CNN (Bernie Sanders): Wall Street greed fueling high gas prices

[twist]

It is possible, therefore, for speculation to have some effect, but be overrated by people that seem to want to suggest that it is the main problem.

Speculators that do not actually use any of the oil are now nearly 70% of the market.

The original idea behind allowing speculation is to smooth the demand and supply relationship and ease the market by adding more actors into it to properly value the commodity.

False. At 70% of the market the investors are creating an artificial demand and essentially just tacking on a middle man in the process by bidding up the commodity.

http://www.mcclatchydc.com/2011/05/13/114190/speculation-explains-more-about.html

[twa]

Yep, and I would question the shutting of refineries due to lack of demand bit.

Shutting down because of high operating costs,limited feedstock(certain types of oil) and cheaper alternatives elsewhere would be more plausible.

Those pesky profit margins are a ***** if you don't pass on the costs

[Hubbs]

Now i have to wait 15 minutes and come back and read this post to make sure it actually makes any sense at all.

Holy crap, I'm not the only one who sometimes does this? :ols:

[mojobo]

how did gas spike down to 1.46 a month after the meltdown in 2008?

It was a spike in the dollar relative to all other goods. When there is a massive deflationary threat the thing that becomes scarce is the dollar, and like a previous poster said one of the roles of speculators is to reserve goods that become scarce while they are in a greater supply.

[twist]

It was a spike in the dollar relative to all other goods. When there is a massive deflationary threat the thing that becomes scarce is the dollar, and like a previous poster said one of the roles of speculators is to reserve goods that become scarce while they are in a greater supply.

The dollar would have had to spike by 270% to explain the decrease of gas prices from 4.00 to 1.46. This did not happen.

[Baculus]

Personally, I think the industry should be mostly nationalized in the US, which wouldn't necessarily entail a federal takeover of it: States can have their own petroleum entities, e.g. Alaskan Oil, Texas Oil, etc. I fail to see why we pay private companies to produce our resources at an enormous profit (though I can understand the risk taking private ventures have undertaken in the industry).

[PleaseBlitz]

Personally, I think the industry should be mostly nationalized in the US, which wouldn't necessarily entail a federal takeover of it: States can have their own petroleum entities, e.g. Alaskan Oil, Texas Oil, etc. I fail to see why we pay private companies to produce our resources at an enormous profit (though I can understand the risk taking private ventures have undertaken in the industry).

What do you mean by our resources? You make it seem like mineral rights in land are owned collectively by "the American People" which just isn't true. Also sort of off topic.

[twa]

why nationalize when you already profit more than the oil company w/o risk?

look at how well Mexico has done with nationalization

http://www.cnn.com/2012/02/29/opinion/pickens-natural-gas-energy-security/

How a billionaire fills gas tank for $1 a gallon

Gasoline at $4 a gallon is no worry for T. Boone Pickens, the billionaire energy investor from Texas. He drives from his home to his office in a car that runs on fuel costing less than $1 a gallon.

His method: He has a device that fuels his Honda Civic GX with natural gas from the pipes that serve his home. And he thinks there's a lesson there for America's energy woes.

Pickens, who is speaking Wednesday at the TED2012 Conference in Long Beach, California, said America needs to make natural gas a building block of a plan for ending oil imports from the Organization of Petroleum Exporting Countries.

Natural gas is "cheaper, it's cleaner, it's abundant and it's ours, and we're fools not to use it," Pickens said in an interview with CNN.

[D'Pablo]

NOW, i said it is exactly like gambling,and it is. In sports gambling, for every bet, their has to be a counter-party willing to make the exact opposite bet, one side wins, one side loses, and it is a zero sum game (no value is created or lost, it just changes hands). Trading in commodities is similar to this, which is why market speculation is overrated as it pertains to "fueling" changes in the market value of commodities. I personally think that anyone dumb enough to get into Commodities trading deserves to lose their asses, and if you ever want to see a collection of the worst people in the world, watch a documentary on commodities trading called The Pit, its a bunch of Jersey guido ****heads talking about how smart they are for being able to make $500k a year with no education or what you or i would call job skills, it's like the Jersey Shore crew grew up.......but then they get on a bad beat and lose EVERYTHING and it's a happy ending after all.

I have a tough time believing that anyone is betting against oil futures. There is always a reason to raise prices (ongoing tension in the Middle East, summer is coming, etc...). Oil's demand is basically inelastic thanks to our rejection of any other form of energy. To the non-Farmer Brown speculator, who comprises 70% of the oil futures market, the gamble is always going to look good and not just to Jersey Shore knock offs.

[PleaseBlitz]

I have a tough time believing that anyone is betting against oil futures. There is always a reason to raise prices (ongoing tension in the Middle East' date=' summer is coming, etc...). Oil's demand is basically inelastic thanks to our rejection of any other form of energy. To the non-Farmer Brown speculator, who comprises 70% of the oil futures market, the gamble is always going to look good and not just to Jersey Shore knock offs.[/quote']

Trying to make this as simple as possilbe, the "over/under" isnt set at today's price. So the consistent raising of prices is already computed into the bet. For example, just using round numbers, if the price of a barrel of some specific type of oil (light crude is the commonly quoted one) is trading today at $100, you might buy a 6 month option contract at $110 (this is not what the contract costs you, it is what you will be able to buy the oil at in the future), which gives you the OPTION to buy that commodity contract for that price in 6 months. SO, if the price goes down or stays the same, then your contract is worthless because nobody is going to buy the oil for $110/barrel from you when they can buy it at market price for $100. If the price of oil goes up to $120, however, then this contract is worth something, because you now have the option to buy these barrels of oil for $110 when the current market price is higher.

Like i said, there has to be someone making the exact opposite bet. So like if the Skins were playing Green Bay, people betting on the Skins would get points to make them willing to make the bet since nobody in their right mind is making that bet straight up (my fellow ESers notwithstanding ). Its the same deal with commodities trading, incentives to make the bet are already worked into the price of the bet. 2 people are guessing what the price is going to be 6 months down the line. They both agree it will be higher, but they disagree on HOW MUCH higher.

Is this making any sense? :whoknows:

[Thiebear]

its the warmest winter i can remember, No stories about the North and the 700$ a month oil bills.

It takes effort to make the gas prices this high with such little usage.

[HOF44]

2 people are guessing what the price is going to be 6 months down the line. They both agree it will be higher, but they disagree on HOW MUCH higher.

That sounds like the housing industry pre 2008.

[PleaseBlitz]

That sounds like the housing industry pre 2008.

Yea, it does, good observation.

I think the takeaway from both is that if the people trying to make a quick buck for no work (housing speculators and commodity speculators) got their asses handed to them, then nobody should have any sympathy for either. I certainly don't.

The people doing what they were supposed to be doing (folks buying homes that they could afford so they have a place to live and hedgers) aren't doing anything wrong and need to be allowed to continue doing what they did and are doing. Even regular folks that just want to buy a home to raise their kids in ARE making a bet that their house will cost the same or be worth more in the future though (if they are rational consumers, of course).

Edit: Now that i think about it for a minute, it isn't at all alike. The housing industry was not and is not a zero sum game. People kept making money in the early 2000's and nobody lost any because each bet did not have a counter party (this is what creates a "bubble"). Everyone was on the same side (that housing prices will continue to rocket upwards) and very few bet against that. Commodities trading is not like that at all..

[HOF44]

I think the takeaway from both is that if the people trying to make a quick buck for no work (housing speculators and commodity speculators) got their asses handed to them, then nobody should have any sympathy for either. I certainly don't.

My worry is with the way regulations are now, and the to big to fail mantra, that fear of having their asses handed to them is greatly diminished. Without that fear you end up with huge distortions that if things were regulated better, and entities could "fail", would not exist.

[PleaseBlitz]

My worry is with the way regulations are now, and the to big to fail mantra, that fear of having their asses handed to them is greatly diminished. Without that fear you end up with huge distortions that if things were regulated better, and entities could "fail", would not exist.

The good news: Regulations are changing as the Dodd-Frank is implemented. The bad news: They won't matter much.

If you want to freak out, go to wikipedia and search "Forex." It will give you some info on the foreign exchange market (currency is a commodity). Read it yourself, but just to peak your interest, almost FOUR TRILLION dollars is traded EVERY DAY, and it is more or less unregulated.

Sleep well HOF44. MUAHAHAHAHAHA.

[HOF44]

The good news: Regulations are changing as the Dodd-Frank is implemented. The bad news: They won't matter much.

If you want to freak out, go to wikipedia and search "Forex." It will give you some info on the foreign exchange market (currency is a commodity). Read it yourself, but just to peak your interest, almost FOUR TRILLION dollars is traded EVERY DAY, and it is more or less unregulated.

Sleep well HOF44. MUAHAHAHAHAHA.

To bad you're not playing TW anymore. Hammy has a whole thread dedicated to currency trading. He's about to go doomsday prepper on us!

[mojobo]

The dollar would have had to spike by 270% to explain the decrease of gas prices from 4.00 to 1.46. This did not happen.

Relative to gasoline it did. And with the amount of leverage that is used not only in the commodity market, but the currency market as well it's not that difficult to see a short squeeze of the dollar cause people to rush into it causing a long squeeze in the oil market. And when the price of something that is as leveraged as oil and the dollar were (and are again now) a lot of margin calls get triggered, forcing people to either buy or sell when they otherwise wouldn't have.

Now it might not have risen 270% relative to every other asset (especially not when you don't cherry pick the highs and lows!) but with the massive amount of deflation that was looming there was a ton of short sales on the dollars that were forced out of their positions, which for the previous 7 to 8 years under Bush and Greenspan/Bernanke was a pretty high reward bet depending on what you shorted it against.