Article: 60% of oil price is speculation

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TallDave
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Post by TallDave »

Isn't America a democracy after all?
Actually no, we're a republic, not a democracy.
You lost Vietnam, never mind how.
Well, yes and no. We achieved the Paris Accords, which were supposed to end the war, then took all our troops out and stopped defending the country. It would be more accurate to say we abandoned Vietnam, as we did Europe after WW I, with similar consequences. Note we are still in Europe, Japan, and S Korea today.
It's very hard to deny that you'd be better off if you'd just told the French to F off back in 1950 when they came asking for help.
It's even harder to see how an unopposed Communist victory in SE Asia would have been better for America.

Had we not been fighting them in N Vietnam, those resources would likely have gone into another invasion somewhere else, perhaps of Korea again, and we might have lost Japan and Thailand as well -- assuming the same logic of "not worth fighting for" was applied in all those cases, it's practically inevitable. The Soviets were always expanding somewhere, virtually from inception. It never stopped until the 1980s, when our relatively cheap investment in Stinger shoulder-fired heatseeking missilies made Afghanistan very, very expensive for them, Central America went sour on Communism, and missile defense and the arms race was bankrupting the stagnant, ossifying evil empire even as America got a little richer every year.

TallDave
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Post by TallDave »

Demand is at supply, huge price fluxuations have very weak effect on either except in the extreme long term; Supply and demand are both inelastic relative to price.
Supply is only inelastic in the short run. More expensive oilfields that are now profitable are now being exploited. Ethanol (both corn and cellulosic) plants are springing up everywhere. Coal > methanol is getting a serious look.

scareduck
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Post by scareduck »

A lot of old stripper wells in the Los Angeles area have been getting started up lately. Pretty much any project you can think of is now economically feasible.

Helius
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Inelasticity of supply

Post by Helius »

TallDave wrote:
Demand is at supply, huge price fluxuations have very weak effect on either except in the extreme long term; Supply and demand are both inelastic relative to price.
Supply is only inelastic in the short run. More expensive oilfields that are now profitable are now being exploited. Ethanol (both corn and cellulosic) plants are springing up everywhere. Coal > methanol is getting a serious look.
I think we're agreed, except I'd add the middle term; New supply requires capital investment, and that time frame must include the mid-term. No doubt, 3 years from now we'll be refining plenty of Canadian sour sludge, and be building plants to crack and combine the molecules required for liquid fuels from coal and farm waste. That all takes longer than the short term.

What's most worrysome to me is that people are so blind - angry at the Oil Companies that they will advocate slapping taxes on them and interfere with the critical capital investments required. I also worry that liquid fuel will become subsidized due to popular indignation, and if that happens, we're all screwed.

Edit.... I did say "extreme" long term.... You must have convinced me that shorter terms are possible. I gotta watch out: This place is making me an optimist.
Last edited by Helius on Sat Jun 07, 2008 2:40 am, edited 1 time in total.

Helius
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Post by Helius »

OneWayTraffic wrote:
Helius wrote: The biggest factor has to be inelasticity of supply and inelasticity of demand. If the price of gasoline doubles tomorrow, I'm still going to drive my usual 48 miles to work (while thinking about a job search), and the refinery that distilled my gasoline is still going to buy the same type of oil (Texas intermediate maybe) while also considering their options for buying a coker to be able to distill some cheaper heavy sour....

Demand is at supply, huge price fluxuations have very weak effect on either except in the extreme long term; Supply and demand are both inelastic relative to price.
But what are the chances that you'll find a couple of people to car pool with or get a smaller car? Rather better than switching jobs right?

As a non American I can't imagne commuting or 48miles. That's way too far to go twice a day.
It isn't too bad "OneWayTraffic". It's 50 minutes, mostly on the New York State Thruway in a little Honda Fit. It's "down time" so I have to admit, every day I'd like those 100 minutes of my life back. The time it takes is the worst thing, more so than anything else . The Housing prices are very low in my work community so I may move or something, but I'm not in a hurry.

OneWayTraffic
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Post by OneWayTraffic »

I spend at least that long on the subway every day. Much of that time I surf the net or study. Not down time at all.

OneWayTraffic
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Post by OneWayTraffic »

Update on oil. Hirsch is positing $500bbl in 3-5 years. Interview on the CNBC website. Writing this on my aforentioned UMPC so I can't give a link.

MSimon
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Post by MSimon »

$500 a bbl assumes that energy prices will not choke off economic activity. A doubtful assumption.
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:$500 a bbl assumes that energy prices will not choke off economic activity. A doubtful assumption.
Now I'm at a proper keyboard I'll give a little more detail. I used this clip in my English class today with my 1:1 student, who happens to be the CFO of Samsung asset management. Hopefully it'll get him thinking.

Robert Hirsch was asked for a worse case scenario and gave his take on it. I'd say that's certainly within reason for a 'worse case.' He obviously is aware of demand destruction and I discussed this at length with my student, but it wasn't mentioned in the interview. Mainly the interview was concerned with the ultimate but unknown peak in liquid fuels and the difficulty of significantly increasing production (he was clear this isn't an energy problem per se) and all of the American infrastructure that is set up around cheap oil. Asked if America should look to alternatives or drill more his answer was 'all of the above.' He was rather scathing of both economists and said of anti off shore drilling people that why he respected their position, when people are losing their jobs and can't afford to drive to work or to the supermarket they'd end up backing whatever needs to be done.

He pushed gas to liquids and coal to liquids as the best near term hopes. His language was simple, blunt and very clear. I can see why Bussard respected him so much.

The interview is a very worthwhile 5minutes.

http://www.cnbc.com/id/15840232?video=774744570&play=1

MSimon
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Post by MSimon »

I blogged it:

http://www.classicalvalues.com/archives ... oneer.html

http://powerandcontrol.blogspot.com/200 ... l-now.html

BTW I use the Youtube version in case any one else wants to blog it.

Thanks!

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

JohnP
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Post by JohnP »

:? The story's not over, just don't tell me 30% of the price of oil has changed due to supply & demand...
Light, sweet crude for October delivery fell $3.08 to settle at $103.26 on the New York Mercantile Exchange, the lowest settlement price since April 1. The contract rose 11 cents to settle at $106.34 in volatile trading Monday.

In aftermarket trading Tuesday, prices tumbled more than $4 a barrel to a new five-month low of $101.74.

Crude's decline puts the contract within striking distance of the psychologically important $100 threshold, a level first reached on Feb. 19.

In London, October Brent crude fell as low as $98.94 a barrel on the ICE Futures exchange, slipping below $100 for the first time since April 2. The contract later settled $3.10 lower at $100.34 a barrel.

"It looks like a total exodus out of the market right now," said Phil Flynn, analyst at Alaron Trading Corp. in Chicago. "Now that Ike and OPEC don't look like threats to supply, the market is running out of reasons to remain strong."

MSimon
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Post by MSimon »

JohnP wrote::? The story's not over, just don't tell me 30% of the price of oil has changed due to supply & demand...
Light, sweet crude for October delivery fell $3.08 to settle at $103.26 on the New York Mercantile Exchange, the lowest settlement price since April 1. The contract rose 11 cents to settle at $106.34 in volatile trading Monday.

In aftermarket trading Tuesday, prices tumbled more than $4 a barrel to a new five-month low of $101.74.

Crude's decline puts the contract within striking distance of the psychologically important $100 threshold, a level first reached on Feb. 19.

In London, October Brent crude fell as low as $98.94 a barrel on the ICE Futures exchange, slipping below $100 for the first time since April 2. The contract later settled $3.10 lower at $100.34 a barrel.

"It looks like a total exodus out of the market right now," said Phil Flynn, analyst at Alaron Trading Corp. in Chicago. "Now that Ike and OPEC don't look like threats to supply, the market is running out of reasons to remain strong."
100% of the future oil price is based on speculation.

If tomorrow you could set up a bioreactor in your back yard for $10 that would make automotive gasoline for 1 cent a gallon including feedstock what would a bbl of oil be worth?

Speculators are betting the odds of that are low. But they are not zero.
Engineering is the art of making what you want from what you can get at a profit.

Torulf2
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Post by Torulf2 »

Here are Soros version of the oilcrises.
http://www.nybooks.com/articles/21792

In addition its can be important to know the Chinese and Indian governments uses the “surplus of trade” (can’t find the English term) to subvention the oil in their countries. This increases the global demand a lot.

MSimon
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Post by MSimon »

Torulf2 wrote:Here are Soros version of the oilcrises.
http://www.nybooks.com/articles/21792

In addition its can be important to know the Chinese and Indian governments uses the “surplus of trade” (can’t find the English term) to subvention the oil in their countries. This increases the global demand a lot.
The word you are looking for is subsidy I think.

And the Soros description is what we in electronics call a relaxation oscillator. What can be done? Nothing. It is a natural result of systems with integrators and quick discharges that are level triggered.

Where I agree with Soros is the impossibility of fixing the situation by laws. What happens when you do that is that the market invents meta instruments and the instability is worse in the meta markets.

I do disagree with him on global warming. Sun spots and ocean temps say it is natural.
Engineering is the art of making what you want from what you can get at a profit.

MSimon
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Post by MSimon »

Re the negative demand curve - that effect only comes into play if prices are rising sharply. The demand curve quickly goes positive as prices start to fall and producers want to sell before prices fall further.
Engineering is the art of making what you want from what you can get at a profit.

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