Re: Contradictory Facts

On Sep 21, 2:23 pm, vey <jun...@xxxxxxxxxxx> wrote:
r15...@xxxxxxx wrote:
On Sep 21, 12:45 pm, vey <jun...@xxxxxxxxxxx> wrote:

I've given you several cites that say that there is no shortage. That's
what people mean when they say that the prices are "deviating from the
fundamentals." Fundamentals say shortage = price goes up and glut =
prices go down. But right now we have neither a shortage, nor a glut, so
why are the prices going up and up? Up forty-three percent just in the
last year and no one seems to know why.

By no one, I mean people that are familiar with the oil system, not
environmentalists, or people with an ax to grind, or reporters that
repeat what they heard in Econ 101 long ago.

You are incorrect. Lots of people know why. It just doesn't jibe with
the disinformation that you have been fed by the oil industry and oil
producing governments, that the global production peak is at best
decades away.

It's true that there is a great deal of volatility in the market right
now. Any little glitch (like mysterious bombing raids by Israel into
Syria) will send prices bouncing upward, as speculation rises that
there may be a major disruption to a supply that is already extremely
tight. There is no excess capacity that could be pumped into the
market to calm prices; the Saudis can't help us much with that
anymore, unlike in the past.

Things are different now. Prices reflect that and will continue to.

Robert

When speculating becomes a significant part of the market (any market),
prices take on a life of their own. Two recent examples of this was the
dot com craze and residential real estate run up. You didn't see this?
People were "investing" in businesses that weren't making any money and
then they "invested" in houses paying twice what they were worth. That's
not investing, that's gambling and they were gambling with borrowed money.

And one thing is sure, excessive speculation results in crazy increases
and crazy decreases. These wild swings hurt everyone, not just the
people gambling. Crazy increases means that everything costs more.

Oil Price Futures and Peak Oil - Do Any Peak Oil Fans Actually Believe
What They Preach? Only One Appears To

http://economics.about.com/b/a/257185.htm

A reader by the name undergroundman left an interesting comment about
why oil prices are going to skyrocket and on findings of experts such as
T. Boone Pickens. To his credit, Mr. Pickens has bet that high prices
will stay high and has made a lot of money doing so:

If an investor had put up $1 million at the fund's inception in
1999, the stake would be worth a whopping $28 million today. When hedge
funds get it right, they really get it right!

undergroundman argues that he doesn't buy oil futures because:

and the long-term events that I'm talking about may not come to
fruition for two to five years, or even a decade.

This does not make sense to me at all. Why not just buy futures for
delivery dates that are 5 to 10 years away? These contracts are sold at
Nymex.

Again, I issue this challenge to any peak oil fan:

1. If the peak is just around the corner and exceedingly high prices
($200 dollars a barrel? $300? $400?) are coming our way, then why are
the prices for oil futures and oil call options so low?

2. Are you buying oil futures or oil call options? If not, why not?

3. Why did peak oil supporters in the 1970s tell us that the oil
supply would run out in the 1980s and 1990s? Why were they wrong then?
Why are you right now? What's changed?

Listening to a peak oil fundamendalist who doesn't buy oil futures makes
about as much sense as taking stock tips from someone who has never
bought or sold a share. The only fundamental test is to see if people
put their money where their mouths are. If they don't, you should be
suspicious.

[snip]

The fundamentals of oil don't seem especially good to me:

1. Lots of speculation that PEMEX production has peaked.

2. The North Sea is running out, with production dropping 10% in 2004
and 12.8% in 2005 according to Wikipedia (uncited, but I've heard these
numbers before).

3. Venezuela has nationalized nearly all (or all at this point?) oil
production, which means production will most likely fall - unless you
believe in the efficiency of the state.

The evidence that we've hit a Hubbert Peak worldwide is stacking up, but
there's a lot of long-term uncertainty that I don't think can be priced
in. I'm not sure if we'll hit $100 oil - that will be dependent upon
technology, policy, oil sands, and too many other factors. And I really
don't buy the idea that all the people trading oil futures are doing all
the required research to come up with really good estimates, nor do I
think they are capable of it. You may point to the organizations doing
the work for them, but hey, Moody's was doing the work on CDOs, and look
how that turned out.

[snip]

The ultimate question is this, however: how did the market miss this
mortgage lending disaster, and, considering how bad they (hedge funds,
traders) got that, what makes you think that they've got oil pegged
right? And I don't think you can slide by with any efficient market crap
on that one.


If I had enough money to play around with, I might trade oil futures.
But it's an unbelievably volatile market. Traders love volatility of
course. A smart trader will ride a volatile market down as well as up
and make a killing both ways. Bet wrong and you could lose thousands
in a single day, so it's probably not a good venue for amateurs.

Those who buy in now and hope the price will simply march up from here
are likely to be disappointed as they watch the price fall back into
the 70's for a time, or lower. A more complete collapse of the housing
market could spark a global recession and a corresponding drop in the
demand for and price of energy. But in the long run, 50 dollar oil is
a thing of the past and 100 dollar oil is a thing of the future. The
only questions are how high will it go, and are we completely and
utterly screwed?

Personally I think high oil prices are good. The higher they are now,
the better off we will be a few years from now when these prices may
seem incredibly cheap.

Robert

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