Re: OT: The Oil Market - What's Really Going On Here?

lawhonac@xxxxxxxxxx wrote:
Various oil industry pundits (and other commentators) have been
talking all morning on Bloomberg TV and CNBC's "Squawk Box" about the
ever rising price of a barrel of oil which has now topped a record
high of $135.00 a barrel. Some of these "experts" are predicting that
crude prices are headed even higher - to as high as $170 to $200 per
barrel.

Boone Pickens says it's a simple case of supply and demand - there is
(approximately) 85 million barrels of daily production while daily
demand is running at 87 million barrels. (Where the 2 million barrel
differential is coming from is a good question.) So, according to Mr.
Pickens, high demand is what is driving surging prices.

One of the commentators on CNBC pointed out that year-over-year the
price of a barrel of oil is up 100 percent - the price of a barrel of
oil has doubled over the past year. I'm having trouble understanding
how that can be the case since demand for the oil has not doubled
during the same period. (Correct me if I'm wrong, but aggregrate
world demand for oil has not increased to over 100 million barrels per
day - and demand has certainly not doubled in the past year. Not only
that, but demand in the world's largest oil consuming market - the
United States - is probably falling right now.)

Ken Lay, the deceased former Chairman of Enron, and his jailbird CEO/
President, Jeff Skilling; proved that executives of energy companies
will not hesitate to "game" the market and screw consumers. A recent
article in BusinessWeek magazine advanced a theory that, in the
aftermath of the financial markets meltdown, speculators in the
commodities markets - especially the oil futures market - have a
strong financial incentive to hype all this paranoia and scare talk.

Given all this, one has to wonder if what is really pushing the price
up is the action of these speculators? Even if demand is up somewhere
in the neighborhood of 2.5 percent, (from 85 to 87 million barrels a
day), how does that justify a 100 percent year-over-year price rise?
I wonder if hedge fund managers and other greedy bastards who took it
on the chin when the credit markets collapsed are trying to game the
oil market in order to make up all the money they lost when Bear
Stearns went in the tank? That is what the BusinessWeek article
implied might be going on.

Alan C. Lawhon
Huntsville, Alabama

This has to do with the LINE crossing of demand exceeding supply.

When demand is below that line, prices tend to Decrease to the minimum amounts producers will take to meet the market demand.

When demand is ABOVE that line prices will increase until the demand falls below that line.

If we cross that line in a way that is hard for supply to cut back, then speculators rush in and start creating a bubble market to see just how high that dollar value is.

The exact same thing happened with Enron, though in that case, the supply demand line was manipulated so the market would spike.

Airlines are trying to do the same thing, by cutting flights into the largest historical demand. Creating shortages so that they can raise rates.

This doesn't affect the last item but the entire market place.

The good side of speculators is that they provide grease and honesty when the market is working well.

The bad side of speculators is that they will rape the marketplace when it goes out of whack. Everybody loves the speculator until they start making money then they hate them.
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