Keep this thread emotion free?

Discussion in 'Commodity Futures' started by jonbig04, Jun 22, 2008.

  1. We're smart. We know whats going on in the world around us, we should be able to figure out the actual cause of high crude price. I'm aware that there is 75 other oil threads, however most of them are full of people's very emotional opinions. The threads are many, but the facts are few. Maybe we can begin an intelligent discussion on the price of crude and the factors leading to it's sharp rise. If you are going to site statistics please provide a working link to support.

    The blame has been placed on speculators with politicians remarking that there hasn't been a sharp rise in demand in the last 6 months so it has to be speculation driving up high crude prices.

    The speculators usually respond by saying that there are equal amounts of net long and short futures, so of course it can't be speculation.

    So what is causing the rise in crude oil price?

    Once again, let's keep it emotion free, that way we have a better chance of digging up some answers.
  2. Joab


    Just follow the money trail:

    Who is now benefiting the most from high oil prices?

    The campaign contributors and powers that be who put Bush into office (Texas Oil men ) and the fact that they are now the richest corporations in the world 8 years later.

    But that's probably just coincidence ... :cool:

    sheesh, are you Americans truly this blind ?

    Why do you think the rest of the world hates the US government? because of rap music and a decadent lifestyle ?

    Grow up people and take your head out the sand - you made your bed now lie in it.

  3. No offense bro, I appreciate your input, but this is exactly the type of response that doesn't get us any closer to any answers and that the other oil threads are full of. How are "they" raising prices? Are they contributing to speculation? We need facts and data and opinions; not simply the latter.
  4. All that is going to arise on this thread is the same crazy shit about high oil prices - Bush planned it, Wall street planned it or some other conspiracy planned it.

    If you wonder why so many on ET can't make or will never make any decent money, if some at all, by trading, then you don't have far to look. It is illustrated all over ET. The minds of these people easily fill up on all sorts of crazy dogshit like this.
  5. styron


    1) It's not really about oil but commodities in general. Compare a chart of oil to the continuous CRB index (energy accounts for 18% of the index). They're practically identical.

    CRB index

    2) Low real interest rates correlate strongly (negative) to commodity prices. This would explain the effect across commodities not just energy. This argument is from Jeff Frankel.

    Jeff Frankel's bit
  6. good link, it appears they may be as baffled a us. I'll post it on here.

    Fed Modesty Regarding Its Role in High Commodity Prices
    May 21st, 2008 by jfrankel |

    Fed Vice Chairman Donald L. Kohn in a speech yesterday, addressed a theory to which I am partial: the theory that low real interest rates have been a factor behind the continued rise in prices of agricultural and mineral commodities, including oil, over the last year.

    The relevant excerpt: “Some observers have questioned whether the news on fundamentals affecting supply and demand in commodities markets has been sufficient to justify the sharp price increases in recent months. Some of these commentators have cited the actions of the Federal Reserve in reducing interest rates as an important consideration boosting commodity prices. To be sure, commodity prices did rise as interest rates fell. However, for many commodities, inventories have fallen to all-time lows, a development that casts doubt on the premise that speculative demand boosted by low interest rates has pushed prices above levels that would be consistent with the fundamentals of supply and demand. As interest rates in the United States fell relative to those abroad, the dollar declined, which could have boosted the prices of commodities commonly priced in dollars by reducing their cost in terms of other currencies, hence raising the amount demanded by people using those currencies. But the prices of commodities have risen substantially in terms of all currencies, not just the dollar. In sum, lower interest rates and the reduced foreign exchange value of the dollar may have played a role in the rise in the prices of oil and other commodities, but it probably has been a small one.” (Speech at the National Conference on Public Employee Retirement Systems, New Orleans, Louisiana, May 20, 2008).

    As real interest rates have come down over the last year, real commodity prices have accelerated upward despite declining economic growth. (See graph, where the commodity price has been inverted so that one can see the correlation visually.)

    Real interest rate and (inverted) commodity prices, 2007-08

    The effect of interest rates can be demonstrated both theoretically and empirically. I have argued that the effect can come through any of three channels: inventories, production, and financial speculation.

    Historically, real interest rates have had an inverse effect on oil inventories (when controlling econometrically for three other relevant factors). Nevertheless, I have to admit that inventory levels have not over the last year risen in a way that would support the theory. I thus have to rely more on the other channels of transmission to explain recent developments.

    Stocks of oil held in deposits underground dwarf those held in inventories above-ground, and the decision how much to produce is subject to the same calculations trading off interest rates against expected future appreciation as apply to inventories. (The classic reference is Hotelling’s Rule.)

    Apparently the Saudis have indeed deliberately decided to leave theirs in the ground. “King Abdullah, the country’s ruler, put it more bluntly: “I keep no secret from you that, when there were some new finds, I told them, ‘No, leave it in the ground, with grace from God, our children need it’.’’ FT 5/19/08. I see the interest rate as part of the Saudis’ decision how much oil to pump. Because the current rate of return on financial assets is abnormally low, they can do better by saving the oil for the future than by selling it today and investing the proceeds. Holding back production raises today’s oil price, to a point where the expected future return on oil has fallen to the same level as the interest rate. Hence the inverse effect of real interest rates on real oil prices. The same logic governs others’ decisions regarding how much copper to mine, how much forest to log, etc.

    In addition to the link from world real interest rates to world real commodity prices, there is the less novel link from individual countries’ real interest rates to commodity prices expressed in their own currencies, a link that primarily passes through their exchange rates. For almost all of the eight floating-rate countries that I tested, both the US real interest rate and the local real interest rate (as a differential relative to the US rate) simultaneously had significant effects on real commodity prices. The effect is equally applicable to the United States: When the Fed eases and the dollar depreciates, the price of oil in dollars goes up quickly. This despite what many have thought in the past, that there is little effect because oil is invoiced in dollars."
  7. Economics 101

    Increase the money supply = Inflation.

    How much did the Fed give the bankers since January? What you thought they would invest it in a sickly stock market?
  8. So you disagree with this?

    But the prices of commodities have risen substantially in terms of all currencies, not just the dollar. In sum, lower interest rates and the reduced foreign exchange value of the dollar may have played a role in the rise in the prices of oil and other commodities, but it probably has been a small one.” (Speech at the National Conference on Public Employee Retirement Systems, New Orleans, Louisiana, May 20, 2008).
  9. jasonjm


    Crude is still easily within 1 days move new all time highs

    thats a fact

    crude prices are not backing off

    another fact

    the market is trying to price in where demand destruction (globally) is.... when we get that, crude will top.

    Need an oil inventory report where basically crude is +5 million barrels and gas inv is +5 million barrels.
  10. Joab


    You wants facts ? roflmao

    People still believe that 100 million dinosaurs all died in only 3-6 big heeps pilled together in the middle east.

    There are not even any facts of what oil is made of.
    #10     Jun 23, 2008