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Thank the Wall Street speculators for high gas prices

Discussion in 'Sports and News' started by micropolitan guy, Feb 22, 2012.

  1. micropolitan guy

    micropolitan guy Well-Known Member

    Yes they are. They became government-regulated monopolies, with quaisi-independent oversight in the form of public utility commissions, so what has happened with oil prices doesn't happen with our water and electric bill.

    When the price of peanuts, another unregulated commodity, goes up and the price of a byproduct like peanut butter goes up by 50 percent, you have an option. Don't buy peanut butter.

    You do not have that option when the price of oil, another unregulated commodity, increases by 30 percent and the price a byproduct like gas goes up by a dollar or more per gallon.
     
  2. doctorquant

    doctorquant Well-Known Member

    For heaven's sake, of course you do. You can choose to buy less gasoline. You do so by changing your behavior. You carpool. You drive a more fuel-efficient car. You make fewer trips. You take more mass transit (if that's an option). You make it sound as if you have an existential need for a particular volume of petroleum products, and that's simply not true.

    And not to burst anyone's bubble, but demand for gasoline has increased (close to 3.4 percent last week). Further, supply has shrunk. Refineries are in the process of changing over from their winter additive cocktail to their summer additive cocktail. The capacity that is lost to those changeovers pinches supply. Also, late last week there was a major fire at a Washington refinery that supplied about 20% of that state's needs. Those needs are being met by capacity elsewhere -- gasoline's pretty fungible -- but the fact is that gasoline supply has been pinched at the same time that demand has increased.
     
  3. Stitch

    Stitch Active Member

    You can easily pony up for a better car, carpool, quit your job, or move. Why hasn't anyone else thought of this idea?
     
  4. Boom_70

    Boom_70 Well-Known Member

    All well and good but the process starts with oil and you have yet to explain a plausible reason for high price of oil other than speculative trading in the oil futures market.
     
  5. doctorquant

    doctorquant Well-Known Member

    I didn't say that. I certainly can't pony up for a better car, but without spending a dime I could come up with a few ways to shave my gasoline consumption. My monthly gasoline bill likely will increase if gasoline prices increase by 50%, but I'm pretty sure that monthly bill won't go up 50%.
     
  6. Stitch

    Stitch Active Member

    This guy is "A OK" with huge profits that have little to do with actual supply and demand.

    [​IMG]
     
    Last edited by a moderator: Dec 15, 2014
  7. Starman

    Starman Well-Known Member

    The 1% of the 1% fucked us all over a barrel in 2008, and they're doing it again now.
     
  8. Armchair_QB

    Armchair_QB Well-Known Member

    But, but... I thought getting those evil Republicans out of the White House was going to fix this?
     
  9. doctorquant

    doctorquant Well-Known Member

    Oil's price at any point in time is neither "high" nor "low". Its price is simply its price, which is a number that reconciles demand with supply. I think what you mean to be saying, however, is that oil futures speculation has led to the run-up in prices we've observed over the last few years. And your most recent post implies that absent such speculation we would not have observed such a run-up. I disagree.

    The futures price is used as a signal by producers of and users of oil with regard to what the prevailing price of oil will be when they are selling or buying it.
    Speculation in oil futures makes that market more efficient. By that I mean it leads to a market that more accurately reflects prevailing sentiments regarding future supplies and demand. Absent such speculation producers and consumers would find themselves confronted with greater surprises regarding availability and/or price (e.g., shortages or gluts).

    Demand for oil, worldwide, has grown over the last few years. It is my understanding that supplies of oil have not grown accordingly. Even if they have grown accordingly, much of the run-up in the price would still have occurred because oil is priced predominantly in dollars and the value of the dollar (relative to other currencies) has eroded over that time.

    P.S. I don't trade in (or invest in, lust after, whatever) commodities futures. My perch here in the ivory tower, secured after I was a complete bust "in the real world," does not afford me such opportunities. Fortunately, my ability to formulate pithy phrases lets me keep food on the table.
     
  10. Boom_70

    Boom_70 Well-Known Member

    Do you see the possibility that at points in time supply could be controlled to drive the futures price up?

    There is not a lot of incentive for oil producers to keep oil in the ground but there is a lot of incentive for the storage companies to keep oil in the tankers or storage farms for sale at higher price down the road.

    This is especially true for companies like Morgan Stanley that trade in oil futures and also own tank farms and tankers.

    Is it plausible for Morgan Stanley to buy a some oil at $80 a barrel for storage while at the same time throwing millions at the oil futures market to artificially drive up price at some future date?
     
  11. doctorquant

    doctorquant Well-Known Member

    Yes, such a scenario is possible. It only pays off if the market is in a condition known as contango (when the forward (future) price is higher than the current (spot) price). It's unlikely to pay off over any significant period of time. For it to work the spot (current) price has to remain low. So Morgan Stanley has to: A) keep luring speculators into futures contracts that keep the forward price high; and B) hope like hell that the spot (current) price doesn't rise as more and more oil stocks stay in storage. Both of those seem pretty unlikely, to me at least, to be in place for any substantial length of time.
     
  12. Boom_70

    Boom_70 Well-Known Member

    Market is in contango now:

    http://www.bloomberg.com/news/2012-01-30/oil-shift-toward-contango-may-boost-tankers-morgan-stanley-says.html
     
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