Oil Futures.

[rolmops]

Today I finally heard a reasonable explanation about why oil has gone up so high.
Oil is traded on the futures market.The futures market was originally set up to serve farmers who would sell their expected crops at a future price as some sort of insurance and to give them an advance payment while their crops were growing.
One interesting thing is that buyers of these grain futures only had to pay about 5% in cash at the time of purchase, to also protect the buyers from natural disasters.The system was set up to serve as an insurance against disasters.Slowly this market extended to coffee ,sugar and to raw materials including oil.Traditionally this market was used by investors and speculators with arguably 1 investor for every 2 speculators.
It is important to know that this market was self regulating without government regulation.
Lately some very big speculators have entered this market mostly in the oil futures.Goldman Sachs own about 30 % of all the oil that is being pumped in Texas as we speak.
They can buy this much because they only have to pay 5% percent at the time of purchase.And it is obvious that the self regulating mechanism got lost somewhere along the line.
The most amazing part of this is that there are only 2 powers that do try to regulate and lower the prices.One is the Government of Dubai and the other is Exxon Mobil. The US Government does not try to interfere.
If you can give more of an impartial explanation without becoming political,then please enlighten me a bit more.

 

[Bass Man Bruce]

Re: Oil Futures.

It is my understanding that even if you only have to front 5% at purchase you still must honor the entire contract when it comes due. So if you agree to buy or sell on a given date at a given price you must fullfill your end of the bargain regardless of what the current situation is.
Short story on that, I don't think you are getting any great deals unless you are a guru at this stuff.
For the rest of your post, I know more about string theory and alternative universes.

 

[jay_merrill]

Re: Oil Futures.

Actually, there is more to it than that and the rather sad link is Enron. According to a guy by the name of Michael Greenberger, who was the head of the Commodity Futures Trading Commission Division of Trading & Markets, before its storied demise for all sorts of wrong-doing, Enron was influential in getting energy futures traded outside of the U.S.

Because of this, crude futures are now being traded in what is refered to as "the dark market," and prices have little or no relationship to issues of supply and demand. Even the Saudis have said this and have recently called for action to limit the price of crude.

My guess is that a few skunks are going to get exposed in this woodpile. Greed is a pretty sad thing but, as the saying goes, what goes around comes around.

 

[Tail_Gunner]

Re: Oil Futures.

this topic is to damm simple but the know it all mods would close the thread....feelings would get hurt.........the eienstien bunch would be offended......sorry guy's..... you have led yourselves into polotics.....your jobs depened on that........And i cannot blame you for that....maybe it's time to bounce me............

 

[jay_merrill]

Re: Oil Futures.

I don't see any mods and I don't see any politics - just a discussion on how the oil markets seem to be working these days and why.

The skunks in the woodpile that I am talking about are the business interests that benefit from abnormally high oil prices. I suspect that there will be a few traders involved, as well as others.

 

[Uraijit]

Re: Oil Futures.

I don't see any mods and I don't see any politics - just a discussion on how the oil markets seem to be working these days and why.

The skunks in the woodpile that I am talking about are the business interests that benefit from abnormally high oil prices. I suspect that there will be a few traders involved, as well as others.

EVERYBODY benefits from the oil business. If there was no benefit to the buyers, they would not buy at the current prices. People continue to buy, so logically, they're still benefiting.

When the benefit is gone, either the prices will go back down, or the oil companies will go away. As long as there is a transaction, there is benefit on both sides...

If people don't like the prices that they're paying for oil, they need to find other energy options...

 

[SpinnerBait_Nut]

Re: Oil Futures.

I don't see any mods

I'm here and watching.

 

[SgtMaj]

Re: Oil Futures.

EVERYBODY benefits from the oil business. If there was no benefit to the buyers, they would not buy at the current prices. People continue to buy, so logically, they're still benefiting.

When the benefit is gone, either the prices will go back down, or the oil companies will go away. As long as there is a transaction, there is benefit on both sides...

If people don't like the prices that they're paying for oil, they need to find other energy options...

By everybody, I'm going to assume you mean people with enough extra cash they can invest some of it, or people who actually work in the oil business... because the single mother who lives paycheck to paycheck, who's having to call in at least once a week now because she can't afford to fill up anymore isn't benefiting. You might think that doesn't matter to you, but productivity is dropping my HUGE amounts now. There's almost no business out there now that doesn't have at least one person calling in due to gas prices every week. When productivity goes, so does the rest of the economy. Pretty soon, no matter how rich you think you are, you loose too.

 

[SS MAYFLOAT]

Re: Oil Futures.

I wish there was a list of those who voted against the drilling on our own soil/water so that I can write them and let them know how I feel. That is what it is going to take to change things. Why the media doesn't publish who and how they voted makes me wonder. PM me if anyone knows where I can find them.....Thanks.....SS

 

[SgtMaj]

Re: Oil Futures.

I wish there was a list of those who voted against the drilling on our own soil/water so that I can write them and let them know how I feel. That is what it is going to take to change things. Why the media doesn't publish who and how they voted makes me wonder. PM me if anyone knows where I can find them.....Thanks.....SS

It is a matter of public record and you can easily find out.

 

[Limited-Time]

Re: Oil Futures.

It is my understanding that even if you only have to front 5% at purchase you still must honor the entire contract when it comes due. So if you agree to buy or sell on a given date at a given price you must fullfill your end of the bargain regardless of what the current situation is.
Short story on that, I don't think you are getting any great deals unless you are a guru at this stuff.
For the rest of your post, I know more about string theory and alternative universes.

Maybe I'm missing some thing here..............................But, you still have to be buying at a price LOWER than actual market value, so when you sell there is a profit. I do not see that part of the equation explained in the OP or any of the following post. From whats stated I don't see where the profit is gained?? Unless the futures value is a calculated/projected value based on current price/demand/available capital investment in unpumped oil.

 

[tommays]

Re: Oil Futures.

Buying a HUGE amount of the future supply and holding it off the market until the shortage creats a higher price is in fact the simple version of what is going on


As the movie said "GREED IS GOOD"

 

[KM2]

Re: Oil Futures.

Speculators buy and then sell these contracts before they ever have to take delivery. I believe this has led to higher prices and to volitility in the price. How much it's increasing the price is hard to know. Demand wordwide increased so that is a big factor in the high price too.


Note: If you have a pension or 401k or similar retirment plan you very, very, very likely have investments in "big oil" & Be thankful you do, one of the only areas of the stock market that has been a profitable investment the last 9 months.

 

[SgtMaj]

Re: Oil Futures.

Speculators buy and then sell these contracts before they ever have to take delivery. I believe this has led to higher prices and to volitility in the price. How much it's increasing the price is hard to know. Demand wordwide increased so that is a big factor in the high price too.

You need to re-check your "facts"... in fact, the demand has dropped over the last year by a considerable amount... 5.4% in the USA alone... by even more in some other countries... the only place demand hasn't dropped by more than 1% is in the EU, and even there demand slacked off at just under half a percent.

Note: If you have a pension or 401k or similar retirment plan you very, very, very likely have investments in "big oil" & Be thankful you do, one of the only areas of the stock market that has been a profitable investment the last 9 months.

I made 17% on my investments last year without ANY oil investments... so... no I would not at all be thankful to have investments in "big oil". Oh, by the way, in case you're thinking that was a fluke, that's the least I've made in the last 6 years, and I've never invested in oil.

 

[bjcsc]

Re: Oil Futures.

I made 17% on my investments last year .

That's impressive. When you start the sgtmaj fund let me know - I'm in!

Rolmops: The spec pressures of the current oil situation has been a part of nearly every thread about it here. This is nothing new.

The price doesn't have to go up in order to make money. You can short it and do just as well...

 

[JB]

Re: Oil Futures.

You only make a profit in futures trading if you sell when the price is higher than when you bought.

That means many could have made big profit in oil futures within the past year or so, but people buying futures today at, say $130, (they pay $6.50 up front) will be in deep doodoo if the price drops below $123.50. They would then get a margin call and either have to cough up the rest, $123.50, or sell immediately at $123.50 and lose all of the money they put up.

That means that futures trading in oil is a crap shoot, just like most margin trading. You only profit if the price keeps escalating. If there is a serious hiccup you are wiped out.

Read about Black Friday in 1929. Runaway margin trading in equities turned billions (trillions in 2008 bux) of ghost money (the rest of the "value" of equities bought on margin) into thin air.

The housing market has been in the same trouble. People bought homes on margin (little or nothing down) in expectation that the value would continue to rise so they could refinance or sell at a profit when the higher interest came along. Now that the interest has jumped and the homes are worth less than they owe they either can't or won't make the payments. Foreclosure is just another form of margin call.

Also, futures contracts have a "delivery" date. They expire and whoever holds the contract has to cough up the cash, so you can only get away with holding them just so long; then you either own the oil at the price of the contract or you sell it at whatever the price is at the time.

 

[jay_merrill]

Re: Oil Futures.

To me, its not a question of being mad at "big oil," nor do I think oil should have stayed at $17 a barrel forever. The problem here is whether or not the market is moving naturally or whether it is being manipulated.

The connection to Enron is of interest because this is not the first time that possible manipulation of an energy market has been tied to them. Before its demise, Enron was manipulating energy markets in California in 2000 and 2001. Although they weren't the only ones to do this after the state deregulated its energy markets, the end result was rapid price increases and artificially created electricity shortages. Enron eventually entered a 1.5 billion dollar settlement with the state of California over the whole thing.

Obviously Enron isn't directly involved in the current situation because the company is defunct. What is interesting, however, is that before its downfall, it apparently engineered the move towards trading oil futures outside of US governmental oversight - sort of a deregulation of another kind.

It is beginning to look like run-away energy prices are causing enough economic damage around the world to cause governmental entities to step in. That's probably a good thing, whether market manipulation is going on or not. If there is skullduggery, perhaps exposing and removing it will return the markets to normal trading. If, on the other hand, the problem turns out to be nothing more than a reaction to all sorts of other economic issues, I think some sort of intervention is still needed and probably will happen.

 

[IES99]

Re: Oil Futures.

"It is important to know that this market (farm) was self regulating without government regulation."

I guess that with corn, wheat, hog bellies, the price would go up and down because there was always a way to produce more if the price went up and less if the price went down: natural sine wave based on supply and demand. However, the current idea that "there is only so much oil in the world" makes the psychology different. More oil cannot be created, just pumped. Therefore the bet (right or wrong) is that the pressure on price will always be upward. There may be manipulation, or it may be as simple as betting that the price of oil will alwaus be higher than what I have to pay when the contract comes due.

 

[Vlad D Impeller]

Re: Oil Futures.

EVERYBODY benefits from the oil business. If there was no benefit to the buyers, they would not buy at the current prices. People continue to buy, so logically, they're still benefiting.

When the benefit is gone, either the prices will go back down, or the oil companies will go away. As long as there is a transaction, there is benefit on both sides...

If people don't like the prices that they're paying for oil, they need to find other energy options...

Sure! Let them eat cake. History often repeats itself to the most arrogant among us.

 

[jbjennings]

Re: Oil Futures.

The most amazing part of this is that there are only 2 powers that do try to regulate and lower the prices.One is the Government of Dubai and the other is Exxon Mobil.

I think Exxon Mobil would be crazy to try to lower the price of oil. Moreover, their stockholders would go ballistic. I do think they're trying to regulate it, though---in their favor. I can't blame the oil companies totally, they are in business to make profit.

The price rising because of rising demand due to China is a bunch of bunk. Demand is decreasing, especially in the last few years due to the incredibly high price of oil. But yet prices just keep going up and up. (20cents yesterday!!!)

Someone's definitely manipulating the market! To me, it seems simple that the seller sets the price, not the buyer. And the seller is GETTING the price! Why shouldn't the seller keep trying for the higher price? Heck, they're making a killin'!!!!
Just my thinking,
JBJ