is, that no matter how much you drill, the oil has to be there to find. And even if you do find it, it takes several years to go from discovery to production. Demand for oil has been steadily rising, and discoveries peaked some decades ago. It's incredibly unlikely that new discoveries will be as significant as those of last century-unless they happen to be in areas previously totally unexplored-as obviously one tends to find the big fields first.

In America, for example, no amount of technological expertise has been able to reverse America's decling production. Demand is the thing: we need to make oil irrelavant. And given your countries love affair with the automobile, suburbia, and big cars that won't be an easy task. Doable but not a sure thing.

OneWayTraffic
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Post by OneWayTraffic »

MSimon wrote:Roger,



It has been the way of the oil market for over 100 years. I do not believe this time will be different. The only thing in doubt is when the break will come and how sharp it will be.

Simon
Just want to respond to this point in detail. Whether this time will be different or not is unimportant in a strategical sense. Oil won't last forever; stocks are finite. So whether it's this time, or the next, or the time after still doesn't change the fact that money spent on Polywells, or alternatives, or hybrids is an investment in the future of our race.

Jimmy Carter's aquatic species program is a good case in point. It didn't go anywhere in terms of finding an alternative to oil, but it's provided a lot of valuable data to those looking at algae biofuels. Money well spent in the end I think.

TallDave
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Post by TallDave »

It might be true, but it's sort of meaningless. I mean, 90% of stock prices are speculation (compare book value to market cap).

Another 10 years and alternate means of liquid fuel production (algae, cellulosic ethanol, coal>methanol) will bring it back down again.

TallDave
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Post by TallDave »

In America, for example, no amount of technological expertise has been able to reverse America's decling production.


Actually, there are several factors at work there. Perhaps most significantly, oil prices were very low for a long time, so we didn't invest in new oil production. There are vast amounts of U.S. oil that can be recovered for ~$50/bbl, but they were never economical before now, because the Saudis were pumping it for $5/bbl. Also, there are huge fields offshore and in environmentally protected areas like ANWAR, which we have not utilized.

Brazil's recent offshore discovery is so huge they are buying up all the exploration rigs. It may be bigger than the Saudi fields.

TallDave
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Post by TallDave »

Oh, and as usual Krugman has no idea what he's talking about. Inventories ARE rising.
Crude oil closed above $70 a barrel for the first time, highlighting a phenomenon reshaping the petroleum world: investment flows into oil futures are supplanting nitty-gritty supply-and-demand data as prime drivers of prices

In contrast to past bull markets in crude, this year's run-up has occurred even though oil inventories in the U.S., the world's largest market, have swelled to their highest levels in nearly eight years....
http://www.econbrowser.com/archives/200 ... pecul.html

MSimon
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Post by MSimon »

Here is another graph:

http://futurist.typepad.com/my_weblog/2 ... finan.html

It could mean things are out of whack or it could mean war jitters.

There will come a time period this summer that will last into the fall when it will be possible to surge 6 carriers with two more added within 90 days. Normal is 3 at sea. 3 training. 3 undergoing minimal refit and 3 in the yards for long term overhaul.

Iran has stockpiled 28 mn bbls of oil in tankers.

Bush visited Israel and is going on to visit the Saudis and others in the region. Hizballah just lost in its bid to take the Chouf mountains in Lebanon. The Druze stopped them cold. American Elections are in very early Nov.

And that is all the information I have on the subject.

Speculation: the Saudis are holding back production preparatory to a strike on Iran when they will open the spigots to minimize market disruptions.
Engineering is the art of making what you want from what you can get at a profit.

scareduck
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Post by scareduck »

TallDave wrote:Oh, and as usual Krugman has no idea what he's talking about. Inventories ARE rising.
Crude oil closed above $70 a barrel for the first time, highlighting a phenomenon reshaping the petroleum world: investment flows into oil futures are supplanting nitty-gritty supply-and-demand data as prime drivers of prices

In contrast to past bull markets in crude, this year's run-up has occurred even though oil inventories in the U.S., the world's largest market, have swelled to their highest levels in nearly eight years....
http://www.econbrowser.com/archives/200 ... pecul.html
People keep on quoting U.S. inventories as though they were the only ones in the world. Feh. Besides, the piece is two years old.

Solo
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Post by Solo »

From the reading I've done, I have reason to believe that the prices we are seeing are a result of a plateau in world oil production coupled with increasing demand pressure. And I'm guessing that we will start to see production go into decline despite prices that will continue to escalate. Then we will know peak oil has hit. In fact, I think we will have seen the peak in our rear view mirror within 5-10 years; in fact, we may have already passed it. I don't think speculation has anything to do with prices.

And just to stir the pot a bit, I say that alternatives (like algae, cellulosic ethanol, F-T synthesis from coal, ect, and especially this ridiculous corn-ethanol program of Bush's) are going to be too little/too late to make much difference: OneWay is right, and the name of the game will be reducing consumption. My hypothesis is that the only way you can make people buy less oil is charge more for it. So I think prices are going to just keep going up.

Scupperer
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Post by Scupperer »

I just hope that oil prices don't crash before the WB-7 results are discovered, confirmed, and funding has been secured for the prototype (a lot of hopes, there). I remember the collapse of alternative energy funding and research after the oil crisis of the 70's ended - I imagine a similar abandoning of projects will happen when this bubble bursts.

If fusion doesn't work, or works but takes longer than hoped, there's one nuclear fission reactor that's been restarted (off line since 1985) at Brown's Ferry, Alabama, and licenses applied for at least 6 new plants, 2 in Texas, 2 more in Alabama (Bellafonte plant), and 2 in Georgia. A bigger drop in the energy bucket than most alternative energies have proven. The DOE hopes to get 34 new plants licensed by 2010, and if oil keeps climbing in price, it just might. However, Even a 30% increase in fission power will only make a 5% dent in fossil fuel electrical production, if demand stays the same. We'd need about 900 fission plants to replace it.

Personally, I think the current oil prices are ballooned by speculation, and fears of conflict, and over the stupidities that have been sweeping through other areas of the market. Once the "depression" is over, people will move their money into other areas.

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