Speculators

joeltrout · **Joined:** Wed Sep 19, 2007 12:00 am **Posts:** 1305

Commodity Futures Trading Commission Report

Quote:

The Task Force’s preliminary assessment is that current oil prices and the increase in oil prices between January 2003 and June 2008 are largely due to fundamental supply and demand factors. During this same period, activity on the crude oil futures market – as measured by the number of contracts outstanding, trading activity, and the number of traders – has increased significantly. While these increases broadly coincided with the run-up in crude oil prices, the Task Force’s preliminary analysis to date does not support the proposition that speculative activity has systematically driven changes in oil prices.

Quote:

On the contrary, most speculative traders typically alter their positions following price changes, suggesting that they are responding to new information – just as one would expect in an efficiently operating market.

Quote:

While global demand has proven strong, oil production growth has not kept pace.

Quote:

Moreover, if speculative positions, rather than fundamentals, were pushing prices upward, then inventories would be expected to rise. To date, there is no evidence of such an accumulation; in fact, known inventory levels actually have declined.

Quote:

The fastest growth in open interest has been recorded among non-commercial traders – often called “speculators” – holding spread positions combining long positions in one month with short positions in another month. Thus, while the long positions of non-commercial traders have increased, the short positions of non-commercial traders also have increased. Additionally, although the net long positions of non-commercial traders have increased somewhat since 2004 – which some market observers have hypothesized has pushed prices up – the proportion of those positions has been relatively constant as a share of open interest over the last few years, undercutting that hypothesis.

Quote:

The Task Force’s preliminary analysis also suggests that changes in the positions of swap dealers and non-commercial traders most often followed price changes. This result does not support the hypothesis that the activity of these groups is driving prices higher. The Task Force has found that the activity of market participants often described as “speculators” has not resulted in systematic changes in price over the last five and a half years. On the contrary, most speculative traders typically alter their positions following price changes, suggesting that they are responding to new information – just as one would expect in an efficiently operating market. In particular, the positions of hedge funds appear to have moved inversely with the preceding price changes, suggesting instead that their positions might have provided a buffer against volatility-inducing shocks.

joeltrout

Twilight · **Joined:** Fri Mar 02, 2007 1:00 am **Posts:** 3062

Thanks. That settles it. I especially like the conclusion that the market damps the noise. You can bet that will change if access is restricted.

DantesPeak · **Posted:** Wed Jul 23, 2008 3:06 pm

Evidence is accumulating that oil speculators were on the short side of the market - in other words, betting on prices to fall.

My own best guess is that speculators kept prices lower than they should have been in late 2007 and early 2008. Then as they tried to get out of losing positions, they were forced to buy at ever higher prices in a panic mode.

At this point, I think speculators have now balanced each other out - since the amount of outstanding contracts has declined. But as I have said I think for two years, speculators will be blamed for higher oil prices despite all evidence to the contrary.

Quote:

Huge oil trading loss sinks energy trader SemGroupReuters, Tuesday July 22 2008 (Recasts; adds details from bankruptcy filing)
By Robert Campbell

NEW YORK, July 22 (Reuters) - A massive $3.2 billion trading loss on oil futures and derivatives sank high flying energy trader SemGroup LP, which at one time billed itself as the 14th-largest private company in the United States.

The Tulsa-based SemGroup shorted NYMEX crude oil futures to hedge against a decline in the value of the oil it purchased as part of its 500,000-barrel-per-day trading business, according to court documents, before surging crude prices forced it to recognize billions of dollars in losses on futures positions.

SemGroup was forced to recognize a $2.4 billion loss on July 16 after it transferred its NYMEX trading account to Barclays Plc. The firm had been recognizing this position as "loss contingencies," according to its bankruptcy filing in Delaware federal court.

Guardian

JohnDenver · **Joined:** Sun Aug 29, 2004 12:00 am **Posts:** 2171

The report is a crock -- a bunch of mumbo-jumbo to throw people off the scent and protect the CFTC's Wall Street/hedge fund constituency.

Amazingly, the report clears everybody of responsibility. Manufacturers, commercial dealers, producers, other commercial traders, swap dealers, index funds, hedge funds, floor brokers/traders... None of these people had anything whatsoever to do with the price rise. What a complete crock.

You can't blame the rise in futures prices on supply and demand for the simple reason that supply and demand are abstractions which don't buy/sell futures, and therefore can't have any effect on the market. Only people can affect the market, and since the CFTC has officially cleared all people of involvement, it seems the market just rose by magic. You know, pay no attention to that man behind the curtain. LOL.

There are only two facts you need to know to understand the speculator situation:

1) When the price of oil rises, there is a group of cynical profiteers on the futures exchanges who make obscene sums of money.
2) The average Joe gets his wallet cleaned out.

Now, the Wall Street/hedge fund people and their toadies will try to tell you that there is no connection whatsoever between 1) and 2). That's how stupid they think you are.

The best approach is probably to enact extremely invasive reporting requirements, and publicly disclose the names and windfall profit totals for all speculators profiting on oil.

Zardoz · **Posted:** Wed Jul 23, 2008 4:56 pm

JohnDenver wrote:

The report is a crock -- a bunch of mumbo-jumbo to throw people off the scent and protect the CFTC's Wall Street/hedge fund constituency.

Amazingly, the report clears everybody of responsibility. Manufacturers, commercial dealers, producers, other commercial traders, swap dealers, index funds, hedge funds, floor brokers/traders... None of these people had anything whatsoever to do with the price rise. What a complete crock.

Right on cue, as always, carrying his own personal "Peak Oil is a non-event" crock, as always.

We love you, JD.

DantesPeak · **Posted:** Wed Jul 23, 2008 5:04 pm

JohnDenver wrote:

1) When the price of oil rises, there is a group of cynical profiteers on the futures exchanges who make obscene sums of money.

The best approach is probably to enact extremely invasive reporting requirements, and publicly disclose the names and windfall profit totals for all speculators profiting on oil.

It seems like you have overlooked the facts I have posted and drew some conclusions from your alternative reality world where speculators are making money from the rising price of oil.

Speculators are losing money betting on price declines that haven't happened.

Why is it that people who have the worst record predicting the price of oil have the most difficulty accepting PO?

TheDude · **Posted:** Wed Jul 23, 2008 6:04 pm

JohnDenver wrote:

You can't blame the rise in futures prices on supply and demand for the simple reason that supply and demand are abstractions which don't buy/sell futures, and therefore can't have any effect on the market.

Wow. Refiners are abstractions? Admittedly I've only seen them in photos, maybe you're on to something there.

I'd love for high oil prices to be indicative of nothing more than market manipulation, or the CFTC report to be the work of a bunch of compromised Bush appointees. I've even run your pricing scheme past outside authorities to see what they said.

Quote:

Some private sales are set based on futures prices. Some are not. That's old news, and it doesn't mean that futures prices determine oil prices. The Saudis, for example, change the formula all the time when they don't like it. There was just a headline this week that they were raising prices.

The thing JD misses is that, if fundamentals don't support the price the Saudis want to charge, NO ONE WILL BUY THE OIL. In fact, exactly this is happening to Saudi Arabia (light sour oil) and Iran (heavy sour oil). They are asking more than people are willing to pay, so people aren't buying.

Prices are set by supply and demand. I just don't get why that is so hard for people to understand. If there is excess supply, suppliers will undercut each other until the price falls far enough. If supply is unconstrained, prices will usually fall to close to the production price. Otherwise, suppliers will ALWAYS charge the maximum price the market will bear. That's what businesses do. And that's what is happening with oil now.

roccman · **Posted:** Wed Jul 23, 2008 7:13 pm

Congress Pursues $80 Oil With Trading Limits, Disclosure Rules

July 23 (Bloomberg) -- Congress may outlaw elements of oil futures trading that lawmakers found distorted demand and contributed to the 69 percent surge in prices in the past year.

Hmmm...that's interesting...why not make it $20 oil so we can have .75 gas...

JohnDenver · **Joined:** Sun Aug 29, 2004 12:00 am **Posts:** 2171

TheDude wrote:

JohnDenver wrote:

You can't blame the rise in futures prices on supply and demand for the simple reason that supply and demand are abstractions which don't buy/sell futures, and therefore can't have any effect on the market.

Wow. Refiners are abstractions?

Refiners are people. Supply and demand aren't. Only *people* who trade on futures exchanges can affect the price of futures. It's pretty elementary really.

And what is your evidence that refiners were responsible for driving the price higher? The report from the CFTC cleared them -- proved they had nothing at all to do with driving the price higher. See Fig. 16 on P. 28 (refiners are classified as "manufacturers"). In fact, the CFTC proved that nobody drove the price higher. That's how you know their results are a pile of dung.

Quote:

I've even run your pricing scheme past outside authorities to see what they said.

Wow, that's some "authority". Joeshmo917 on the Oil Drum. LOL.
I backed up my point with extensive references, as you know.

JohnDenver · **Joined:** Sun Aug 29, 2004 12:00 am **Posts:** 2171

Zardoz wrote:

Right on cue, as always, carrying his own personal "Peak Oil is a non-event" crock, as always.

Actually, peak oil has pretty much been a non-event -- at least compared to the hysterical end of the world predictions that bedwetters like you and Roccman have been promulgating.

JohnDenver · **Joined:** Sun Aug 29, 2004 12:00 am **Posts:** 2171

DantesPeak wrote:

JohnDenver wrote:

1) When the price of oil rises, there is a group of cynical profiteers on the futures exchanges who make obscene sums of money.

The best approach is probably to enact extremely invasive reporting requirements, and publicly disclose the names and windfall profit totals for all speculators profiting on oil.

It seems like you have overlooked the facts I have posted and drew some conclusions from your alternative reality world where speculators are making money from the rising price of oil.

Speculators are losing money betting on price declines that haven't happened.

{deleted}

Quote:

Why is it that people who have the worst record predicting the price of oil have the most difficulty accepting PO?

I accepted peak oil about 5 minutes after I heard about it, 4 years ago. I just don't accept your agenda of coddling hedge funds and other profiteers.

{ad hominems removed by SPG}

DantesPeak · **Posted:** Wed Jul 23, 2008 7:54 pm

JohnDenver wrote:

DantesPeak wrote:

JohnDenver wrote:

1) When the price of oil rises, there is a group of cynical profiteers on the futures exchanges who make obscene sums of money.

The best approach is probably to enact extremely invasive reporting requirements, and publicly disclose the names and windfall profit totals for all speculators profiting on oil.

It seems like you have overlooked the facts I have posted and drew some conclusions from your alternative reality world where speculators are making money from the rising price of oil.

Speculators are losing money betting on price declines that haven't happened.

{deleted}

Quote:

Why is it that people who have the worst record predicting the price of oil have the most difficulty accepting PO?

I accepted peak oil about 5 minutes after I heard about it, 4 years ago. I just don't accept your agenda of coddling hedge funds and other profiteers.

What agenda would I have? If I had an agenda or some relationship to the energy/trading industires, I wouldn't even bother to make a single post here.

I'd be glad to consider anything you have to say if you present some facts to back up your opinions and address the facts we present. So far, all we have is your unsubstantiated opinion.

DantesPeak · **Posted:** Wed Jul 23, 2008 7:57 pm

roccman wrote:

Congress Pursues $80 Oil With Trading Limits, Disclosure Rules

July 23 (Bloomberg) -- Congress may outlaw elements of oil futures trading that lawmakers found distorted demand and contributed to the 69 percent surge in prices in the past year.

Hmmm...that's interesting...why not make it $20 oil so we can have .75 gas...

So people that think the price of oil will decline base their position on the undocumented opinion of Petroleos Mexicanos, one of worse run major oil companies in the world?

TheDude · **Posted:** Wed Jul 23, 2008 10:34 pm

JohnDenver wrote:

Refiners are people. Supply and demand aren't. Only *people* who trade on futures exchanges can affect the price of futures. It's pretty elementary really.

They're called "Commercial participants" in the report. News of them being unable to obtain product is rather anecdotal (news reports instead of quantified documentation from IEA etc.) but extensive.

Quote:

Among commercial traders, much of the growth in open interest comes from greater activity by two categories – commodity swap dealers and commercial dealers. While commercial dealers utilize futures trading to manage price risk for the purchase and sale of physical commodities, commodity swap dealers use futures markets to manage price risk stemming from their OTC swap business (as discussed above) and also to handle the majority of commodity index trades in the futures markets. To improve market transparency, in June 2008, the CFTC issued a Special Call for, among other things, disaggregated information concerning OTC swaps from swap dealers and commodity index traders.

And in the conclusion:

Quote:

To date, there is no statistically significant evidence that the position changes of any category or sub-category of traders systematically affect prices. This is to be expected in well-functioning markets. On the contrary, there is evidence that non-commercial entities alter their position following price changes. This is also expected because new prices convey information affecting the prospects and the risks of those entities. This being an interim report, the Task Force intends to examine these findings further as it continues its work. However, to this point of the examination, the evidence supports the position that changes in fundamental factors provide the best explanation for the recent crude oil price increases. Observed increases in the speculative activity and the number of traders in the crude oil futures market do not appear to have systematically affected prices.
Moreover, if speculative activity has pushed oil prices above the levels consistent with physical supply and demand, increases in inventories should emerge as higher prices reduce consumption and investment in productive capacity is encouraged. Although this process may take time to unfold, inventories of crude oil and petroleum products, according to available data, have declined significantly over the past year. The view that financial investors have pushed prices above fundamental values is also difficult to square with the fact that prices for other commodities that do not trade on established futures markets (such as coal, steel, and onions) have risen sharply as well.

Lack of supply is having the same effect on prices as in 1973/79. The shortages are to be found worldwide, but alas not in Japan - yet. But we have bigger fish to fry...

JohnDenver · **Joined:** Sun Aug 29, 2004 12:00 am **Posts:** 2171

TheDude wrote:

JohnDenver wrote:

Refiners are people. Supply and demand aren't. Only *people* who trade on futures exchanges can affect the price of futures. It's pretty elementary really.

They're called "Commercial participants" in the report. News of them being unable to obtain product is rather anecdotal (news reports instead of quantified documentation from IEA etc.) but extensive.

Dude, you're just changing the subject again.
The CFTC report calls refiners "manufacturers":

Quote:

Manufacturer (AM): A large trader that declares itself a “Manufacturer” on CFTC Form 40, which provides as examples “refiner, miller, crusher, fabricator, sawmill, coffee roaster, cocoa grinder.” In the crude oil and product futures and option markets, Manufacturers are likely to be refiners. (P. 37)

Now, look at Fig. 16 on P. 28, and the remarks attached to it. The bottom line is that Commercials (Manufacturers, Commercial Dealers, Producers, Other Commercial Traders, Swap Dealers) and Non-commercials (Hedge Funds, Floor Brokers & Traders) all had nothing whatsoever to do with making the price rise. So the $64,000 question is: How did the price rise on the exchange if none of the participants on the exchange were involved? Can you give a straight answer to that question?

Speculators

Who is online