Post by agito on Aug 24, 2008 10:58:43 GMT -6
article in time about rigging oil prices
highlight:
Such a contract allows companies to hedge positions by locking in prices early. Airlines might buy futures contracts to reduce their exposure to rising fuel prices. Conversely, oil companies might sell futures contracts to assure a profit against future price drops. It's all about reducing risk and uncertainty. But what if oil suppliers were instead buying oil futures, compounding their own risk and reaping enormous profits from the explosion in the price of physical oil?
another:
All told, about one billion barrels of oil are traded daily through futures contracts at the New York Mercantile Exchange (NYMEX). This volume significantly overshadows the 80 million barrels of oil consumed each day worldwide
here's the deal, imagine the speculators as middle men between the oil pump and your gas tank (d'uh!). they contribute to high price(d'uh). now imagine another middle man getting in the action. not good.
1 billion barrels of oil traded despite 80 million being demanded? that means there is a lot of oil going through a lot of middle men. how many?
1 billion divided by 80million? 12.5 on average. which inplies that for every 2 players simply trying to trade oil for a practical use, there are 10 that are acting as middle men.
that is not an accurate portrayal of what is going on, but you can compare that average with market history to see how many "players" are in the market, and how many are profiting and iinlfating the price.
what i don't like about this article is it takes 4 pages to say something very simple. with the futures market, it's not about stockpiling oil, it's about stockpiling contracts.
the game ends when a major airline or another major buyer goes out of business and the end demand stops. then the middle men get holding the bag and the market will deleverage.
the authors make the case that oil companies could be investing in their own hedge funds that would contribute to this. I think that is a bit conspiracy minded and unnecessary to a basic point: eliminating the hope of wild profits by temporarily inflating supply will defeat this in the first place.
highlight:
Such a contract allows companies to hedge positions by locking in prices early. Airlines might buy futures contracts to reduce their exposure to rising fuel prices. Conversely, oil companies might sell futures contracts to assure a profit against future price drops. It's all about reducing risk and uncertainty. But what if oil suppliers were instead buying oil futures, compounding their own risk and reaping enormous profits from the explosion in the price of physical oil?
another:
All told, about one billion barrels of oil are traded daily through futures contracts at the New York Mercantile Exchange (NYMEX). This volume significantly overshadows the 80 million barrels of oil consumed each day worldwide
here's the deal, imagine the speculators as middle men between the oil pump and your gas tank (d'uh!). they contribute to high price(d'uh). now imagine another middle man getting in the action. not good.
1 billion barrels of oil traded despite 80 million being demanded? that means there is a lot of oil going through a lot of middle men. how many?
1 billion divided by 80million? 12.5 on average. which inplies that for every 2 players simply trying to trade oil for a practical use, there are 10 that are acting as middle men.
that is not an accurate portrayal of what is going on, but you can compare that average with market history to see how many "players" are in the market, and how many are profiting and iinlfating the price.
what i don't like about this article is it takes 4 pages to say something very simple. with the futures market, it's not about stockpiling oil, it's about stockpiling contracts.
the game ends when a major airline or another major buyer goes out of business and the end demand stops. then the middle men get holding the bag and the market will deleverage.
the authors make the case that oil companies could be investing in their own hedge funds that would contribute to this. I think that is a bit conspiracy minded and unnecessary to a basic point: eliminating the hope of wild profits by temporarily inflating supply will defeat this in the first place.