Anybody that knows anything about futures will tell you that Rick is correct in that speculators (traders that have no intention of ever taking delivery and are guessing the future price) have ZERO to do with the current spot price of oil. Congress needs to pick up a text book and reeeed.
Ultimately, the cash and futures price will merge by the last second....if there's any price discrepancy, the arbs will take care of that. http://masteroftheuniverse.wordpress.com/
Santelli is behind the curve... ICE has a cash settlement option and does 2/3 of total crude trading.
Are the commodity indexes and ETF`s "wharehousing" crude to account for investment dollars pouring into these financial vehicles, thus artificially taking supply off the market? no they buy and roll near month futures contracts With regard to Gold they do right? Well, it seems that there are a lot of people tht are playing in this market who (are not even thinking about taking physical delivery) it seems like a marginal concern at best! Theoretically if the arbs have moved the price of crude up over time, thus raising the spot market, and there is "new money" coming into the market, then when they arb the future market down, if this is the hot market, new money doesn`t let the arb work, b/c the new money takes up all the demand from the arbs, and then some, creating an ever higher and higher spot price, until ultimately, the bubble collapses onto itself---this would be my take on why this process doesn`t work as theoretically as your and rick`s arb model suggests. Its like a poker table with new players that keep coming in, specs, that allow the sellers to roll over their contracts with no appreciable drop, artificially raising the spot market, and pushing it up to the futures market, with the physical delivery folks just taking the price that is left to them as a result, until ultimately, the pattern collapses, like all pyramid type schemes, and then the self-fulfilling prophecy starts working in reverse to lower prices appreciably--i.e.--wheat.
That's not entirely true. There are energy trading firms out there that do hold futures to delivery. They offset by cash/forward contracts or EFPs.
Here are the contract terms for WTI on ICE: https://www.theice.com/productguide/productDetails.do?productId=425&productTypeId=1047
That isn't quite right, the more out of line the more the arbs will work, its essentially free money. If there are big differences the amount of money that would flow to the arbs would far out weigh the amount of money speculators have. "Theoretically if the arbs have moved the price of crude up over time, thus raising the spot market" The arbs would lower the futures price, if it is much higher than the spot. This isn't what is happening in the wheat market, there was a squeeze on winter wheat (see the minneapolis march08 contract) which drove up the price, now there is a huge amount of wheat flooding the market so the price is dropping, this is not happening in oil, because the problem with crude is that there is not a quick way to bring new supplies online and its is in question whether there every will be. 5yr
I don`t know all the facts, I use the available knowledge I do have, use logical intuition and inferences, bet there is a whole lot of misinformation as to exactly what the facts are regarding the crude market. The goal of this thread is to try and seperate the misinformation from the facts about crude. Like B. Pickens saying that the World demand is 87 mm per day, and supply is only 85 mm, well obviously, if you were losing 2 mm per day, every day, crude would be a lot higher, and there could never be any inventory builds like we have seen. I want to get the facts about physical delivery: is it possible to spec prices up w/o taking physical delivery----RS believes this is impossible! But if 2/3 of price discovery is done on the ice, and the ice is cash settled, could this be a counter argument to RS`s assertion?