It's the speculators!!! (yup, oil again)

Stoney, Concede that I was wrong about what? This shit spanned over several threads and I stand behind every word I said then and now.

In June, demand for oil was high. The price of oil was high.

Boom was on here posting about market manipulation. It's easy to claim something like. Show me evidence of it. It's a boogey man.

I can point to world economic activity and how it has correlated to the price of oil. I have over and over again. Show me any evidence of some phantom market manipulation. That is all I have ever asked of Boom, and now of you, since you want me to "concede that I am wrong."

Today, demand for oil is low. Imagine that. We got a worldwide economic mess dropped on us all at once that has brought economic activity to a standstill. So energy demands have dropped off.

And SURPRISE, the price of oil has come down.

If the price of oil was high in June because it was being manipulated, then the price of oil is low today today because the price is being manipulated, right?

Where are the claims of manipulation today?

I have no idea what your problem is, but I never called you a simple-minded twit or anything close to that. I've never posted anything in tone that is different than this post.

Show me evidence of a worldwide energy market having been manipulated. Don't just make a claim. Demonstrate how it happened. That isn't me calling you a twit. It's me asking for a reasonable post. I'm sorry you can't tell the difference between the two. Also, explain how the price fluctuations of oil this year -- which happen to have coincided with economic activity (which drive demand for energy) -- are not explained by demand for oil.

I'll concede I am wrong about what I have said about supply and demand and how they affect commodities if you can respond to that with evidence of market manipulation that subverted supply and demand.

No one has. And no one can.

 

Boom, vague innuendo does not equal market manipulation. Sorry. Same as your past threads. I can't respond well to a google search and a conspiracy theory that isn't backed by facts.

Actual events are the proof of everything I said then, though. The economy has tanked. Energy demands have dropped off. And the price of oil has come down. That is clear evidence of how demand can effect prices. That is ALL I ever said.

If you want to insist on market manipulation that you can't prove, explain why the price of oil has dropped, please. Why haven't your all-powerful boogeymen just kept manipulating the price? You can't have it both ways. If it was being manipulated in June, why isn't it being manipulated today? Or is it?

 

Stoney, I can't rehash every post from every one of these threads that Boom roped me into. But a few quick points. One, that essay mostly gibes with things I have said on these threads.

That is especially true with regard to the SUPPLY side of the oil market. He mentions geopolitical concerns, for example. You mentioned OPEC just now.

What he says about "speculation," is not insidious. Again, I said to Boom over and over again on here that if there was a bubble in the oil market -- or any market for that matter -- it was not sustainable. Investors don't step into futures markets and arbitrarily set prices.

Think about it in terms of stuff you buy every day. If a guy tries to rip you off on a gallon of milk, you'll walk down the block and buy it from someone who is selling it for less (because he can buy it for less).

It's the same thing. If the price of oil isn't pegged to supply and demand, it is inefficient and will self correct. If you have 1,000 barrels of oil to sell and you are telling a guy that you won't take a penny less than $140 a barrel for it, it's to my benefit to sell the 1,000 barrels I have sitting there for $139 and undercut you. And all of the people sitting on oil will undercut each other until a rational price is reached--it's the intersection of where supply and demand meet and that is the equilibrium price. The oil market is always set this way -- unless it is somehow being manipulated in some unbelievable way. It's something people often allege, but never can prove (because, it doesn't happen).

What Bailey wrote about demand is just fudged. It was like facts didn't fit with the essay he wanted to write so he just glossed over it. Worldwide demand for oil WAS soaring when he wrote that--and had been for several years. All you had to do was look at China, India, most of South America and the roarding economies of the developed world. Emerging markets were largely driving demand. China, for example. Their oil demands were quantifiable and demand was INCREASING. In that essay he gave a PROJECTION for worldwide demand six months out -- didn't tell whose projection it was -- and used it to make the argument that "relative demand" was down. Not that demand was down. He couldn't possibly have argued that demand wasn't increasing. So he made a vague claim that "relative demand." was down. I honestly don't know what that means.

The rest, though? They are exactly the things I have said over and over again on here--well, except for his conclusion that worldwide demand is somehow going to taper off in the future. I see the exact opposite happening (once we reenter a period of economic growth) unless the world finds a viable alternative for its energy needs that is cheaper. If we have a short-lived recession and the world's economies start to boom again, I will guarantee that the price of oil is only going to climb. $200 a barrel just doesn't seem outlandish if demand picks up and continues to increase the way it was, given that supply is so limited.

By the way, OPEC is cartel. Cartels by definition try to manipulate prices... by manipulating supply. Demand for oil is somewhat inelastic. So if OPEC limits supply, they drive up the price a lot and make more money on less volume. I posted about this more than once when trying to paint the picture of supply and demand for Boom.

The facts on the supply side are that supply is limited, and a handful of countries that work together can control price because they have a cartel. The facts on the demand side are that demand for oil has long outstripped the supply of oil. So at any given time, the price is going to largely be determined by how much demand there is. If the world's economies are humming, oil is going to be expensive as hell--the way it was throughout 2007 and 2008 until the credit markets' crisis. If we have a massive recession that brings economic activity to a standstill, demand for oil will decrease and prices will come down. It's what we have seen happen now.

Lastly, because it is such a vital commodity, short-term prices are subject to shocks, such as the geopolitical concerns he mentioned, natural disasters, etc. In the end, though, pricing always ends up being rational. It doesn't benefit anyone who needs oil to pay a penny more than they have to for it... just like the guy who will walk down the block and buy his milk for less from someone else, if the grocer has it priced too high.

But when demand is soaring and the price of oil is soaring, people don't want to look at it rationally. People are getting hit at the pump, and they are emotional about it, and claims of price manipulation--without evidence of it--are emotional responses that ignores facts.

 

Boom, I didn't follow a lot of that. I am really sorry.

From what I think I was following, I am not sure what you mean by "speculative trading was not allowed." Futures markets don't work without speculation. You have hedgers. And you have speculators. When you place an order you have never had to explain WHY you are placing your order. I am free to buy or sell any commodity I want -- my purposes don't matter. And in fact, futures markets, which have existed for thousands of years, have always been held together by speculators. It is those speculators who actually create the market for the hedgers.

I am not sure what you are talking about with Morgan Stanley. What I do know about Morgan Stanley is that it is going to take tens of billions (and possibly more than $100 billion) dollars to keep it from going bankrupt, Mitsubishi UFJ is thinking about pulling out from the deal it made and Moody's just lowered Morgan's credit rating again. So whatever it is you are talking about, and I wasn't following... well, Morgan wasn't very good at manipulating markets, in this insidious, shadowy way you haven't really explained.

Futures markets are markets. A contract isn't sold without a buyer AND a seller. Morgan Stanley (and I know little about Morgan's involvement in the oil futures market, although whatever it was, it was minuscule when compared to the overall market, which is huge--not even the fifth largest investment bank in the U.S. can exert any influence over something that large), or anyone else for that matter, doesn't just "write a futures contract" and name a price, the way I think you were saying. It's a market. There are buyers and sellers. A buyer is not going to buy oil at $120 a gallon when it is selling on the spot market for $75 a gallon. So I really can't follow what you said. Unless sellers can just name any price they want and buyers are somehow forced--are guns involved?--to pay an inflated price for a commodity, I really can't follow you.

One last thing. You are REALLY confusing things that have nothing to do with another, but this "enron loophole" nonsense was used as political fodder so often that it's understandable that people just throw it out there without any explanation. They don't have to understand WHAT the "enron loophole" is or what an SSF is. It just sounds good. Blame oil prices on a known villain, Enron!, and put the blame on a complicated type of financial instrument that the typical guy pissed off about how much it is costing to fill his tank couldn't understand if you spent a decade trying to explain it. It was the perfect way for politicians feeling heat to point a finger and blame someone for what was simply a matter of worldwide demand creating high oil prices.

The "enron loophole" has nothing to do with commodities like oil, which have traded pretty much the same way since 1983, when NYMEX launched a crude oil futures market (after Ronald Reagan stripped away the stupid price controls of the 70s).

The "enron loophole" has to do with a type of complicated derivative called an SSF, or a single stock future. This has nothing to do with commodities markets, like crude oil, which are based on actual commodities, not financial instruments--or pieces of paper with promises on them being traded with a computer-assigned value assigned to them. SSF pricing is determined by computers doing battle with each other, based on complicated formulas that, among other things, have to do with the time cost of owning the underlying stock, the spot price of the underlying stock, interest rates, any dividends the stock might pay and the present time relative to the time the contract is set to expire.

Trading those derivatives was never a "loophole." It's no different than markets for options on ETFs, which are traded in huge quantities -- no one considers those markets "loopholes."

In the 1980s, when SSFs were first introduced (as the computer technology allowed it) the CFTC and SEC couldn't agree who had regulatory authority over them, so they weren't allowed to be listed on any exchanges. It's true that the Modernization Act of 2000 created exchanges for single-stock futures by giving both agencies regulatory authority. It's also true that they are a highly-specialized instrument that serve a purpose, but it's a niche purpose. The "close the Enron loophole" nonsense to curb oil prices was exactly that: nonsense. SSFs have nothing to do with the crude oil commodities market. It was political populism. Oil prices were skyrocketing during the summer and elected officials were feeling heat. So they found a way to invoke the name of a villain, Enron, to be able to point a finger at something.

 

Boom, Please EXPLAIN how 90 percent of my post shows that I don't know what I am talking about. I give you specificity in post after post. I don't know what more I can do. You just gave me nothing specific... again.

What did I post--with regard to commodities markets (and how buyers and sellers determine prices--the same as ANY market), with regard to SSFs, etc--that is not factual and what specifically did I post that is incorrect? Please spell it out for me, the way I believe I have been for you.

 

Boom, I just did a VERY quick read of that Long Island Press article you just linked to. Notwithstanding the fact that no one should be getting their information about financial markets from a free alternative weekly... Where is the beef? You just linked to 7,500 words of innuendo and conspiracy theory that glosses over the unconnected dots. It never gave anything substantive. I held out hope to the end, though.

How anyone can print that TODAY is beyond belief. If John Mack, or Morgan Stanley can somehow name any price they want for a commodity--and in effect print money--why is Morgan Stanley in the shitter right now and why aren't they STILL manipulating prices the way you are trying to claim? Why didn't his genius at manipulating markets extend to the 98 percent of Morgan Stanley's rest of its investment portfolio?

A barrel of crude oil dropped below $70 today.

You can't have it both ways. If you claim John Mack is all powerful and could single-handedly cause oil to trade at $140 a barrel a few months ago, why is it trading at less than $70 a barrel today? He sure as hell isn't sitting in jail. I could have flipped on CNBC and seen him today--talking about why the cost of insuring his DEBT is sinking his company.