Global Oil Pricing

Discussion in 'Economics' started by BCE, Jan 20, 2012.

  1. BCE


    Here's an interesting article on global oil pricing written by Chris Cook, former compliance and market supervision director of the International Petroleum Exchange.

    He says, "All is not as it appears in the global oil markets, which have become entirely dysfunctional and no longer fit for its purpose, in my view. I believe that the market price is about to collapse as it did in 2008, and that this will mark the end of an era in which the market has been run by and on behalf of trading and financial intermediaries.

    In this post I forecast the imminent death of the crude oil market and I identify the killers; the re-birth of the global market in crude oil in new form will be the subject of another post."

    Global Oil Pricing
  2. BCE


    Here's another article from 2006 on Chris Cooper.

    Click on this link. The main interview follows the comments below.

    Interview with Chris Cook, originator of the Iranian oil bourse
    by Julian Jackson and Chris Vernon

    Chris Cook, former director of the International Petroleum Exchange and an energy consultant, is the originator of the Iranian Oil Bourse project.

    Cook's involvement in the Iranian Oil Bourse project stemmed from work he did in the late nineties on manipulation of the oil market by the intermediaries. As a result of the realization of how the intermediaries were making the market more volatile than it needed to be, making money at both the producer and consumers expense, Cook wrote to the governor of the central bank of Iran proposing the creation of a Middle Eastern Exchange with its own benchmark price.

    The Iranians liked the idea, the Saudis however couldn't support it due to US connections. After 9/11 the Saudi's withdrew their objections and in May 2004 Cook was invited to Iran's central bank to give a presentation setting out how an oil exchange might operate. Cook and his consortium got the contract to put it together. Difficulties arose however since the Oil Ministry didn't want transparency in the oil market, the current system not withstanding its flaws was making the Iranian elite lots of money.

    Cook understands Peak Oil, and following his brief but highly informative off-the-cuff talk at the PowerSwitch Peak Speak 2 conference in the UK, Julian Jackson of PowerSwitch interviewed him about the Oil Bourse, and also his ideas for using a new form of business organization, the Limited Liability Partnership as a vehicle for investment in renewable energy technologies.

    - Chris Vernon, The Oil Drum: UK
  3. thanks BCE, those were both mind boggling articles that informed me everything I thought I knew was wrong.

    same thing in corn. I took some time off from the market and when I came back it wasn't the same market. Goldman had completely changed it by introducing people who in the old days never wanted to dirty their hands with commodities.

    So much in there, hard to digest it all, other than there is a difference between peak oil and peak price, or even demand.

    the one that cracked me up was, there aren't enough euros to cover the oil trade.

    the whole thing sounds like a very sophisticated version of tulipmania.

    I was about that close to buying a commodity etf to hedge some buy and hold stocks.

    Thanks for the info, I think I'll hold off on that idea.
  4. well BCE, I guess nobody else cares, I'll post one more time to keep it current.

    One of the things that got me back into trading was I figured I better get long crude because supply is dwindling and demand is growing.

    The great thing about the article was it pointed out to me what I have known since I was a child, namely the stock market is not the economy.

    Bad economy (which as far as I know we have had since 1776) does not mean bad stock market.

    What was so insightful was Cook's analysis of the dichotemy between the funadamentals of crude and the price of crude.

    It even gets crazier when you start thinking about the price of a dollar.

    at anyrate, those are great articles for anybody that cares
  5. The economic activity on the "consuming" side of the oil trade is at least 2 orders of magnitude larger than the economic activity on the "speculating" side.

    If all the speculative money on the planet were to push one way on oil, it wouldn't make a damn bit of difference.
  6. are you sure you're not missing the point? Nobody is denying we use more oil in a day than the earth can produce in a million years.

    We are simply talking about price as it relates to the price of everything else.

    I agree, everybody could quit their job and take all their money and go long CL and many would make money, some would lose, that's speculation.

    The question is how many dollars is a barrel worth, and how many barrels is a dollar worth?

    My house use to be worth a lot of money. Now, same house, no change, but not worth much anymore. And that is not due to less people needing shelter.
  7. I'm not really getting your point, OT...?

    IMO, oil is the true global reserve currency. When times are "good", the USD has been a decent enough proxy. But times have changed, and the cost of oil in USD (and pretty much any other currency) should be expected to be all over the place, mostly up. This is independent of speculation.

    Currencies, whether fiat or not, are just representations of the underlying economic essentials (even gold, from that perspective, is a kind of fiat). The essential of our times is, and has been for quite some time, oil.

    Beyond that, too many people have to use oil for basic survival. A few speculators, no matter how well endowed, aren't going to be able to meaningfully move the price.
  8. no doubt about it, speculators can only move any market so far before it all comes collapsing down on them, and for sure energy is the currency of the future. On that we are both agreed.

    What I think we are failing to comprehend is the keeping of score in dollars vs crude. Like I said, it seems like a very sophisticated version of tulipmania.

    You know more about this than I do, but I'm not even talking about fiat or devaluing, I'm talking about a price we all agree should go up, but it has already gone up, so we are a little late.
  9. I think we may be saying two sides of the same coin...?

    IMO, the price today can't be kept stable in nominal terms in any currency without a restrictive monetary policy (ie, willful contraction). This is the converse of, say, 50 years ago, when the price could only stay (more or less) stable with an accommodative monetary policy.

    And since voters won't stand for a restrictive monetary policy - it's anti bread and circuses - the price has to go up.
  10. well then we have a good old fashioned disagreement, we should bet something on it. $150 doesn't count, that's just normal volatility, but a stable price above 150 you win, a stable price below 75 I win. Anything in the middle is a push, and you know I'm laying quite a bit on this one.

    Problem is, I live in Indiana and Indiana has absolutely nothing to contribute to the world. Better to bet with a guy from San Francisco, they will usually bet you a crab.
    #10     Jan 21, 2012