Follow up to Pete's thread below
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Speculation doesn't drive up oil prices.
I'm the ocean. I'm a giant undertow.
Gee - seems like a lot of people disagree with you.
Christian Graus Please read this if you don't understand the answer I've given you "also I don't think "TranslateOneToTwoBillion OneHundredAndFortySevenMillion FourHundredAndEightyThreeThousand SixHundredAndFortySeven()" is a very good choice for a function name" - SpacixOne ( offering help to someone who really needed it ) ( spaces added for the benefit of people running at < 1280x1024 )
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Phannon wrote:
I'm fully aware of "Supply and Demand", but how does this explain other petrol stations keeping their prices relatively in line?
What does "keeping their prices relatively in line" even *mean*? And of what use at all is "keeping their prices relatively in line" (whatever that means) when the first three blokes in line have bought up all the available gas ... even though they didn't need all they bought ... leaving NONE AT ALL for the other twenty behind them?
Ilíon wrote:
What does "keeping their prices relatively in line" even *mean*?
All stations charge roughly the same price at any given time. No one station typically charges a lot more or less. Does that make sense to you? Think about it, why didn't other petrol stations raise their prices? Why did the petrol station in question reduce their prices after a bit of criticism? If they were in the right to do so, why didn't they?
He who makes a beast out of himself gets rid of the pain of being a man
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73Zeppelin wrote:
Speculation doesn't drive up oil prices.
It does. Othewise, one can not explain why the price is still rising, even when the current supply is greater than the current demand. But speculation is not the sole or main reason fot the price rise. The dollar losing value is much more important, as is a changing pattern of demands.
Let's think the unthinkable, let's do the undoable, let's prepare to grapple with the ineffable itself, and see if we may not eff it after all.
Douglas Adams, "Dirk Gently's Holistic Detective Agency"jhwurmbach wrote:
It does.
No it doesn't. It plays no role in commodity price formation. Speculators don't even hold the physical commodity - they trade solely in the futures contract. That's how the CFTC defines speculative activity in their Tuesday reports. Consequently, speculation in the futures market doesn't involve holding the physical and, as such, there is absolutely no reason or mechanism by which speculators can drive up the futures price of oil.
jhwurmbach wrote:
Othewise, one can not explain why the price is still rising, even when the current supply is greater than the current demand.
Yes one can - inventory levels, output production, seasonal demand, excess demand, inflation and macroeconomic factors along with increased holding of the physical for hedging purposes. And not to mention the increased cost of transport due to higher fuel costs.
I'm the ocean. I'm a giant undertow.
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Gee - seems like a lot of people disagree with you.
Christian Graus Please read this if you don't understand the answer I've given you "also I don't think "TranslateOneToTwoBillion OneHundredAndFortySevenMillion FourHundredAndEightyThreeThousand SixHundredAndFortySeven()" is a very good choice for a function name" - SpacixOne ( offering help to someone who really needed it ) ( spaces added for the benefit of people running at < 1280x1024 )
Probably it does, but that's because they don't understand the mechanics of the futures market. See my reply above.
I'm the ocean. I'm a giant undertow.
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jhwurmbach wrote:
It does.
No it doesn't. It plays no role in commodity price formation. Speculators don't even hold the physical commodity - they trade solely in the futures contract. That's how the CFTC defines speculative activity in their Tuesday reports. Consequently, speculation in the futures market doesn't involve holding the physical and, as such, there is absolutely no reason or mechanism by which speculators can drive up the futures price of oil.
jhwurmbach wrote:
Othewise, one can not explain why the price is still rising, even when the current supply is greater than the current demand.
Yes one can - inventory levels, output production, seasonal demand, excess demand, inflation and macroeconomic factors along with increased holding of the physical for hedging purposes. And not to mention the increased cost of transport due to higher fuel costs.
I'm the ocean. I'm a giant undertow.
The mechanism by which speculators drive the price up (not too much above the current level, lest it would be profitable to buy the physical commodity *now* and store it until the specualtion runs out) is by preventing the price going *down*. Why sould a primary producer sell for low prices on the spotmarket, when he could sell for higher prices in advance? Mind you - the primary producers are also speculating, and try to find the right date when to sale. That speculators do not hold the physical commodity is as irrelevant as day-traders not holding the physical share certificate or bankers not holding the actual dollar notes.
Let's think the unthinkable, let's do the undoable, let's prepare to grapple with the ineffable itself, and see if we may not eff it after all.
Douglas Adams, "Dirk Gently's Holistic Detective Agency" -
jhwurmbach wrote:
It does.
No it doesn't. It plays no role in commodity price formation. Speculators don't even hold the physical commodity - they trade solely in the futures contract. That's how the CFTC defines speculative activity in their Tuesday reports. Consequently, speculation in the futures market doesn't involve holding the physical and, as such, there is absolutely no reason or mechanism by which speculators can drive up the futures price of oil.
jhwurmbach wrote:
Othewise, one can not explain why the price is still rising, even when the current supply is greater than the current demand.
Yes one can - inventory levels, output production, seasonal demand, excess demand, inflation and macroeconomic factors along with increased holding of the physical for hedging purposes. And not to mention the increased cost of transport due to higher fuel costs.
I'm the ocean. I'm a giant undertow.
I've heard it explained several times to me on this trip, sometimes in person by people who I respect, why the futures market creates false demand and pushes up prices. They are wrong ?
Christian Graus Please read this if you don't understand the answer I've given you "also I don't think "TranslateOneToTwoBillion OneHundredAndFortySevenMillion FourHundredAndEightyThreeThousand SixHundredAndFortySeven()" is a very good choice for a function name" - SpacixOne ( offering help to someone who really needed it ) ( spaces added for the benefit of people running at < 1280x1024 )
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The mechanism by which speculators drive the price up (not too much above the current level, lest it would be profitable to buy the physical commodity *now* and store it until the specualtion runs out) is by preventing the price going *down*. Why sould a primary producer sell for low prices on the spotmarket, when he could sell for higher prices in advance? Mind you - the primary producers are also speculating, and try to find the right date when to sale. That speculators do not hold the physical commodity is as irrelevant as day-traders not holding the physical share certificate or bankers not holding the actual dollar notes.
Let's think the unthinkable, let's do the undoable, let's prepare to grapple with the ineffable itself, and see if we may not eff it after all.
Douglas Adams, "Dirk Gently's Holistic Detective Agency"jhwurmbach wrote:
The mechanism by which speculators drive the price up (not too much above the current level, lest it would be profitable to buy the physical commodity *now* and store it until the specualtion runs out) is by preventing the price going *down*.
Speculators never hold the physical! Do you know how much infrastructure and cost there is behind taking delivery of the oil represented by a futures contract? Do you think the hedge funds on Wall Street "store oil" and "hold it"? That's not how the futures market for oil works at all. Speculators provide a service to producers/hedgers. They take on the price risk for them in the hope that the expected future spot price exceeds the futures contract price at maturity. That's called "normal" backwardation. In doing so, what the speculators earn is a risk premium (a.k.a. profit) for bearing the price risk for the hedgers. Also: preventing the price going down (although I don't know how speculators would do that unless they refuse to buy futures contracts at lower prices - which makes no sense) is not equivalent to pushing the price up.
jhwurmbach wrote:
Why sould a primary producer sell for low prices on the spotmarket, when he could sell for higher prices in advance?
They don't - they take a futures position and hold the physical. Usually in the form of a spread position. That way they're covered if the futures contract price moves or if the price of the physical moves.
jhwurmbach wrote:
Mind you - the primary producers are also speculating, and try to find the right date when to sale.
I think you should do some reading on how the futures market operates.
jhwurmbach wrote:
That speculators do not hold the physical commodity is as irrelevant
Uh, no it's not - it's a fundamental principle on which futures markets are built. :~ That's why speculators exist and operate in the market and that's why the futures markets exist.
I'm the ocean. I'm a giant undertow.
modified on Tuesday, June 17, 2008 10:23 AM
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I'm fully aware of "Supply and Demand", but how does this explain other petrol stations keeping their prices relatively in line?
He who makes a beast out of himself gets rid of the pain of being a man
Phannon wrote:
I'm fully aware of "Supply and Demand", but how does this explain other petrol stations keeping their prices relatively in line?
Ahh...welcome to the concept of price elasticity. People have emotional responses to prices and while you don't want to be the first person to raise your prices you don't want to be the third either.
Sovereign ingredient for a happy marriage: Pay cash or do without. Interest charges not only eat up a household budget; awareness of debt eats up domestic felicity. --Lazarus Long
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Phannon wrote:
I'm fully aware of "Supply and Demand", but how does this explain other petrol stations keeping their prices relatively in line?
Ahh...welcome to the concept of price elasticity. People have emotional responses to prices and while you don't want to be the first person to raise your prices you don't want to be the third either.
Sovereign ingredient for a happy marriage: Pay cash or do without. Interest charges not only eat up a household budget; awareness of debt eats up domestic felicity. --Lazarus Long
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I've heard it explained several times to me on this trip, sometimes in person by people who I respect, why the futures market creates false demand and pushes up prices. They are wrong ?
Christian Graus Please read this if you don't understand the answer I've given you "also I don't think "TranslateOneToTwoBillion OneHundredAndFortySevenMillion FourHundredAndEightyThreeThousand SixHundredAndFortySeven()" is a very good choice for a function name" - SpacixOne ( offering help to someone who really needed it ) ( spaces added for the benefit of people running at < 1280x1024 )
There's no such thing as "false demand". Every contract counted in the CFTC's Commitment of Traders report is an "open" contract. That means it's a contract for which there is both a buyer and a seller and delivery of the physical hasn't occurred. It in no way represents demand for the physical commodity (in this case oil). The positions are classified into several categories divided into sub-categories. The primary is non-commercial positions which represent activity such as speculation by large institutions like hedge funds and banks, etc. Non-commercial open interest is subdivided into long, short and spread positions; "spreads" representing a combination of long and short positions. Due to spreads being included in the non-commercial classification it is not 100% representative of speculative activity - this is because the CFTC defines speculation as taking only a non-commercial long contract, but there is cross-contamination in the data since traders are required to self-classify and there are incentives (tax, legal, etc...) to not be classified as purely speculative. Commercial open interest represents professional hedging activity by producers, etc... These positions are classified into short and long (no spreads) The final category is "non-reporting" which is representative of small time traders like private individuals and small institutions. This category (where the "real" speculators are) represents a very small percentage of the total market open interest - perhaps 5% or less. It is impossible for these types of traders to take possession of the physical commodity - the CFTC forbids it as in most cases they can't cover the minimum contract obligation. I don't even know what you mean by "false demand". If you are implying that an open contract (delivery has not occurred) represents some kind of pseudo-demand against a barrel of physical oil you couldn't be more wrong. Speculators trade the contract, not the physical. Since there is no intention to take possession there is no physical demand. The position can be rolled over at the end of the month and a new contract entered into without any oil ever changing hands....
I'm the ocean. I'm a giant undertow.
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The petrol station in question has now reduced[^] their prices after coming under heavy criticism. Although I still get the impression that they feel they did no wrong... any CPians live near Devon and have a large supply of rotten eggs to hand?
He who makes a beast out of himself gets rid of the pain of being a man
Sorry man, I don't see that they did anything wrong. They are selling a scarce product and unless they are otherwise regulated should be able to sell at what the market will bare. I'd be annoyed as well but, not at the petroleum industry. I am annoyed at the shortsightedness of the voters and the politicians for not heavily pursuing alternatives in advance of a crisis.
Sovereign ingredient for a happy marriage: Pay cash or do without. Interest charges not only eat up a household budget; awareness of debt eats up domestic felicity. --Lazarus Long
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[Message Deleted]
Ravel H. Joyce wrote:
Which is kinda weird, because I thought he'd be the first person to give me a 5.
Well, of course, because he never (what never? Well, hardly ever) gives 1's. He posted to that effect. For him to give 1's out now would be *dishonest.* I am sure you are simply imagining a correlation. As is Christian; as am I. :laugh: :laugh: :laugh:
Jon Smith & Wesson: The original point and click interface
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Sorry man, I don't see that they did anything wrong. They are selling a scarce product and unless they are otherwise regulated should be able to sell at what the market will bare. I'd be annoyed as well but, not at the petroleum industry. I am annoyed at the shortsightedness of the voters and the politicians for not heavily pursuing alternatives in advance of a crisis.
Sovereign ingredient for a happy marriage: Pay cash or do without. Interest charges not only eat up a household budget; awareness of debt eats up domestic felicity. --Lazarus Long
Chris Austin wrote:
I am annoyed at the shortsightedness of the voters and the politicians for not heavily pursuing alternatives in advance of a crisis.
I doubt it was shortsightedness from the politicians. I rather believe it was corruption.
Capitalism is the exploitation of man by man. Syndicalism is the opposite. Fold with us! ¤ flickr
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Chris Austin wrote:
I am annoyed at the shortsightedness of the voters and the politicians for not heavily pursuing alternatives in advance of a crisis.
I doubt it was shortsightedness from the politicians. I rather believe it was corruption.
Capitalism is the exploitation of man by man. Syndicalism is the opposite. Fold with us! ¤ flickr
Ka?l wrote:
I rather believe it was corruption.
Sure, it most likely is. Then the ultimate blame is with us the voters, lets stop electing these colluding clowns.
Sovereign ingredient for a happy marriage: Pay cash or do without. Interest charges not only eat up a household budget; awareness of debt eats up domestic felicity. --Lazarus Long
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Ka?l wrote:
I rather believe it was corruption.
Sure, it most likely is. Then the ultimate blame is with us the voters, lets stop electing these colluding clowns.
Sovereign ingredient for a happy marriage: Pay cash or do without. Interest charges not only eat up a household budget; awareness of debt eats up domestic felicity. --Lazarus Long
Chris Austin wrote:
Then the ultimate blame is with us the voters, lets stop electing these colluding clowns.
:laugh: Which foot do you want to be shot in (and you can't choose "neither")?
I'm the ocean. I'm a giant undertow.
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ruanr wrote:
Allow me to introduce you to the market forces of 'Supply and Demand'.
Or in this case, the human condition known as 'Greed'.
- Is God willing to prevent evil, but not able? Then he is impotent. - Is he able, but not willing? Then he is malevolent. - Is he both able and willing? Whence then is evil? - Is he neither able nor willing? Then why call him God? Epicurus
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Sorry man, I don't see that they did anything wrong. They are selling a scarce product and unless they are otherwise regulated should be able to sell at what the market will bare. I'd be annoyed as well but, not at the petroleum industry. I am annoyed at the shortsightedness of the voters and the politicians for not heavily pursuing alternatives in advance of a crisis.
Sovereign ingredient for a happy marriage: Pay cash or do without. Interest charges not only eat up a household budget; awareness of debt eats up domestic felicity. --Lazarus Long
Ah finally a nice reasoned reply, not shooting off topic and laden with asterisks ;) I'm not 100% sure there is official regulation, but after the uproar from this "petrol prices watchdog" the prices dropped again, so that makes me wonder...
He who makes a beast out of himself gets rid of the pain of being a man
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Chris Austin wrote:
Then the ultimate blame is with us the voters, lets stop electing these colluding clowns.
:laugh: Which foot do you want to be shot in (and you can't choose "neither")?
I'm the ocean. I'm a giant undertow.
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73Zeppelin wrote:
Which foot do you want to be shot in (and you can't choose "neither")?
I choose Heinze's :laugh:
Jon Smith & Wesson: The original point and click interface
Heh. :-\ I wasn't expecting that one...
I'm the ocean. I'm a giant undertow.
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Ka?l wrote:
I rather believe it was corruption.
Sure, it most likely is. Then the ultimate blame is with us the voters, lets stop electing these colluding clowns.
Sovereign ingredient for a happy marriage: Pay cash or do without. Interest charges not only eat up a household budget; awareness of debt eats up domestic felicity. --Lazarus Long
Agreed! We have the leaders we deserve. However, not voting anymore isn't a solution, it favors extremists. Voters are also more and more attracted by the image of the candidate rather than by his/her program :sigh: Maybe citizen's initiatives could correct some of the discrepancies of the system?
There are two things that one must get used to or one will find life unendurable: the damages of time and injustices of men Fold with us! ¤ flickr