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seldom_seen wrote:Two words: volatility.
Dreamtwister wrote:Blatant crosspost to follow:
If the big players like G&S suspected that there were a "significant number" of contracts that would not be delivered over the next... let's say 2 years, wouldn't that be a good reason to bail before those contracts were violated?
I know *I* wouldn't want to be stuck holding a worthless piece of paper come the delivery date. If I had reason to believe there would be no delivery, I'd be reducing my energy holdings as fast as humanly possible.
Just a thought.
Goldman Sachs Commodities Research
January 12, 2007
Recent price action inconsistent with commodity index reweightings
Commodity index reweightings have been inconsistent with recent price action across the commodity complex
The increased price volatility across the commodity complex since the start of the year has generated substantial attention on the reweighting of commodity indices that takes place in January of each year. Although the 2007 commodity weights have been public knowledge for several months, implementation of the 2007 weights has taken place this week.
A review of the commodity index reweightings reveals that the shifts have been inconsistent with recent price action across the complex. Specifically, if index reweightings were a key driver behind the recent price action, the result would have been shallower declines (or even outright increases) in those commodities that had received relatively higher weights. However, this has not been the case. In particular, WTI crude oil has declined the most of all the commodities, despite the fact the index reweightings should have lent support to WTI relative to most of the rest of the complex.
(Fortune Magazine) -- Crude oil prices hit a series of record highs in the past month, topping $83 a barrel - and that was after OPEC announced it would increase production by 500,000 barrels a day. The sharp spike went against post-Labor Day tradition, when the end of a gas-guzzling summer usually brings lower prices, and refineries head into their fall maintenance schedule.
After Goldman Sachs raised its year-end price forecast by $13, to $85 a barrel, Jeffrey Currie, global head of commodities research in London, spoke to Fortune's Eugenia Levenson about where oil is headed from here.
What's behind the recent surge in crude oil prices?
The OPEC supply increase was too little, too late. The market is in a significant deficit, the first deficit we've seen since 2003. Inventory started to drop in October of last year for two reasons. Non-OPEC supply has been extraordinarily disappointing, because those producers are hitting technical difficulties with new equipment and their existing fields are getting less productive. OPEC has the supply but hasn't brought it online. The second factor is that we're in the part of the energy cycle where extraction costs are rising and have been since 2001.
So how high will prices climb?
Our high-risk scenario is in the $90 to $95 a barrel range. I think there's high probability we'll get there, rapidly approaching 50%. The later OPEC is in responding to the higher prices, the sharper the deficit and the more critical the drawdown on inventory this winter - and the more volatile the price spikes. They'll have to respond by first quarter of next year, barring a global collapse in demand.
Why hasn't OPEC increased supply?
First and foremost, domestic demand is strong in the entire Gulf region. Exports from the Middle East are lower today than they were in 2000, but production is up two million barrels a day. There are serious bottlenecks preventing non-OPEC from growing supply even at $70 per barrel, so if I'm OPEC, I know I don't have significant competition for market share. The last reason, which is very important, is that if OPEC did ramp up production, they'd go to capacity, which would reduce their political negotiating position.
heroineworshipper wrote:Free credit in response to rising prices keeps the SUV's flowing out of the dealers.
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