Wednesday, September 10, 2008

Speculators Pulled 39 Billion From Oil Futures

Returning to fundamentals, the peak oil speculators have been washed out: Oil Investors Pulled $39 Billion in Futures Contracts.

Sept. 10 (Bloomberg) -- Commodity index investors, blamed for record oil prices, sold $39 billion worth of oil futures between a July record and Sept. 2, causing crude to plunge, according to a report released today.

The work by Michael Masters, president of the Masters Capital Management hedge fund, blames investors who buy and hold an index of commodities for driving prices to records and for their subsequent drop. It comes a day before the U.S. Commodity Futures Trading Commission is set to discuss its own study of energy trading with a congressional committee.

Masters testified three times before Congress this year, arguing that limits on traders would cut oil prices to $65 to $70 a barrel. He has been cited by lawmakers who introduced at least 20 measures to curb speculation. Congressional pressure on the CFTC to step up enforcement and restrict anonymous trades has pushed index traders out of their positions, Masters said.

``I don't think it's just coincidence that the money came out after the pressure was put on these folks,'' Masters, who wants legislation that would set limits on index commodity holdings, said in an interview.

Crude oil futures surged to a record $147.27 on July 11, an increase of 53 percent for the year, on the New York Mercantile Exchange, then fell 26 percent to $109.71 on Sept. 2. Oil fell $1.24, or 1.2 percent, to $102.02 today on the Nymex.

``The speculators that drove prices up basically deflated the bubble,'' said Fadel Gheit, director of oil and gas research at Oppenheimer & Co. in New York. ``They said, `That's it, the game is over. We are going to bet on another horse.'''
Not only were they wrong about geology but they lost money in the process. Now we can pick up RIG, NOV, and PBR on sale from sellers like Ospraie.


Anaconda said...


The evidence is substantial that speculators manipulated the price of oil to record highs sending the world economy into a stall. Whether the economy regains proper lift or falls into a spiral depends on the response of policy makers.

Even an oil industry trade paper, offers an editorial by Perry A. Fischer, Editor, documenting the increase in speculation in the world oil market.

Should speculators be able to "bounce" the markets to artificially create a price surge (or crash), not connected to supply and demand equilibrium?

Those that deny the role of speculation in causing volatility in world markets are being intellectually dishonest.

The question is this: Does the benefits of this type of 'capital flow' outweigh the risks and volatility in markets?

There is no easy answer.

This writer supports a free market, but is concerned that "free wheeling" speculation is causing damaging volatility in many world markets, not just the oil market.

The free flow of capital sends strong signals to private and public enities whether their business or political decisions are sound economically.

This performs a useful function, both in encouraging and allowing the highest and best use of limited capital and also curbing practices that in the long run damage a private or public enity.

In the long run, it's not in the general market's interest to see a string of economic basket cases, whether private or public.

Although, the market in the short run is agnostic towards success or failure of individuals.

Success and failure must be recognized in the market.

That's the 'freedom of the market'.

Policy makers must balance competing interests because the over all goal is for an orderly, stable, and dynamic market.

The oil market is an example of the necessity of achieving the right balance to arrive at the above goal.

One thing is clear: Less speculation is better than more speculation if the price is artificial volatility in world oil markets.

thetruthisoutthere said...

The recent oil prices, imo, represents one of the biggest scams in history.

Quantum_Flux said...

Centia Is producing n-alkanes from Biodiesel using some sort of pressure vessel, which probably requires much smaller pressures than say FeO + CaCO3 + H2O reactions....

n-alkanes have been successfully produced from Free Fatty Acids (FFAs). NCSU has also developed and demonstrated a patent-pending burner that can safely burn the glycerol generated from Step #1, using the resulting heat as a thermal source back into the process. Figure 3 shows the results from biogasoline testing where the objective was to crack n-alkanes to resemble the carbon number distribution of traditional unleaded gasoline. This was demonstrated at a Step #3 mass conversion efficiency in excess of 90% and was not being optimized.