Oil speculators and price

Discussion in 'Community Discussion' started by senseless, Mar 9, 2011.

  1. senseless macrumors 68000

    senseless

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    #1
    Speculators have been blamed for high oil prices, despite adequate supply. How do they override the law of supply and demand, since oil can't be hoarded easily?
     
  2. jav6454 macrumors P6

    jav6454

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    #2
    I hate speculators, they can die in a fire created from the very oil they helped speculate.

    These arse holes are responsible for me paying $50 a tank on a freaking Forenza... MOTHER FING FIFTY DOLLARS ($50.00)!!!!!! on a Sedan style car....
     
  3. Hellhammer Moderator

    Hellhammer

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    #3
    I guess the speculators own big shares of oil companies. Oil is too important. People will buy it, no matter what the price is.
     
  4. Rodimus Prime macrumors G4

    Rodimus Prime

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    #4
    when oil was cheap *60-70 bucks a barrel. they had barges just floating in the ocean full of oil waiting for prices to go back up. Storage is limited. But really what they do is buy future supplies up and hold on to it. Remember it takes a few months for most of the oil bought to even get here.
     
  5. mstrze macrumors 68000

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    #5
    It's also those same speculators that drove the price per barrel down to around $36 in January of 2009 by buying up so much when it was on the rise and then having a horrendously oversupplied market when demand went away.

    But to answer the question...it's all future purchases. And in this current situation, there is a fear that Middle East and African tensions will sharply limit available supplies in the future. If 'everyone' wants to buy some of this future product, the price will rise because supply stays the same, but demand for the future delivery of this item has increased.

    So they are not overriding the laws of supply and demand, they are beholden to them like everyone else.

    Right now, this speculation and fear of supply cut-offs has added probably 20 dollars to the price of every barrel of crude oil. Gaddafi goes away and things stay nice in the Middle East and that price premium will disappear as quickly as it came on.
     
  6. jav6454 macrumors P6

    jav6454

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    #6
    The price of oil should have stayed at $36 a barrel.
     
  7. quagmire macrumors 603

    quagmire

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    #7
    This all started due to Libya which only supplies 1% of the US's oil. It's ridiculous.
     
  8. Rodimus Prime macrumors G4

    Rodimus Prime

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    #8
    1% of the US supply but much more so of the rest of the world. It also goes to show you how tight supplies really are.
     
  9. senseless thread starter macrumors 68000

    senseless

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    #9
    Buy why would a bet on a future delivery months from now cause prices to go up at the pump now? Weren't these prices set months ago also?
     
  10. Sydde macrumors 68020

    Sydde

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    #10
    But if Libya's prime customers are not getting as much oil as they need, the will try to draw from other sources, some of which may have originally been destined for .us markets. Hence, the supply to .us will drop as oil goes off to other markets. I believe thus is called "fungibility".
     
  11. -aggie- macrumors P6

    -aggie-

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    #11
    See this
    VVVV

     
  12. cantthinkofone macrumors 65816

    cantthinkofone

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    #12
    But honestly how many vehicles in Libya need fuel compared to the US?

    What I don't understand is why everybody is walking around with their heads cut off. Nobody can give a 100% answer as to why gas prices have gone up 30 cents (where I live) per gallon in the past two weeks. You can get 50 different explanations.

    When the US gets 30% ( I think, last I read) of it's oil from canada this price increase make no sense to me... an average reasonable person.
     
  13. Rodimus Prime macrumors G4

    Rodimus Prime

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    #13
    You first have to understand how tight supplies are to understand that.
    Total storage of oil is around 2-3 weeks tops and often times storage is not max out. So a supply disruption or reduction months out effects today since they put some of that lost supply into storage (effecting todays prices) Also the market for gas does not see it that way.
    That or they buy delivery 2 months out and trade it for supplies today. Hence the cost. That oil 2 months delivery is into the supply chain so it is traded today.

    Completecated mess.

    That being said I do think speculators really screw with it.
     
  14. Sydde macrumors 68020

    Sydde

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    #14
    I suspect Libya's biggest customer(s) is/are not Libya.
     
  15. mstrze macrumors 68000

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    #15
    Because to replace the gas that you are buying today, requires a purchase of gas at a higher price to refill the station's underground tanks. What the cost of oil was weeks ago when the gas was made plays no role in what it costs today. And if the gas station wants to be able to afford to fill up the tank next time as crude prices rise, gas prices better rise pretty quick as well. Stations only have a very small profit margin and there are calculated reasons for every price rise AND fall ...too high compared to others in the area and you lose business...too low and while you have a ton of people buying gas, you end up losing your shirt the next time you (the station owner) need to fill up your tanks at the more expensive price.

    Here's a good explanation from THIS website. I think he does a great job of explaining how this works:

    I originally learned this from a friend of mine who owned a small hobby shop back around the First Gas Crisis in the early 1970s. I dropped in to see him one day and noticed that he was marking up the prices on every plastic part or model or toy he had on his shelves. "How can you do that?" I asked... "You bought them at a lower price!"

    "Easy," he answered: "All of the plastic models are ... made of plastic, and plastic is made from oil. The price of oil's going up and the plastic toy manufacturers will be paying more for their plastic material, so they're raising their prices to me. I know what my new prices are going to be, and if I don't raise all of my prices today, I won't be able to buy the next shipments to restock my shelves, because they're going to cost me more."
     
  16. senseless thread starter macrumors 68000

    senseless

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    #16
    Ok, this is what I understand so far. There is plenty of supply, but there might be a future constraint. Speculators bid up the future oil price contracts and everyone down the line decides to raise prices early, since higher prices might be coming and everyone else is raising pump prices too.

    If there is peace in Libya, the fear goes away, the speculators get burned and prices drop.
     
  17. mstrze macrumors 68000

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    #17
    Investors in crude (which can and does usually include speculators...but is mostly made of people who will actually take delivery of the product) bid up the prices, everyone in the supply chain reacts fairly quickly to the increase, it's not that higher prices might be coming...they are here since the only ingredient used to make gasoline had dramatically increased in price due to an anticipated lack of it due to a myriad of causes and therefore the cost of replenishing the supply at the stations and depots and refineries has gone up dramatically too.

    There is actually not enough supply for the amount of people requesting it...hence the price increase. Everyone wants to lock in the supply at the lowest rate possible. So when more people buy futures based on a scare in ANY market, the price goes up. Demand for the constrained supply goes up.

    (Sure, some people want to buy at as low a price as they can to sell at a higher price later (speculators), but the vast majority of folks in the market for crude oil will actually be taking delivery of the product in the future.)

    Your last line is correct...nothing wrong with that one. The small percentage of people betting on higher prices will get burned. The rest of your understanding was iffy though. ;)
     
  18. senseless thread starter macrumors 68000

    senseless

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    #18
    From the media impression, the oil market is mostly made up of gamblers and manipulators who do not really need the stuff at all. I have a better understanding of it now; thanks.
     
  19. flopticalcube macrumors G4

    flopticalcube

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    #19
    Not just Libya. The fear in the markets also takes into account the risk of unrest in Saudi Arabia, home to about 1/8th of the world's oil production. Furthermore, if prices are high now at the start of a recovery, what will they be when demand surges if the boom times return? If you want consistently lower oil prices, use less of it... consistently.
     

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