Stop the Insanity By Daniel Dicker RealMoney Contributor 4/18/2011 10:45 AM EDT Futures-based commodity ETFs are such an awful option for investors that I'm amazed at how fast they've continued to grow. It's become clear that these funds have become hurtful to investors, and it's clear they are being used by traders at investment banks to clean up balance sheets and skirt position limits. Every once in a while, I feel the need to write a column about this as a reminder from both the regulatory side and from an investor's perspective about how buying these ETFs undoubtedly helps to hype prices of the underlying commodities. Maybe it's time we stopped this insanity. â¢1. They unnecessarily help to hype prices. In the last 12 months there has been an increase of commodity ETF inflows of almost $50 billion, $4 billion in February alone. While we might get into an argument about how much of an effect on underlying commodity prices this enormous flood of buying has produced, one thing should be perfectly clear: It hasn't hurt in inspiring today's red-hot commodity spike. Dan Dicker has been a floor trader at the New York Mercantile Exchange with more than 20 years' experience. He is a licensed commodities trade adviser. Dan's recognized energy market expertise includes active trading in crude oil, natural gas, unleaded gasoline and heating oil futures contracts;
Yes, but I think the experts agree, lifting those moratoriums would not have an impact on immediate prices. Here: http://money.cnn.com/2011/04/25/news/economy/oil_drilling_gas_prices/index.htm
yeah, this dude is wrong. I'm not calling him stupid, or saying his position is totally without merit, but let's get down to the basics....how do you discover what something is worth? Through an open auction process, right? Is it better to have a smaller pool or a bigger pool or buyers/sellers? Can the price get out of whack? yes, but eventually it will get back in line. There's just no better way to do it. These guys that blame speculators seem to imply that anyone can just go buy Crude at any price and make an easy profit. That's not the case
I couldn't care less. If he thinks he really knows U.S. oil supplies well enough to predict gas prices in 2030, he's obviously way too sure of himself or has other motives... Let's free up drilling and see what the market does with oil: http://richmondregister.com/viewpoints/x833657359/Let-s-blame-speculators May 4, 2011 Letâs blame speculators A Minority View By Walter Williams Columnist The Richmond Register Wed May 04, 2011, 10:00 AM EDT Washington â Hereâs a non-rocket science question: If you expect a reduced harvest of wheat, corn, rice or any other commodity some time in the future, what would be the wise thing to do about your consumption today? I bet that the average person would answer: Consume less now so that more will be available in the future. But how in the world can people be encouraged to consume less now? Enter the futures market, which consists of a worldwide group of millions upon millions of traders, often called speculators. Speculators, betting on a future shortage, buy up wheat, corn and rice today in the hopes of making money selling it for a higher price when the bad harvest hits. As speculators buy more and more wheat, corn and rice, they drive up todayâs prices. As todayâs price gets higher, people consume less, but more importantly, people do the intelligent thing with bureaucratic edicts. The vital role of the futures trader, or speculator, is to allocate goods over different time periods. And, itâs not just wheat, corn and rice that must be allocated over time but all commodities including oil. Thereâs no guarantee that speculators will make money. They might guess wrongly. For example, they might buy wheat now at $8 per bushel, expecting to make a killing in November at $12. Weather predictions might have been wrong and instead of a reduced harvest, thereâs a bumper crop driving November wheat prices down to $4 per bushel. That would make the speculatorâs $8 investment worth $4. If we donât like commodity speculation, we could easily outlaw it. That way, for example, even though there might be every indication of a reduced fall wheat harvest, todayâs price of wheat wouldnât rise. We could consume wheat today and not fret about fall. President Obama has asked the U.S. Department of Justice to investigate whether Wall Street speculators could be manipulating oil markets. If Obama could convince other nations to put an end to worldwide oil speculation, we might be able enjoy $2 per gallon gas and ignore Middle East conflicts that might impact heavily on future oil supplies. White House and congressional attacks on oil speculation do not alter the oil marketâs fundamental demand-and-supply reality. What would lower the long-term price of oil is for Congress to permit exploration for the estimated billions upon billions of barrels of oil off our Atlantic and Pacific Ocean shores, the Gulf of Mexico and Alaska, not to mention the estimated billions, possibly trillions, of barrels of shale oil in Wyoming, Colorado, Utah and North Dakota. Some politicians pooh-pooh calls for drilling, saying it would take five or 10 years to recover the oil and wonât solve todayâs problems. Nonsense! I guarantee you that if permits were granted to all of our oil sources, we would see a reduction in todayâs prices. Why? Put yourself in the place of an OPEC member knowing thereâs going to be a greater supply of U.S. oil in five or 10 years, which might drive oil prices to a permanent $20 or $30 per barrel. What will you want to do now while oil is $120 per barrel? You would want to sell. OPECâs collective efforts to sell more would put downward pressures on current oil prices. The White House, U.S. Congress and environmental wackos, by keeping our oil in the ground, are OPECâs staunchest ally. I wouldnât be surprised at all if we discovered OPEC reciprocity in the forms of political contributions to congressmen and charitable donations to environmental groups. In the wake of higher gasoline prices, the only intelligent thing that Obama has called for is an end to $4 billion in annual taxpayer subsidies to oil companies. To get that done, he has an uphill bipartisan fight on his hands. Oil companies buy off both Republicans and Democrats in order to receive government handouts and special treatment. Walter E. Williams is a professor of economics at George Mason University. To find out more about Walter E. Williams and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com. © 2011 CREATORS.COM
Hot money will flow into another commodity if they block oil speculation. Copper, aluminum, natural gas, gold, silver, wheat, sugar. Whatever. It doesn't matter. They block one instrument and smart money will pile into something else. Anyone know how much oil would correct if long-term specs were banned from the market?
Yea, I wonder how much oil would reprice with no long-term specs? And yes, other commodities do much less volume. But in my opinion, volume begets volume. If hot money finds another market to pile in, it becomes self-perpetuating. Like oil and metals now. Like builders in 07. Like the Naz in 99.
IIF estimates that the Saudisâ break-even oil price (to balance its budget) will rise to about $110 per barrel in 2015 from $88 this year. http://blogs.wsj.com/economics/2011/03/31/saudi-governments-break-even-oil-price-rises-20-in-a-year/
You mean they buy, and then hold for an extended period of time? My goodness, aren't those the evil-doers we used to call "investors"?