Crude Oil Bubble and Burst

[Speedy1975]

http://www.ritholtz.com/blog/2009/01...l-speculation/

For those that missed this story on 60 Minutes Sunday January 11, 2009.

People should go to jail for this one.

Discuss.

[The_Blur]

This is part of the free market. You have stocks and trades, and people can make bets on them. You may as well completely outlaw gambling of any kind.

Speculators can make many times the price of a stock on a trade. They can also lose the same amount, so their job is one of many risks. Many of them provide the financial industry with funds that help them operate because they invest their resources.

Eliminating speculation in the US will not end speculation. American companies that make millions per trade will leave the US only to continue their work in Tokyo, London, or some other stock exchange. Even if the investors stay, the taxable money from companies that have to report earnings will go overseas.

Ultimately, there is little that can be done about speculation if the US is the only economic power to limit it. You may as well outlaw the stock market, casinos, or betting on sports. Any proposal to kill speculation will fall flat. Average Joe simply doesn't understand the complexities of this type of investment.

[Mr. Wyndham]

Enron?? They've got to be kidding.....

Regulations....never thought I'd see them as a good thing. Thanks for the link, Speedy...I have to say, this sheds more light on the situation than anything I've read to date...Private speculation - unbelievable!!

[Caliman93230]

this is why we need gov to step in an protect the nation. oh wait sorry oil is the bush business never mind gov we where f#*#*.

[Speedy1975]

Originally Posted by The_Blur

This is part of the free market. You have stocks and trades, and people can make bets on them. You may as well completely outlaw gambling of any kind.

Speculators can make many times the price of a stock on a trade. They can also lose the same amount, so their job is one of many risks. Many of them provide the financial industry with funds that help them operate because they invest their resources.

Eliminating speculation in the US will not end speculation. American companies that make millions per trade will leave the US only to continue their work in Tokyo, London, or some other stock exchange. Even if the investors stay, the taxable money from companies that have to report earnings will go overseas.

Ultimately, there is little that can be done about speculation if the US is the only economic power to limit it. You may as well outlaw the stock market, casinos, or betting on sports. Any proposal to kill speculation will fall flat. Average Joe simply doesn't understand the complexities of this type of investment.

I'm all for free market, however most things are regulated for this very reason. This type of oil trading was deregulated and look what happened to the avg Joe. We got screwed. As part of that deregulation, you no longer have to hold the commodity you've purchased, making it even more of a volatile situation. Not a good thing when we're talking about a natural resource people rely on.

It would be like a company finding the cure for cancer. Then saying you can only have it for $1M US per dose and you need 4 doses to be cured. I guarantee regulation would prevent something like that. Well, in this case people were choosing gasoline to get to work, or food to eat. Same same as far as I'm concerned.

OH, and I fully understand commodity trading as well as hedge bet trading. I actually looked into it when oil dropped down to $35 a barrel a couple weeks ago. Yeah, you can loose your butt, however the companies involved had SO MUCH buying power they could literally affect the price guaranteeing a significant profit. THAT is what should be regulated to insure things remain "free market" as you say, as that no longer was at that point.

[Caliman93230]

I know this is going to make people mad but lets face it the gov f*** us up big time by letting all this shit happen. too dam greedy imo. many people won and loss, more loss than won. And did we learn from this yes is there something going to be changed maybe. sure we are are paying for it though.

[The_Blur]

Originally Posted by Speedy1975

I'm all for free market, however most things are regulated for this very reason. This type of oil trading was deregulated and look what happened to the avg Joe. We got screwed. As part of that deregulation, you no longer have to hold the commodity you've purchased, making it even more of a volatile situation. Not a good thing when we're talking about a natural resource people rely on.

It would be like a company finding the cure for cancer. Then saying you can only have it for $1M US per dose and you need 4 doses to be cured. I guarantee regulation would prevent something like that. Well, in this case people were choosing gasoline to get to work, or food to eat. Same same as far as I'm concerned.

OH, and I fully understand commodity trading as well as hedge bet trading. I actually looked into it when oil dropped down to $35 a barrel a couple weeks ago. Yeah, you can loose your butt, however the companies involved had SO MUCH buying power they could literally affect the price guaranteeing a significant profit. THAT is what should be regulated to insure things remain "free market" as you say, as that no longer was at that point.

I don't want to come off as someone who wants a completely free market either. I like your perspective.

In my opinion, the free market is like a polygon, and the center of the polygon is full of great parts of the market—the essence of business, professionalism, and quality products and services. In the corners, you have the sketchy evils of the free market. What public policy, and thus politicians, must do is eliminate the evils of the free market to protect both consumers and business professionals. As a result, products that are societal dependencies are necessary evils that must be regulated while products that are not necessary or contributions to the democratic good should be removed from the market with strong public involvement and support. The ultimate goal of this perspective is to make a round community with less rigid edges and, therefore, less of the evils that make a capitalist or mixed economy as problematic as Marx envisioned it. Any capitalist, as a side goal, wants to prove Marx wrong, and this approach very well eliminates the evils that Marx claimed are so central to capitalism.

[Superman09]

Speculators did not cause this problem nor will regulations solve it. To those who want to blame "big oil" and the Bush administration go look into OPEC. OPEC has way more control on the price of oil than speculators could ever dream of.

[Mr. Wyndham]

Then why is OPEC up a creek right now at 40bucks a barrel? If they truly caused the hike, then they can sure as heck cause it again and magically raise the price for themselves. But it's not happening......

I'm not attacking your post by any means...but I fully believe in the speculators theory. Look at what they did to the rest of Wall Street, and the country. It sure doesn't seem out of place for them to botch things up in the name of money....

[Xanthos]

Originally Posted by Caliman93230

I know this is going to make people mad but lets face it the gov f*** us up big time by letting all this shit happen. too dam greedy imo. many people won and loss, more loss than won. And did we learn from this yes is there something going to be changed maybe. sure we are are paying for it though.

I don't think the govt. was the main cause, but I don't like it when speculator's mistakes cause damage to the common man's financial situation. That's why I think ALL mass market items should be fixed price. Like cars. Or oil.
- Xanthos

[KILLER74Z28]

Great find, lots of good information. WHAT A BUNCH OF CRAP... Everyone needs to watch this video.

[Speedy1975]

Originally Posted by Superman09

Speculators did not cause this problem nor will regulations solve it. To those who want to blame "big oil" and the Bush administration go look into OPEC. OPEC has way more control on the price of oil than speculators could ever dream of.

Incorrect. 60 minutes did a previous story with the leaders of OPEC as well which as just as informative and eye opening. With R&D into future oil fields they need to get $55 a barrel to break even (if you believe what they say). They're losing quite a bit of money right now and could just shut off the tap if that was the case. I thought the same way you did previously though so I understand you're thinking. You can Google the OPEC story from 60 minutes as well to see what they had to say. They're claim is that speculators were also to blame (this was back in Dec when the story aired).

They've cut production 2 or 3 times now and yet the price is still falling due to decreases in demand. You can go to www.nymex.com and track the commodity "CL" (crude oil) and see it's price in real time on the trading floor. As I type this it's $36.51 per barrel. What sets prices at the pump is "RBOB" which is gasoline which can also be tracked at www.nymex.com.

Edited: Here's the OPEC Story:
http://www.cbsnews.com/video/watch/?id=4653109n

[Superman09]

I have seen the 60 minutes OPEC story most of it is shady at best to make them look like good guys. They have cut back supply several times but prices keep dropping because they are still supplying too much. Say speculators tomorrow said that at a million barrels a day it would trade for 300 dollars and at the same time OPEC said they would up supply by 5 millions barrels a day what would the price do? Go down of course. And as far as their brake even price is more like 35 bucks a barrel. The oil industry survived for a very long time with the prices between 30 and 50. They would be doing quite well at 55 a barrel. OPEC could single-handedly ruin the US if it felt like it but then they would have nobody to sell their oil to. So right now that are just positioning and playing around so people don't get too made at them.

Don't worry Dragon I know you aren't attacking me. This is just a subject that I get alittle touchy on. My dad has been in the oil industry since '77 so I have alittle bit more knowledge then the average person and I hate to see people blame "big oil" based solely on what 60 minutes says.

[ArcAngel]

Superman09 I agree with you completely..ps 60 minutes please....and to make a barrel of oil the cost is a lot lower than 30....
http://www.africanoiljournal.com/11-...oil_prices.htm
http://www.opinionjournal.com/extra/?id=110006228
enjoy boys and don't believe everything our liberal media tells you