cnbc: Killer Combo of High Gas, Food Prices at Key Tipping Point

[SonOfWashington]

Time to make sure your guns have plenty of ammo.

MSF? :paranoid:

[alexey]

(Note: I'm not saying that speculators don't affect price. I'm saying that rising demand from the developing world, dollar devaluation, and the increasing difficulty of extraction are the fundamental forces driving prices, and speculation is merely magnifying those forces. An additional factor is the unrest in the Middle East. You say it doesn't affect supply at all, but anyone who needs oil has to hedge against the possibility that the unrest will spread further. And we got a bit lucky with Libya - while we don't get their oil, Europe does, and that can still affect prices.)

US is the biggest consumer of oil, we are still effectively running an energy policy of climate change denial, and our political situation makes changes appear unlikely. Oil seems like a good bet.

How do you determine relative effects of fundamental forces and speculation?

[twa]

MSF? :paranoid:

Naw, that was every day ending in Y for him...I miss him

[DRSmith]

I wonder how the coming massive sell off of our debt by China and Japan will play out?

Hey sell the debt and ruin a large consumer market

[twa]

Hey sell the debt and ruin a large consumer market

I'm more curious as to who will buy it,the decision to sell is done

Gonna put a crimp on Bernanke's game

[DRSmith]

I'm more curious as to who will buy it,the decision to sell is done

Gonna put a crimp on Bernanke's game

China needs to US

Japan needs the US

The IMF can bail them out and once taxes are raised to get rid of the deficit and pay down the debt things will get better.

Too bad people did not care about the Drbt during the last presidents reign, no one cared how the wars were paid for or where the money for tax cuts came from or the stimilus checks that were sent out.

[Hubbs]

US is the biggest consumer of oil, we are still effectively running an energy policy of climate change denial, and our political situation makes changes appear unlikely. Oil seems like a good bet.

Yes, the world needs oil and we need more than anyone else. Glad we've established that.

How do you determine relative effects of fundamental forces and speculation?

I'll put it this way. Did real estate speculation make the housing bubble worse? Yes, although it can certainly be argued that once a bubble gets going, the only way it can end is after speculation has been taken to such extremes that there isn't any ammo left to keep pushing prices higher. In other words, the collapse would have been pushed back a few years if flippers hadn't been quite so prolific. But did real estate speculation cause the housing bubble? No.

[alexey]

I'll put it this way. Did real estate speculation make the housing bubble worse? Yes, although it can certainly be argued that once a bubble gets going, the only way it can end is after speculation has been taken to such extremes that there isn't any ammo left to keep pushing prices higher. In other words, the collapse would have been pushed back a few years. But did real estate speculation cause the housing bubble? No.

Speculation shaped the bubble. How can you reduce this to a question of causality?

[Hubbs]

Speculation shaped the bubble.

Do explain.

How can you reduce this to a question of causality?

Erm... it seemed to me that we were talking about the causes of higher oil prices. I believe you asked me about the effects of... well, I presume the causes, anyway... a few moments ago.

[alexey]

Speculation shaped the bubble.

Erm... it seemed to me that we were talking about the causes of higher oil prices. I believe you asked me about the effects of... well, I presume the causes, anyway... a few moments ago.

I doubt that you need an explanation of how a price bubble can be shaped, or even created, by people who buy things in order to sell them later and make money.

You said that speculation "merely magnifies these forces". That's a very general statement. Can you provide more detail? What portion of the $4 a gallon gasoline price you think is due to speculation?

[Thiebear]

This states our demand is up.

our production is even

our import is down

=

higher cost.

Thu Apr 21, 2011 8:40pm IST

* U.S. oil demand growth on same pace with global demand * Jump in pump prices does not keep gasoline demand down * U.S. monthly oil output rises for first time in 2011

(Adds demand for petroleum products, supply, adds table) By Tom Doggett WASHINGTON, April 21 (Reuters) - U.S. crude oil and

petroleum product demand jumped 7.3 percent in March from a

year earlier as rising gasoline prices failed to cut into fuel

consumption amid the improving economy, the American Petroleum

Institute said on Thursday. March's total petroleum deliveries, excluding exports,

averaged 20.462 million barrels per day, up 1.392 million bpd,

from a year earlier, according to the API's monthly supply and

demand report. Deliveries, which are a good indicator of demand, are

calculated by API to reflect petroleum products moved from

refineries and bulk storage to wholesale and retail suppliers. "Strong deliveries continue to indicate growth in the

economy," said API chief economist John Felmy. "The increase is

especially significant given the potentially depressing effect

of rising prices on fuel demand and amid some prognostications

that forward growth in the economy may be more modest than

hoped." API's demand figure for March is much higher than the U.S.

Energy Information Administration's preliminary estimate of

fuel consumption at 19.112 million bpd for the month. The EIA

issues its revised demand number for the month at the end of

May. Despite higher prices for crude oil and refined petroleum

products due to the unrest in the Middle East and North Africa,

U.S. fuel consumption remained strong, according to API. "U.S. petroleum demand growth seemed to mirror the global

demand growth for oil and refined products," the trade group

said. U.S. gasoline demand for March rose 6.1 percent to 9.324

million bpd, even though the average pump price increased 22

cents a gallon during the month. Demand for distillates, which included heating oil and

diesel fuel, skyrocketed 11.3 percent to 4.277 million bpd. Jet fuel demand in March rose 2.2 percent to 1.479 million

bpd, while residual fuel demand fell 4.6 percent to 520,000

bpd. On the supply side, U.S. monthly crude oil production

finally increased, rising a slight 0.3 percent to 5.547 million

bpd. However, the drop in January and February production

offset the gains in March, leaving output down 0.2 percent in

the first quarter compared to a year earlier, API said. Crude oil and petroleum product imports averaged 11.3

million bpd, down 2.5 percent from a year ago. Total imports in March accounted for 54.5 percent of U.S.

oil demand, down sharply from 60.8 percent a year earlier. The following summarizes key data from API's monthly

[mcsluggo]

SPECULATORS have bought 15 per cent of the world's supplies of agricultural products such as sugar, wheat and cocoa, which has driven up food inflation, a new report has shown.

Hedge funds and other financial institutions have ploughed a record £76 billion into basic food stuffs, more than double the level three years ago, Barclays Capital said.

The price of food has soared to levels not seen since 2008, when food riots swept the developing world.

http://business.scotsman.com/fooddrinkagriculture/Speculators-driving-up-food-inflation.6757281.jp

And you see stories like this around the globe

care to speculate on which factor is causing which ?

personally, it seems much more likely that the prospect of high commodity prices and volatility is driving speculators into the market... no?

[alexey]

This states our demand is up.

our production is even

our import is down

=

higher cost.

You're describing the easy part. Speculation drives prices up also. Its impact is harder to pin down.

[twa]

I certainly hope it is speculator driven.....which means the bubble will pop.

[Thiebear]

You're describing the easy part. Speculation drives prices up also. Its impact is harder to pin down.

So describe the speculation part?

[zoony]

Obviously inflation is a concern right now, but at the same time, inflation is a sign that the economy is improving. The Fed will need to raise rates to temper inflation while not squashing the recovery. It will be a tight rope walk for sure.

When we were experiencing deflation despite 0% prime rates, that was a bit scarrier.

And Hubbs, do you do anything except piss and moan about the fed?

....

[Destino]

For oil, or dollars?

(Note: I'm not saying that speculators don't affect price. I'm saying that rising demand from the developing world, dollar devaluation, and the increasing difficulty of extraction are the fundamental forces driving prices, and speculation is merely magnifying those forces. An additional factor is the unrest in the Middle East. You say it doesn't affect supply at all, but anyone who needs oil has to hedge against the possibility that the unrest will spread further. And we got a bit lucky with Libya - while we don't get their oil, Europe does, and that can still affect prices.)

Wait, you call that speculation?

That is absolutely speculation. I don't know if you've ever bought and sold stocks yourself but the problem with buying and trading oil for instance is that anything can trigger a major move. This type of movement looks nothing like that caused by supply and demand which is slower to move in either direction. When oil is traded on speculation and news of unrest breaks it triggers a frenzy of movement with people betting the price will rise. The market over reacts to that and prices go far higher than they should. When things get better a major player will bet short and that will trigger another movement in the opposite direction.

This is what creates the volatility we've seen recently. Where suddenly the price at the pump varies wildly from month to month. This needs to stop. There is no good reason for the financial services industry to be allowed to play with essential commodities in this fashion. They have plenty of ways to make money without behaving like vegas on things that literally create havoc in multiple business sectors.

Supply and demand can't be avoided and oil will eventually peak. The crap we are seeing right now however is a bunch of traders gambling with the lives and livelihoods of literally BILLIONS of people on the planet.

[Thiebear]

i don't doubt the posters on here.. but could we link to an actual usatoday article or something.

i've read in the United States you can only deal in something you 'use" but other countries do not?

How much per galon of gas is speculation? its been 2.60 on the east cost sincd 2009... we can't figure out the speculation in 2+years for it to go up only a dollar.

[alexey]

So describe the speculation part?

Dont be lazy.

www.google.com

"oil speculation"

---------- Post added April-25th-2011 at 12:30 PM ----------

i don't doubt the posters on here.. but could we link to an actual usatoday article or something.

i've read in the United States you can only deal in something you 'use" but other countries do not?

How much per galon of gas is speculation? its been 2.60 on the east cost sincd 2009... we can't figure out the speculation in 2+years for it to go up only a dollar.

http://www.foxnews.com/story/0,2933,166038,00.html

Okay, OPEC is producing at levels not seen since the early 1970s — and that doesn’t even include Iraq, which is struggling to achieve pre-Gulf War production levels, but will soon be there. Furthermore, global production still outpaces consumption, even accounting for China’s unsustainable economic growth rates.

In short, there is nothing in that equation that says oil should cost what it costs today. Nothing! With one exception — speculation.

The New York Mercantile Exchange is the preeminent energy futures market in the world. It has become the price-setting mechanism for oil. Even OPEC refers to NYMEX when it sets its price targets. Right now it costs exactly $3,375 for anyone to control 1000 barrels of crude oil valued at roughly $67,000. Three grand to control nearly seventy!

[mcsluggo]

these types of conversations always perplex me....

first of all people are blending two types into one "category": speculator. Most "speculators" are just MD5. They've got some sort of information that product/stock/commodity X is hot, and is only going to get hotter for the near future... they saw what happened LAST time, with product/stock/commodity Y, which they THOUGHT about buying but never pulled the trigger. They are NOT going to be left on the sidelines THIS time.

So ... Prices go up.... lots of schlubs see rising prices as an indication of future trends and jump on the bandwagon and buy buy buy buy. this temporarily pushes the price higher until SOMETHING happens to chang the common information on X, and suddenly EVERYONE knows that X is yesterday's news, and EVERYBODY wants out of it. This is USUALLY the actual defining type of speculation, but it isn't the sinister villian most people complain about --- it is herd behavior, and yes, it can amplify market fluctuations.

but I think what MOST people that complain about speculators are talking about are some sort of pro-active market manipulators (the Hunt brothers, or Enron in the California energy market, or the crusty old farts in Trading Places). But THESE guys, USUALLY make money on a really short fluctuation of a just few pennies--- the enron in Califronia cases require some seriously effed up markets/market controls, and just don't happen all that often. And when they DO happen it is in a market that is somehow isolated from the massive tidal waves of COUNTER speculation that would otherwise kill this sort of manipulation.

Capital is liquid: and the oil markets are HUGE and fairly open. It wold be pretty hard to explicitly manipulate these markets against their fundamentals for any period of time. Herd mentality? sure that happens EVERY time, and there will be people trying to capitalize on theis by trying to time the inflection points. But for every winner there, there is his mirror image loser.

[alexey]

\it isn't the sinister villian most people complain about --- it is herd behavior, and yes, it can amplify market fluctuations.

Yeah, and there is nothing wrong with people trying to make money. Perhaps some ways are more ethical then others, but that's a discussion for a different day.

The system is supposed to be balanced between entities that look out for the public good (e.g. the US Government) and entities that are out to make money. An unbalanced system provides opportunities to make money by doing things that are detriemental to the public good... and I percieve the system to be unbalanced at the moment.

[Thiebear]

Dont be lazy.

www.google.com

"oil speculation"

---------- Post added April-25th-2011 at 12:30 PM ----------

http://www.foxnews.com/story/0,2933,166038,00.html

Don't be lazy , I linked what i said.

You just put out a throw away sentence and say don't be lazy.

How much of the 4$ is speculation vs. regular operations?

I thought i had just posted: We are demanding more than was being produced this time last year. Shouldn't that increase the cost?

And: If its been 260 for several years would that make a portion of the 1.40 speculation?

[PeterMP]

Dont be lazy.

www.google.com

"oil speculation"

---------- Post added April-25th-2011 at 12:30 PM ----------

http://www.foxnews.com/story/0,2933,166038,00.html

I think the thing that people miss in these types of conversation is that oil isn't driven by normal supply and demand.

Oil is essentially an inelastic commodity.

The oil companies can get almost whatever they want for their product irregardless of how much OPEC pumps.

If the oil companies deem it is in their best interest to keep oil prices low, they will do so. If not, they won't.

I think oil companies for a long time (i.e. essentially since the oil crisis in the 1970's until the early 2000's) thought it was in their best interest to keep oil prices low for a combination of reasons (e.g. keep pressure to finding alternatives low). Now, at least a few of the bigger ones have the opposite opinion so that drives up price.

I think prices were going this way before the economic crisis. I think they figured at that time causing a massive and global depression wasn't in their interest so they eased their foot of the gas. Things have improved and I think there is also concern that longer term a global economic crisis is inadvertibale (without a source of energy that is much cheaper than oil MUST be) so we're seeing an increase in oil.

I think speculation has little to do with it. I think that it is much more companies charging what they can for their product, and supply has very little to do what they can charge, and demand will have to come WAY down until it has much to do with it.

[Destino]

WASHINGTON, Jan 18 (Reuters) - The U.S. futures regulator hopes to fully implement its biggest crackdown on commodity market speculators by early 2012, a year after the deadline set by lawmakers, it said in a filing that gave the most detailed legal argument and timeline yet for the controversial plan.

In the full text of its 100-page proposal, which must overcome significant internal skepticism before it can be finalized, the Commodity Futures Trading Commission also clarified an interim plan demanding much more information about the positions held by big traders in energy and metals markets, saying it would affect some 140 entities on a monthly basis.

The trading limits, designed to prevent price distortion from "excessive speculation," will be open for public comment for 60 days once the filing, now on the CFTC's website, is published in the government's Federal Register.

http://www.reuters.com/article/2011/01/18/embargoedfinancial-regulation-limits-idUSN176560920110118?feedType=RSS&feedName=everything&virtualBrandChannel=11563

Would be nice if regulatory agencies would get around to doing their jobs.

[gbear]

I think people blaim speculation because it quickly magnifies the effects of anything beyond the original reason. I think the trends are probably true to form, and if you look over time, the trends are probably justified or at least justifyable.

Where we are now is a world economy where there is an increasing demand and the expectation of future demand increasing (original cause). This has lead to some speculation in oil and for what it is worth in alternative energy sources as well. If it is $70 today, I know tomorrow will be 70 + x and the day after will be 70 +x+y. That logic sort of holds when day 2 is 71 with an expectation tomorrow will be 71+y. The problem comes when somebody starts guessing for 30 days out. Once the future number is agreed apon by a seller and a buyer, there is backwards preasure to fill in all the gaps. Eventually, people start taking bets on where they can assign the profits. Is it day 4 or 25? But on "day 4" somebody prices out anothe 30 day contract and now there are two competing story lines for how to calculate "day 10." This of course brings everything back to the original premise of costs are going to go up. Where you hit the bubbles is when the original day 30 comes and people are only willing to pay a certain amount. Eventually the speculation on futures leads to a price where things are unbought and inventories spike which drives the prices down...and again people latch on to the I can make money by buying/selling now theory. It's true one can buy or short based on the general wave of comodities. Now all of this trading is automated and done by computers which makes the curves steeper. When one says shaped the bubble, I suspect it is a true statement. It seems to have compressed the bubble.

It's probably worth noting for the buy and hold trader, the compression of the waves hasn't seemed to have changed the fundamentals over time. Those who bought oil stock low seem to be doing well. The one caveat I have in a lot of those is IMO is the only one I know of which pays a dividend so you increase in portfolio value is based solely on what others are willing to pay for the stock.