Oil market manipulation...

[sailhog]

I'm not proponent of large scale conspiracy theories. However, something is definitely amiss in the oil market. I'm going to try to keep this very simple and compare apples to apples... For all of you who think high crude prices are a simple matter of supply and demand consider the following. This morning CNBC reported:

1.) U.S. demand for oil has declined by approximately 1% yoy.
2.) The U.S. oil inventory report is expected to show LOWER inventories this morning.
3.) The price of crude is expected to go higher based on the inventory report.

I understand that the INVENTORY REPORT has a dramatic effect on the price of oil. If the inventory is reported to be down, then the price of crude should naturally go up. That's how the supply/demand principle works.

But... if demand for oil is DOWN in the U.S., why are inventories also DOWN?

It would seem to me that something is amiss with how oil inventories are being reported, or that perhaps some entity or entities is/are manipulating the amount of surplus oil that should be accumulating in the marketplace.

Please don't refer to the value of the US dollar, or why environmentalists or Pres. Bush is to blame for high fuel costs. Stick to the mystery of why inventories have been going down in the U.S. in the face of declining demand.

[sck5]

There is a whole rest of the world. Their demand hasnt gone down at all. Quite the opposite in fact. World demand is higher than ever.

[camaraderie]

Hawg..we are not the only oil consumers...it is a worldwide commodity. In 2006 for example...demand rose by 700,000 barrels per day....entirely from developing countries. There is significant upward demand pressure and the fact that USA use declines a bit does not result in lower prices.
Speculation IS a problem as it has driven prices higher than what we might otherwise expect but I would suggest that speculation takes place in many different markets without a "conspiracy" being necessary. Look at the housing bubble here and the grief that that has caused and how much of it was driven by greedy flippers. I would expect that at some point the oil bubble will burst as well...with 20-30 % losses for those who have something in the pot at the wrong time. Nevertheless...we all know that the price will continue to rise over the longer term as the demand growth exceeds the supply growth (or perhaps decline in the near future.).
The sooner we can reduce OUR dependence through coal, nuke and alternative energy,the better off we will be.

[Freesail99]

I learned something that I didn't know or had forgotten. The USA is the third largest producer of oil.

[sailhog]

Cam, sck5:
Your points are well taken, but I'm strictly talking about the U.S. here:

Demand in the U.S. is DOWN 1%, and yet inventories are also reported as being DOWN. These numbers have nothing to do with demand and inventories beyond our borders.

[JohnRPollard]

Originally Posted by sailhog

Cam, sck5:
Your points are well taken, but I'm strictly talking about the U.S. here:

Demand in the U.S. is DOWN 1%, and yet inventories are also reported as being DOWN. These numbers have nothing to do with demand and inventories beyond our borders.

Hog,

No expert here. But if I were a betting man, I'd cut back on my inventory purchases on the assumption that the speculative bubble will eventually burst and I'd rather fill my inventory with cheap oil than over-priced oil.

[danjarch]

Hawg, I'm with you on this one. The price of oil was going down, then Goldman-Saks anouces that oil could reach 200 and it's went back up. Since when is Goldman-Saks an energy company. They did manage to beat profit expectations for the second quarter though. Me thinks it was due to oil trading. Just last night a finance guy came on the Nightly Bussiness report and incouraged people to buy a newly created heating oil exange traded fund to hedge agianst rising heating oil bill. When the ancor mentioned that the investers would be taxed at short term capital rate the guy went quiet. He didn't have any advice for that bit. He also didn't mention that excange traded funds have in most cases a much lower rate for selling then the rate you have to buy at.

Next thing you'll see is the major credit and oil company offering prepaid debit cards that lock in oil rates at only a little higher then todays rates, or you'll start to see more trading funds aimed at the everyman. It's the same as with the tech bubble or the housing bubble. People with plenty of cash are looking for better returns then they can get from the stock market so they're willing to risk a little playing in the oil market. It will turn to crap when every day men and women try to get into it. The rich plan to walk away with plenty of profit though.

I think this one is a load of crap. And I doubt it will go on much longer. These aren't houses. You can park a car and switch to a mopad or bike really easy. It kind of reminds me of the California energy crisis a few years ago. Moral of that story was that before the state could pass the laws the energy companies wanted the people had already cut they're consumption to the point that there was no longer a crisis. Of course we also know that in the end it was all tricks by Enron and a few others and there was never a crisis at all.

The fact that global demand has risen a bit doesn't explain a doubling in price. I still haven't heard of any country cuting back they're busses or piles of surplus vehicules sitting idle because the populace can't get oil. Compare that with the real protests in more then a feew countries over lack of food that is developing.

[sailhog]

Originally Posted by JohnRPollard

Hog,

No expert here. But if I were a betting man, I'd cut back on my inventory purchases on the assumption that the speculative bubble will eventually burst and I'd rather fill my inventory with cheap oil than over-priced oil.

Cap'n Pollard is a wise man. It would seem that prudent business practices will keep prices up for a while by tightening up supply. If this is the case, the people in the oil business would seem to be expecting a dramatic lowering of price in the future.

[sailhog]

Cap'n Dan makes many brilliant point. The most brilliant is that oil experts don't expect the price to go down. Goldman Sachs just announced that oil could reach $200/barrel.

Cap'n Pollard is a wise captain, but Cap'n Dan has got him in a gale with too much canvas up.

[JohnRPollard]

Originally Posted by sailhog

Cap'n Dan makes many brilliant point. The most brilliant is that oil experts don't expect the price to go down. Goldman Sachs just announced that oil could reach $200/barrel.

Cap'n Pollard is a wise captain, but Cap'n Dan has got him in a gale with too much canvas up.

Maybe $200/barrel is correct -- but don't forget the "Dow 30,000" predictions back in the late-'90s!

My best advice is to reef early and often, and play the shifts when it goes light !