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is it really worth it?
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is it really worth it?

  #91 (permalink)
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By "speculator" are we assuming it's "traders" ?

I'm more inclined towards the idea that the origins of oil are abiotic.
That oil is "self replenishing".
It's never going to run out but they can't tell us that.

Doesn't it still only cost about $2 a barrel at source ?
Aren't producers tied to who they can actually sell their oil to ?
That being a "middle man" ?
The middle man sets the price the producer gets and the buyer pays.
Isn't the BIS (Bank of International Settlements) the middle man ?

I know little about these things, so just some thoughts....go easy on me

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  #92 (permalink)
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zt379 View Post
By "speculator" are we assuming it's "traders" ?

I'm more inclined towards the idea that the origins of oil are abiotic.
That oil is "self replenishing".
It's never going to run out but they can't tell us that.

Doesn't it still only cost about $2 a barrel at source ?
Aren't producers tied to who they can actually sell their oil to ?
That being a "middle man" ?
The middle man sets the price the producer gets and the buyer pays.
Isn't the BIS (Bank of International Settlements) the middle man ?

I know little about these things, so just some thoughts....go easy on me

You are really dreaming, are you? I am going easy, but there are few posts in this
forum, which are more offending. That said you cannot offend me by insulting me,
but you can easily offend me by posting nonsense.

-> Oil is not abiotic. The deep water reserves are only found near the deltas of large rivers.
-> Oil is not self-replenishing.
-> Oil does not cost $2 at the source. The total cost is basically made up of exploration cost and production cost:

Exploration cost 2004-2006
US onshore: 11.4 $/bbl.
US offshore: 63.7 $/bbl
Canada: 19.4 $/bbl
Europe: 22.8 $/bbl
Middle East: 5.0 $/bbl

Production cost 2006:
US 6.8 $/bbl
Canada 8.3 $/bbl
Europe 6.4 $/bbl
Middle East 4.6 $/bbl

-> Producers are not tied except where oil is transported via pipeline from the source to the refinery
-> There are no middle men.
-> The Bank of International Settlements has nothing to do with it.

Did you compile all that stuff on purpose just to annoy me?


Last edited by Fat Tails; September 12th, 2011 at 02:57 AM.
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  #93 (permalink)
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Fat Tails View Post
You are really dreaming, are you? I am going easy, but there are few posts in this
forum, which are more offending.

I could be wrong but I sense you disagree...
Surely not the entire forum.....!!

Quoting 
That said you cannot offend me by insulting me,
but you can easily offend mec by posting nonsense.

Neither to offend or insult, as I'm sure you know...
I can appreciate however, how nothing more offends the educated than what they perceive as ignorance.


Quoting 
-> Oil is not abiotic. The deep water reserves are only found near the deltas of large rivers.
-> Oil is not self-replenishing.
-> Oil does not cost $2 at the source. The total cost is basically made up of exploration cost and production cost:

These all appear to be definitively "no".
That's a rather committed place to be ?

Are you of the view that oil is a consequence of lots of very old decayed fossils ?


Quoting 
Exploration cost 2004-2006
US onshore: 11.4 $/bbl.
US offshore: 63.7 $/bbl
Canada: 19.4 $/bbl
Europe: 22.8 $/bbl
Middle East: 5.0 $/bbl

Production cost 2006:
US 6.8 $/bbl
Canada 8.3 $/bbl
Europe 6.4 $/bbl
Middle East 4.6 $/bbl

Those are interesting numbers, especially from the Middle East. Thx

Quoting 
-> Producers are not tied except where oil is transported via pipeline from the source to the refinery

and that's not mostly the case ?

Quoting 
-> There are no middle men.

-> The Bank of International Settlements has nothing to do with it.

There's always a middle man.
And my guess is that the BIS is in charge of pricing.

Are we saying that the price traders see on their screen has anything to do with the price
producers and "retailers"sell and buy at ?

Consequently I'd ask what exactly are traders trading ?
My 6th sense thinks there's something very odd about commodity prices
at exchanges and that, in respect of the thread, "speculators" are a red herring, a diversion away from
the real "game" that's going on..

Quoting 
Did you compile all that stuff on purpose just to annoy me?

Well of coarse....

Every moment I wake up I realize I know nothing, and then I smile...

Last edited by zt379; September 11th, 2011 at 08:41 PM.
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  #94 (permalink)
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zt379 View Post
Are we saying that the price traders see on their screen has anything to do with the price
producers and "retailers"sell and buy at ?

Consequently I'd ask what exactly are traders trading ?
My 6th sense thinks there's something very odd about commodity prices
at exchanges and that, in respect of the thread, "speculators" are a red herring, a diversion away from
the real "game" that's going on..
Well of coarse....

The pricing of physical Crude typically depends on the quality which is traded (Russian Export Blend is cheaper than Brent, as it contains more sulphur) and on the location. You have to differentiate between the spot market and longer term contracts, which will either use a fixed price or a formula linked to the spot price, such as determined by an independent provider of market information such as Platt's.

Oil is currently more expensive in Europe, as the physical demand for Brent is higher than for WTI. This is reflected by a price differential of about 25$ between Brent and WTI. If you look at your screen Brent currently trades at $ 111.55, whereas WTI (Cushing) trades at $ 85.74. This shows that there is a connection between the physical market and the futures markets.

Why do you post, if you don't have a clue what is going on? Go and meet some of the physical crude traders in Houston, Geneva or Singapore and ask them what they are doing and what they need their screens for.

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  #95 (permalink)
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Fat Tails View Post

Oil is currently more expensive in Europe, as the physical demand for Brent is higher than for WTI. This is reflected by a price differential of about 25$ between Brent and WTI. If you look at your screen Brent currently trades at $ 111.55, whereas WTI (Cushing) trades at $ 85.74. This shows that there is a connection between the physical market and the futures markets.


Iíve been wondering for some time how the Brent crude vs. WTI spread could get so wide. I keep thinking why donít tanker owners just buy a load of WTI and ship it off to Europe? After all WTI is slightly better quality oil with lower sulphur content than Brent.

I think Iíve finally figured it out. The Oklahoma oil terminal is land locked, and with no pipe line to the sea. There is a pipe line being built so the spread will not last forever.

http://blog.gasbuddy.com/posts/Brent-crude-103-WTI-NYMEX-crude-86-Answers-to-why-inside/1715-435487-499.aspx

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  #96 (permalink)
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andy2001 View Post
Iíve been wondering for some time how the Brent crude vs. WTI spread could get so wide. I keep thinking why donít tanker owners just buy a load of WTI and ship it off to Europe? After all WTI is slightly better quality oil with lower sulphur content than Brent.

I think Iíve finally figured it out. The Oklahoma oil terminal is land locked, and with no pipe line to the sea. There is a pipe line being built so the spread will not last forever.

http://blog.gasbuddy.com/posts/Brent-crude-103-WTI-NYMEX-crude-86-Answers-to-why-inside/1715-435487-499.aspx

Historically, Brent has traded at a small discount to WTI. Starting from the end of 2010 it trades at a huge premium. This suggests that physical arbitrage is only possible one way.

The main problem is that the NYMEX WTI contract is only deliverable in Cushing, and as you correctly pointed out

-> pipelines are configured to import crude oil and cannot handle exports
-> export of domestically produced crude is prohibited under the Energy Policy and Conservation Act

NYMEX crude price do not reflect the world market, but only the local supply and demand balance in Oklahoma. It is a joke that the NYMEX contract is used by index funds.

Two articles on the situation, links posted below:

FT Alphaville The Fedís convenient WTI ĎCushingí factor
FT Alphaville The Fedís oil easing

Chart with Brent/WTI spread attached.

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is it really worth it?-bc-monthly-_-cl-monthly-10_1996-10_2011.jpg  
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  #97 (permalink)
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Wow, a lot of things I did not know about crude oil. Interesting thread. I only trade crude now and enjoyed this one.

But, regardless of cost, location, quality, middle men, scarcity, or manipulation, crude prices can never be too high or too low, unless you have some interest in physical delivery or hedging. Buying, selling, holding on or averaging in, just because the numbers don't make sense, will hurt you.

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"Since 1991 the CFTC has given secret exemptions from hedging regulations to 19 major banks and market participants, allowing them to accumulate essentially unlimited positions. These exemptions were originally given in secret, coming to light only as the 2008 financial crisis unfolded and Congress requested information on market participants. A trader or bank granted an exemption as a bona-fide hedger can affect the price of a commodity without being either its producer or consumer."

Commodity Futures Trading Commission - Wikipedia, the free encyclopedia


When we trade more than what physically exist or will ever deliver, then speculators are indeed a negative force since producers are forced into hedging in excess of what they normally would. It undermines the credibility of the system, and of course when dealing with energy and food, has dire consequences for mankind. The fact that pension funds all over the US were sold a bill of goods by Goldman Sachs and got involved in this mania in 2007/2008 shows how insane an unregulated, no position limit market of an essential commodity can become.

Example:

"The CFTC complaint alleges that between January 8 and January 18 of 2008, oil traders Nicholas Wildgoose and James Dyer entered into forward contracts to buy 4.6 million barrels of oil for physical delivery in February, an amount that represented 66% of their beginning-of-month estimate of the total physical Cushing market. Between January 3 and January 16, the pair is alleged to have also bought about 13,600 February futures contracts (equivalent to 13.6 million barrels of oil) and sold the same number of March futures contracts. The claim is that by creating the appearance of temporarily tighter conditions in the physical market, the February futures price would rise relative to the March and the traders would profit as they closed out their futures positions between January 16 and January 22."

http://www.econbrowser.com/archives/2011/05/oil_price_manip.html

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  #99 (permalink)
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crosscreek View Post
Example:

"The CFTC complaint alleges that between January 8 and January 18 of 2008, oil traders Nicholas Wildgoose and James Dyer entered into forward contracts to buy 4.6 million barrels of oil for physical delivery in February, an amount that represented 66% of their beginning-of-month estimate of the total physical Cushing market. Between January 3 and January 16, the pair is alleged to have also bought about 13,600 February futures contracts (equivalent to 13.6 million barrels of oil) and sold the same number of March futures contracts. The claim is that by creating the appearance of temporarily tighter conditions in the physical market, the February futures price would rise relative to the March and the traders would profit as they closed out their futures positions between January 16 and January 22."

Econbrowser: Oil price manipulation

@crosscreek: Thank you for posting this example!

The situation in Cushing is indeed absolutely insane.

The most important feature of any futures contract is the link to the physical market. This is the main reason that every futures contract has a delivery date and most of them are settled physically. In theory this allows arbitrageurs

(1) to buy futures and sell the commodity cash if the futures price is too low
(2) to sell futures and buy the commodity cash if the futures price is too high

No apply this situation to Cushing. Cushing is an in land depot for crude, which

-> has limited pipeline capacity for transporting crude to Cushing (and which is scheduled in advance)
-> has no pipeline capacity for transporting crude from Cushing back to the ports

Let us have a look at the two hedges (1) and (2).

In case (1) the arbitrageur will see himself the crude delivered at expiry in Cushing. But there is no way of getting rid of this product! You can only sell it to a local refinery at a discount.

In case (2) the arbitrageur will have to transport the commodity, which he had physically bought to Cushing for delivery against his short futures position. But the pipeline capacity and the scheduling makes it virtually impossible to get the crude there for delivery.

So the example that you cited, was a consequence of the contract specifications. If you select a delivery point for futures contract, where crude oil can only be dropped by helicopter, arbitrage is not possible and speculators are invited to benefit from that situation.

Cushing is in no way suitable as delivery point for a crude oil contract, any large harbour with sufficient storage facilities would easily do. No go one step ahead, and think about why Cushing is maintained as delivery point.

Hint: The price differential between the higher quality WTI and the lower quality Brent Crude ($ 20/bbl more expensive). Does n't is suit the FED and the US government that crude prices of the main futures contract are kept artificially low, due to the fact that Cushing is a one-way depot (you can only import but not export crude). A one-way depot will always have lower prices than a coastal market depot, im particular if regulations prevent the export of crude.

Hence the manipulation that you mentioned is only a small one, compared to the large manipulation undertaken by US authorities.

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  #100 (permalink)
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Totally agree, - price should be based on "supply & demand", period. Folks actually engaged in the energy market, or heavy users like airlines, train & trucking companies should be allowed to hedge if they want to. - Back in the mid-90's I traded commodities for awhile, - and the LAST damn thing I wanted was to take delivery on anything.

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