Didn't you follow my link? http://www.eia.doe.gov/oil_gas/petroleum/info_glance/petroleum.html The data from the US government clearly shows demand higher than supply for 2.5 years, supply kept going up but so did demand and at a faster rate than supply. World oil supply has never been able to top 86 million barrels per day, in Q1 2008 demand was 86.44 million barrels per day. Demand > Supply :: Price goes higher I like your $65 remark... how did you arrive at that one? 5yr
The truth of the matter is >97% of futures contracts are cash-settled. Thats the secret of the markets and why BS like technical analysis shouldn't work, but does. That also explains why supply.demand imbalances translate to price discovery at several multiplies of underlying delta. A 10% demand spike equates to a tripling of price? Yea, okay. Even broaching this is the cardinal sin of day-traders, but its the meat-and-potatoes of our livelihood - volatility inherent in margin. Think about it. Banks and Wallstreet profit the most from leverage because it jacks prices of their products - assets, commissions and debt!! Its win-win-win, all around. So long as bankers own the FED (and Congress), the markets are roiled by volatility because it pays. It pays to inflate. And it pays to gear 30-to-1. SO THEY DO IT!!! The push to curb access for the little guy could go through. What's really needed is complete monetary reform where leverage doesn't exist. So long as it does, equal access and playing field for everyone.
Look, if demand is greater than supply the price goes up until they are equal. If the price goes up 400% and demand is still greater than supply the price will still go up until that last bit of demand is met. There is no rule that says the price can only go up 10%. It has to do with the elasticity of demand for crude... we saw that demand is very inelastic for crude in the short term. You also saw that the supply cannot react to demand spikes quickly (or possibly at all). If people made money on this, good for them, it doesn't mean they caused it. Remember futures trading is a zero sum game, for every trader that made a dollar a trader lost a dollar. The real money wasn't flowing to Goldman Sachs and the speculators. It was flowing to oil producers; Exxon, Saudis, Chavez. If you are looking for a solution like who had the most to gain, you should be blaming the producers. 5yr
I think of it as a collection of binary triggers in the heads' of traders. The data the other poster just put up - it shows at the peak that demand outstripped supply by the slimmest of margins. Seems like nothing, but it is immensely significant - it forces a fundamental change in thought from "I can get it if I need it at some price" to "Holy **** I may not be able to get it at any price". Those are two wildly different scenarios, and it seems to me volatility should be expected around such moments.
You don't get it. Price cannot rise 300% from a 10% increase in underlying demand. The offsetting inventory required to cover the increased demand would be sold within the next 10$, easy. Where do you suppose the other 100$ of volume came from??? Before you start lecturing about futures being a "zero sum game", I suggest you go study what they are in the first place!!
Yes, it can, and it happens all the time for physical commodities that are supply constrained, whether it's Cipro after the anthrax letters or street price of cocaine after a cartel gets (temporarily) popped or oil in the face of strong demand surge. Heck, corn did 400% after demand was crackified by the ludicrous ethanol program.
The only way price can rise 300% based on a 10% increase in demand is if the supply is being manipulated through other than truly free market forces. And that's exactly the situation the CFTC finally has acknowledged happened.
Not without leverage! Citing one futures market to prove another proves nothing because they're both governed by demand AND leverage. Like I said, 97%+ of futures are cash-settled. That means 97% of volume has no interest in the underlying (its all speculative). Leverage exacerbates swings, combined with uni-directional money-flow, equals bubbles. Take leverage out of the equation, and it becomes mathematically impossible for price to get anywhere NEAR those highs. Without BIG, cheap homeloans, real estate doesn't bubble. Without big, cheap leverage, futures (stocks, bonds, fx etc) don't bubble. Its the same thing.
Ok, lets say you have convinced me that speculators are responsible for the oil price spike to $148. So who was responsible for the fall from $148 to $32?
Demand exceeding supply doesn't equate to fundamental demand exceeding fundamental supply. That's the disconnect, here. Leverage must be considered and futures is an incredibly leveraged market. So how much of that demand was just speculative-long? And how much fundamental-long? Stats say 3% is traded on a fundamental basis alone. Another take. If fundamental demand for oil was valid at 140$, how did it drop by 75% in 6 months? Suddenly, world demand was cut by Three-Quarters? Or global reserves suddenly Quadrupled??? Of course not. Buyers covered their asses, and open interest got light. Bid became thin, and the market collapsed. Consider it another way. If oil contracts were traded on 0 margin, how many contracts could be bought or sold on any given day, by any given firm, compared to what they buy or sell now? 1 contract for every 100. Or 1 contract for every 50. Whatever their leverage is, right? So how would that affect volatility? Not so much in sideways markets, but in one-way markets? Instead of 100 contracts at the bid, there's 1 contract. Now consider supply-side. Producers are still selling the same volume. NOW ITS JUST THE BUYERS WHO CAN'T SWING AS MANY CONTRACTS BY A FACTOR OF 1/50th! What happens when demand withers and supply remains constant??? Thats how leverage is the arbiter of Bubble Economics. Leverage creates artificial demand. At least in futures.