Glen
Senior Member
AFAICT, so far this morning there has been over 100,000 contracts traded in light sweet crude. That represents over 100,000,000 barrels of oil, just in LSC, never mind all the other forms.
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- Thread starter Blixtein
- Start date
AFAICT, so far this morning there has been over 100,000 contracts traded in light sweet crude. That represents over 100,000,000 barrels of oil, just in LSC, never mind all the other forms.
Archivist
Senior Member
So, what you're saying is that world demand for oil has not increased since 2005? Is that your assertion? Because in that time, supply has not increased.
Glen
Senior Member
So what you are saying is that as long as supply does not increase and demand is growing, prices will always rise?
Last time I checked land supply has not increased in Canada since, well, a very long time. Canada's population has always been growing. So, ergo, real estate prices should never have dropped, following your logic.
At least with oil alternatives, present and future, exist.
Every complex system has cylces. From economics to biology.
scarberiankhatru
Senior Member
The supply of developable/purchasable land does change.
Glen
Senior Member
The point is that financial markets, and in this case we are talking about oil futures contracts, are speculative by nature. More than ever. Why else would we need charts tracking the last 15 minutes of trading. Has demand/supply changed since lunch?
The evidence of speculation lies in current market data. Dec 2010 contract can be had @ <$135 pb. If market players truly believed that oil is going to continually rise, why have they not put their money where there mouths are?
The evidence of speculation lies in current market data. Dec 2010 contract can be had @ <$135 pb. If market players truly believed that oil is going to continually rise, why have they not put their money where there mouths are?
W. K. Lis
Superstar
Water came down in abundance on Monday in the northern parts of Toronto, but didn't cause the price of bottled water to come down on Tuesday. Must be the speculators again.
salvius
Active Member
I was talking to a collegue of mine this morning who, by the bye, works for a suburban municipality near this great city of ours.
He wanted to know, in your opinions, what exactly is unsustainable about suburbs (those, of course, who think they are)? I'd like to know too.
Is it basically just peak oil, and a belief that there will not be an adequatly affordable alternative to it?
He wanted to know, in your opinions, what exactly is unsustainable about suburbs (those, of course, who think they are)? I'd like to know too.
Is it basically just peak oil, and a belief that there will not be an adequatly affordable alternative to it?
LowPolygon
Senior Member
....but [North] Americans have been caught in the sweep of history before, and, astoundingly the most visible symbol of that is the automobile suburb.
I mean, in 1955, how many of the predominantly Jewish and Italian residents of the South Bronx could ever imagine that their neighbourhood would look like this in fifteen years?
its a good point. its suppose it true that there have been moments in North America when 'ways of being' became obsolete or were superseded; modernism on the one hand, 'fear of a black planet' on the other, the highway system, cheap oil, mass market consumerism, demographic patterns, a shifting sense of what the 'good life' is, all brought about a moment when people en masse chose a new way to live.
I suppose that's really the difference. those areas of which you speak were actually abandoned by their inhabitants for 'good' reasons. they left in search of a better life in the verdant, safe and big sky suburbs. what is happening now is more like a forced evacuation--people's lives are going to change whether they like it or not....
but yes, i am sure those families in the 1950's would have felt deeply shocked by the subsequent utter destruction of their old inner city neighbourhoods. it was a profoundly unintended consequence of white depopulation that i don't think anyone anticipated.
H
Hydrogen
Guest
Once again, like Kunstler, Warren is using his position in the media to influence people. Meanwhile, the reality: neither of them know what they're talking about!
The price of oil will fall, much like the real estate market falls, Google stock falls, everything goes up and down. Let's see where the price of oil is in 2012.
Good points. At its lowest, oil was somewhere near $10 a barrel in 1998. While discussions about peak oil are interesting, its worth noting that something like 80% of North American coastline is presently off limits to oil exploration. Moreover, there has been no exploration for oil reserves whatsoever on over 75% of the total surface of the planet. Neither the high Arctic nor the Antarctic have been explored in any detail for potential or actual oil reserves (and I am not arguing that these places be explored for oil). It would appear that much of the talk about peak oil concerns oil being taken from known reserves.
LowPolygon
Senior Member
i see someone's been peeking at John McCain's talking points.
LowPolygon
Senior Member
i love it when you say things like:
that is such a powerful argument. wow.
i think you've permanently disabled all future talk about the end of cheap oil
that is such a powerful argument. wow.
i think you've permanently disabled all future talk about the end of cheap oil
LowPolygon
Senior Member
that's right.
Archivist
Senior Member
Re: Hydrogen's comments on exploration. See the chart below. Finds of new oil peaked heavily in the 1960's, and ever since then have declined. This is not for want of trying. Typically, when new discoveries are found, they are in increasingly remote areas (the far north, deeper in the sea) and are therefore more expensive to produce. That is in line with those who believe in an oil peak being defined as the end of inexpensive oil, rather than the end of oil.
Interestingly enough, there is generally a delay of about 40 years from "Peak Discovery" to "Peak extraction", based on a very small sample size of the continental USA. The peak of discovery in the state was in the 1920's, and in 1970 they produced the most oil ever. All Alaskan oil, which started to be accessed after 1970, did nothing to stop a year-on-year decline of oil production in the US, which continues.
Interestingly enough, there is generally a delay of about 40 years from "Peak Discovery" to "Peak extraction", based on a very small sample size of the continental USA. The peak of discovery in the state was in the 1920's, and in 1970 they produced the most oil ever. All Alaskan oil, which started to be accessed after 1970, did nothing to stop a year-on-year decline of oil production in the US, which continues.
Archivist
Senior Member
On Speculation ...
I've done quite a bit of searching on oil prices and speculation, and what I find is that it seems to be mostly populist type writers who are promoting a link between them. Rather more dull articles and analyses discount speculation as a major factor in the current rise in oil prices. An example of these is below, and while it is excruciatingly boring to read, it does conclude that speculation is largely not to blame for the current rise in prices.
Most articles that I have seen that finger speculation, simply state it as a given, saying "there is lots of oil". Those I find easy to ignore.
Energy Outlook
Friday, June 13, 2008
Speculation And Crude Oil Differentials
An article in today's Financial Times provides key insights for anyone trying to understand how oil prices reached their current heights, and where they might go from here. This requires more than just an examination of the highly-visible oil futures markets. We need to look at what refiners--who along with a few utilities in Asia are the ultimate customers for all crude oil--are paying for the grades of oil they actually run. Many of these crudes look very different from the West Texas Intermediate and Brent Blend traded on the New York Mercantile Exchange and the Intercontinental Exchange. But while the price relationships among these different grades of oil certainly contain clues about the impact of oil-market speculation, I'm not sure the evidence exonerating speculation is quite as conclusive as the FT suggests.
The growth of the futures exchanges over the last two decades has fundamentally changed oil trading. Most oil is now bought and sold on price formulas pegged to the futures prices, or to published market reports strongly influenced by the futures. What traders are agreeing to when they do a deal is not a fixed price, but a fixed differential above or below a particular futures contract during a set period, usually aligned with the time when the shipment will be loaded or delivered. So while these differentials fluctuate due to a variety of factors, the price that refiners pay for crude oil remains directly tied to the futures price. That means that anything that drives up the futures market, whether a disruption in supply, higher demand, or speculation by a new class of commodity investors, has a direct impact on what we all pay for the products that refineries make.
Crude oil price differentials are determined by several factors. Some of them are fixed, some change gradually, and others shift continuously. A barrel of Saudi Heavy crude (2.8% sulfur, 27 API gravity) is intrinsically worth less than a barrel of Nigerian Bonny Light (0.14% sulfur, 34 API), because the former will yield less high-value gasoline, diesel and jet fuel than the latter without intensive refining. But how much more a barrel of Bonny Light commands in the market depends on the relative prices of all the various petroleum products when it is sold, along with the location and availability of spare capacity in the complex refineries that have the hardware to overcome those intrinsic quality differences. As the chart below shows, the premium for Bonny Light over Arab Heavy is quite volatile, and it does not necessarily depend on the absolute price of crude oil. It was nearly as high in October 2005, when WTI was $62/bbl. as it is with WTI at more than twice that price.
Source: Energy Information Agency
http://tonto.eia.doe.gov/dnav/pet/pet_pri_wco_k_w.htm
As the FT correctly notes, various factors have contributed to make light sweet crudes more valuable and heavy sour crudes less valuable, relative to each other. By itself, though, this does not prove that speculation hasn't driven all of these prices higher than they otherwise would be, because refiners focus mainly on the price relationships among different grades of crude oil, and between crudes and the wholesale prices of the products they yield. Refining is a margin business. Higher absolute prices tend to weaken demand and make it harder to pass on increases in their costs, but refiners have no more control over the market price of oil at $130/bbl than they did at $50/bbl or even $20, so they focus on what they can control: in the short run that means finding the cheapest grades of crude that will yield the products they need to meet their sales commitments, and in the long term it involves investing to enable them to run even cheaper, lower-quality crudes, if increasingly intrusive regulators will allow it.
When we compare the acquisition prices reported by US refiners to the Energy Information Agency for the actual mix of imported and domestic crudes they bought through April 2008, we see that although the discounts to WTI have widened in the last year, they are not unprecedented. As a result, refiners are paying well over $100/bbl for even the least attractive crude oil grades.
Source: Energy Information Agency
http://tonto.eia.doe.gov/dnav/pet/pet_pri_rac2_dcu_nus_m.htm
On balance then, what does all this tell us about the influence of speculation on oil prices? In the view of the Financial Times and others, speculation is unlikely to be the major driver of high oil prices, since the prices for the physical crudes that refiners process have increased more or less in lock-step with the futures prices we observe, rather than disconnecting in the manner that might logically be expected, if the oil futures were experiencing a speculative bubble. However, I would argue that this hypothesis depends on an understanding of the oil markets that is at odds with the actual structure of the market. The manner in which physical oil is traded with reference to the futures price, combined with the reinforcing-loop relationship between crude oil and refined product prices, makes a disconnect between these markets improbable, even if the futures were caught up in a speculative bubble.
I've done quite a bit of searching on oil prices and speculation, and what I find is that it seems to be mostly populist type writers who are promoting a link between them. Rather more dull articles and analyses discount speculation as a major factor in the current rise in oil prices. An example of these is below, and while it is excruciatingly boring to read, it does conclude that speculation is largely not to blame for the current rise in prices.
Most articles that I have seen that finger speculation, simply state it as a given, saying "there is lots of oil". Those I find easy to ignore.
Energy Outlook
Friday, June 13, 2008
Speculation And Crude Oil Differentials
An article in today's Financial Times provides key insights for anyone trying to understand how oil prices reached their current heights, and where they might go from here. This requires more than just an examination of the highly-visible oil futures markets. We need to look at what refiners--who along with a few utilities in Asia are the ultimate customers for all crude oil--are paying for the grades of oil they actually run. Many of these crudes look very different from the West Texas Intermediate and Brent Blend traded on the New York Mercantile Exchange and the Intercontinental Exchange. But while the price relationships among these different grades of oil certainly contain clues about the impact of oil-market speculation, I'm not sure the evidence exonerating speculation is quite as conclusive as the FT suggests.
The growth of the futures exchanges over the last two decades has fundamentally changed oil trading. Most oil is now bought and sold on price formulas pegged to the futures prices, or to published market reports strongly influenced by the futures. What traders are agreeing to when they do a deal is not a fixed price, but a fixed differential above or below a particular futures contract during a set period, usually aligned with the time when the shipment will be loaded or delivered. So while these differentials fluctuate due to a variety of factors, the price that refiners pay for crude oil remains directly tied to the futures price. That means that anything that drives up the futures market, whether a disruption in supply, higher demand, or speculation by a new class of commodity investors, has a direct impact on what we all pay for the products that refineries make.
Crude oil price differentials are determined by several factors. Some of them are fixed, some change gradually, and others shift continuously. A barrel of Saudi Heavy crude (2.8% sulfur, 27 API gravity) is intrinsically worth less than a barrel of Nigerian Bonny Light (0.14% sulfur, 34 API), because the former will yield less high-value gasoline, diesel and jet fuel than the latter without intensive refining. But how much more a barrel of Bonny Light commands in the market depends on the relative prices of all the various petroleum products when it is sold, along with the location and availability of spare capacity in the complex refineries that have the hardware to overcome those intrinsic quality differences. As the chart below shows, the premium for Bonny Light over Arab Heavy is quite volatile, and it does not necessarily depend on the absolute price of crude oil. It was nearly as high in October 2005, when WTI was $62/bbl. as it is with WTI at more than twice that price.
Source: Energy Information Agency
http://tonto.eia.doe.gov/dnav/pet/pet_pri_wco_k_w.htm
As the FT correctly notes, various factors have contributed to make light sweet crudes more valuable and heavy sour crudes less valuable, relative to each other. By itself, though, this does not prove that speculation hasn't driven all of these prices higher than they otherwise would be, because refiners focus mainly on the price relationships among different grades of crude oil, and between crudes and the wholesale prices of the products they yield. Refining is a margin business. Higher absolute prices tend to weaken demand and make it harder to pass on increases in their costs, but refiners have no more control over the market price of oil at $130/bbl than they did at $50/bbl or even $20, so they focus on what they can control: in the short run that means finding the cheapest grades of crude that will yield the products they need to meet their sales commitments, and in the long term it involves investing to enable them to run even cheaper, lower-quality crudes, if increasingly intrusive regulators will allow it.
When we compare the acquisition prices reported by US refiners to the Energy Information Agency for the actual mix of imported and domestic crudes they bought through April 2008, we see that although the discounts to WTI have widened in the last year, they are not unprecedented. As a result, refiners are paying well over $100/bbl for even the least attractive crude oil grades.
Source: Energy Information Agency
http://tonto.eia.doe.gov/dnav/pet/pet_pri_rac2_dcu_nus_m.htm
On balance then, what does all this tell us about the influence of speculation on oil prices? In the view of the Financial Times and others, speculation is unlikely to be the major driver of high oil prices, since the prices for the physical crudes that refiners process have increased more or less in lock-step with the futures prices we observe, rather than disconnecting in the manner that might logically be expected, if the oil futures were experiencing a speculative bubble. However, I would argue that this hypothesis depends on an understanding of the oil markets that is at odds with the actual structure of the market. The manner in which physical oil is traded with reference to the futures price, combined with the reinforcing-loop relationship between crude oil and refined product prices, makes a disconnect between these markets improbable, even if the futures were caught up in a speculative bubble.