[Tyler_JC]

What the heck is a speculator, anyway?

Is SouthWest Airlines a speculator because they purchased a bunch of long term fuel contracts back in the early 2000s?

I have a hard time believing that abolishing the futures market will lead to anything but chaos.

Secondly, what happens to the oil ETF funds?

Are pensioners, life insurance companies, mutual funds, and millions of small investors going to see their savings pillaged by the government?

If the futures market is really abolished, I suspect a lot of innocent people are in for a shock next time they look at their 401Ks.

[Jack]

Is SouthWest Airlines a speculator because they purchased a bunch of long term fuel contracts back in the early 2000s?

No - LUV is a hedger because they use the commodity, or a very similar commodity.

A farmer who raises wheat might sell on the futures market as a hedger. A large commercial bakery might buy on the futures market, likewise as a hedger.

Hedgers want to lock in a price, and the futures market allows them to do so. In essence, hedgers wish to transfer risk to someone else.

Speculators want risk. The activities of speculators make the market liquid for hedgers.

If Congress eliminates the speculative aspect, they will reduce liquidity and increase volatility. This, in turn, will hurt business.

But what the hey. Anything to generate a scapegoat.

[JohnDenver]

Some tasty nuggets for all my commodity bull buddies at peakoil.com. Enjoy!

Aug. 5 (Bloomberg) -- Global energy and raw-materials stocks fell into bear markets after plunging oil, gold, copper and wheat prices spurred declines in last year's best-performing industries.
[...]
"Commodities prices have hit a choking point,'' said Nader Naeimi, a Sydney-based senior investment strategist at AMP Capital Investors, which manages about $108 billion. "With further evidence of slowing growth there'll be ongoing pressure on mining and resources stocks.''
[...]
"The perception that the global economy is slowing is damping demand for commodities,'' said Park Sehick, a fund manager at Hanwha Investment Trust Management Co. in Seoul, which holds $1 billion in equities. Commodity prices "will keep on falling from here,'' he said.

Link

Deutsche Bank has called the top of the commodity cycle. The uber-bulls of the oil, food and metals boom have advised clients to take profits before the downturn engulfing most of the global economy works its inevitable effects.

Oil will slide back towards its "marginal production cost" of $60 to $80 a barrel; gold will slump to $650 an ounce as the dollar recovers against the euro; copper, lead and tin will slowly halve in price; grains will calm down as harvests in Australia and the Eurasian Steppe return to normal.

The report comes on cue. The CRB commodity index fell 10pc last month, the steepest one-month drop since the onset of the Volcker crunch in 1980. Most raw materials have been slipping for months. Crude was the last to turn after peaking at $147 early last month.
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Deutsche Bank says this year's oil surge has been a quirk. Misjudging demand, Saudi Arabia cut output by 400,000 barrels a day (bpd). Several upsets hit the non-Opec bloc of Russia, Norway, the UK, and Mexico. Rebels caused mayhem in Nigeria. Global supply is now creeping back into surplus.

The Saudis are adding 500,000 bpd. Deepwater projects are coming on stream off the US, Mexico, China, and Africa. The Caspian is cranking up a gear. Non-Opec will add 2.2m bpd over this year and next, says the International Energy Agency.

Linkarooney

[Cashmere]

Patience young man, patience.

[Heineken]

I'm enjoying loading up on the tasty nuggets I so love.

It's a two-fer sale!

[mattduke]

We've enjoyed nine double-digit drop buying opportunities in oil equities since 2005.

link

[Bas]

Crude was the last to turn after peaking at $147 early last month.

It doesn't surprise me that the commodities would go down and it doesn't surprise me that oil would follow in this economic climate and would stay lower, or around $100 because of the first round of demand destruction and/or substitution/mitigation taking effect.

What does surprise me is this:

Non-Opec will add 2.2m bpd over this year and next, says the International Energy Agency.

a net increase of 2.2 mbpd by non opec?! I'd have to see it to believe it and I doubt that it will materialize. On the other hand, I hope and think that we won't see a sharp drop in production either in the next 2 years or so but that's also wait and see.

As for the other commodities, it seems logical to me that the prices of those (except PM) would be rather depressed when oil breaks the back of the global economy. Either way we'll always be watching, and I for one hope that the inevitable can be postponed for as long as possible.

[coyote]

Look at all the yummy red rolling down the page...

Bloomberg commodities

Maybe this time I'll actually have the guts to trust myself and jump in at the right time.

[Heineken]

The next thing we will hear is that SUV sales are creeping back up.

The stupidity will go on, in a long, down-spiraling cycle.

[BigTex]

We've enjoyed nine double-digit drop buying opportunities in oil equities since 2005.

link

That link has a lot of interesting information packed into a pretty small space.

Thanks for posting it.

It seems to me that there will be MORE money to be made in energy as oil drops (assuming it finds a floor around $100) because there will be more economic activity and less demand destruction, and overall a less spooky economic environment. Based upon that thesis, it's comical that the oil sector is selling off this way.

I'm not saying whether this thesis is good or bad, I'm just saying that's what the reality is likely to be.

It looks like a good buying opportunity to me. I put some more chips in last week, which was a little early, but no sweat.

[smartyram]

We've enjoyed nine double-digit drop buying opportunities in oil equities since 2005.

link

Thank you very much for the link!

[ReducedToZero]

Yeah I put chips in USO last week and ill definately put some more if goes to $100

[sameu]

You must be dissapointed JD, since you have always claimed that high prices are necessary and are a positive thing

[smallpoxgirl]

Seems to me this just might be related to a graph you posted a couple of weeks ago JD:



For a couple of years now, economic activity has been proceeding unchecked despite shrinking supplies of a variety of natural resources. The inevitable result of that is skyrocketing commodity prices. Now world economies are starting to falter causing commodity prices to fall. Eventually those two lines will start to move in tandem down and commodity prices will stabilize.

[mattduke]

I think the concept of a numeric value for GDP is bunk, I don't care what the Economics 101 books say.

[DantesPeak]

I think the concept of a numeric value for GDP is bunk, I don't care what the Economics 101 books say.

GDP includes such unusual items such fees on bank accounts, if there were fees on those accounts, and an adjustment for computer spending based upon factors such as higher CPUs - thereby maybe double counting such spending. These adjustments grow over time.

[BigTex]

I think the concept of a numeric value for GDP is bunk, I don't care what the Economics 101 books say.

GDP includes such unusual items such fees on bank accounts, if there were fees on those accounts, and an adjustment for computer spending based upon factors such as higher CPUs - thereby maybe double counting such spending. These adjustments grow over time.

I don't want to derail the thread, but the post above got me to thinking about what the CPI might look like if you compared a similar lifestyle today to 50 years ago.

First, I would see what it cost to live in an 1800 sq. ft. house, own one car, own one TV set, eat out twice a month, and get basic medical care in 1958.

Then, I would see what the SAME lifestyle costs today. Same square footage, one car, one small TV, no cable, no computer, no internet, no health club membership, no satellite navigation, no eating out several times a week, no Starbuck's, no child care so one parent can work, no iPod, no cell phone, very rare use of commercial airlines, no central air and heat, no modern medicine (just basic care using old methods and medicines, which are actually pretty cheap).

The dramatic increases in efficiency for things like appliances, insulation and automobiles would help offset some of the increase in prices.

I think that this analysis might show that there HAS been dollar devaluation, but there has also been a dramatic increase in what people think of as a "normal" lifestyle.

The REAL "inflation" may be in the increased desire for more things rather than in the prices of the things themselves.

Look at closet sizes of houses built in the 1940s. Those weren't small closets back then. People just had less stuff than they do now, and apparently it didn't bother them too much.

[frankthetank]

You forgot the boat, atv, snowmobile, snowblower, riding lawnmower, trailer....

You are exactly right. If you live a BASIC life today, it isn't horrible. My wife and I kind of live that lifestyle, with a few of todays "necessities".

[MrMambo]

The markets focus on short term supply/demand changes and send oilprices tumbling down to 20 month lows as IEA revises short to medium term demand outlook sharply down because of the financial crisis.

I don't know how long term futures are moving.. because I'm very curious about how 2010 prices are moving today. Any intelligent person reading about the current oil production decline rates described in the IEA World Energy Outlook 2008 summary would conclude that within the next few years prices are likely to go significantly up even with a continuation of the current recession.

The fall in consumption in the western world will be eaten up by increased consumption in China, India and Oil-exporting nations. China is not going from 10% annual growth to negative growth overnight, and with their recently announced crisis-plan to boost inland activivity by hundreds of billions of dollars over the next few years we should se oil demand increasing rather than falling in China. This increase has to be provided through export. And with export from Opec countries being increasingly eaten up by internal consumption, the amount of oil available on the world market is bound to be increasingly tight.


I belive current price levels does not accurately reflect the supply demand situation.

1) Prices have not sufficiently reacted to announced Opec supply cuts.
2) The financial crisis where cash is king any asset that can easilly be liquidated and turned into dollars is sold off. That is why all assets have been falling simultaniously and the dollar is extreemly strong. That is why even good companies with strong profits, and valuable commodities see their price fall below their actual value.
3) The focus on short term supply/demand in the USA is still too important for day to day price setting. Short term price swings are often over-reactions to buildups and dropoffs in American oiltanks.

I have a small but limited hope that longer term prices are based on a more global supply/demand understanding. Could market players actually set prices more rationally on a longer perspective?

So I would appreciate a link to where I could check out oil-future trading in 2010 and beyond.