Do we have an oil bubble?

[Supercilious]

Re: We have an oil bubble : the proof

Does anybody know where can I find daily data on volume, open interest and if possible in/outflows for Nymex, ICE and Dubai oil futures markets ?

[Slimprofits]

Re: We have an oil bubble : the proof

The hosts on Fox News are losing their shit over this report combined with the barrel price coming down this week. I am 99% the male co-host said that gas prices will "plummet to $3 a gallon within 45 days".

Gas Prices Could Fall To $2 If Congress Acts, Analysts Say

[FRED]

Re: We have an oil bubble : the proof

The hosts on Fox News are losing their shit over this report combined with the barrel price coming down this week. I am 99% the male co-host said that gas prices will "plummet to $3 a gallon within 45 days".

Gas Prices Could Fall To $2 If Congress Acts, Analysts Say

How do they propose that the US Congress control global investment in global oil futures markets?

[Supercilious]

Re: We have an oil bubble : the proof

How do they propose that the US Congress control global investment in global oil futures markets?

That is very simple: by eliminating the Enron Loophole, the Swaps Loophole, and eliminate the Commodity ETNs Tax Incentive Loophole (like they did with currency ETN's)

That would brake the bubble mechanism at the physical-paper oil link and everything else would collapse like a house of cards.

By the way, I found a very interesting minipaper from UMich in which the author makes an interesting case:while Krugman is right about the fact that oil speculation per se cannot account for an Oil Bubble as long as there is no strong contango and increase in inventories, his analyses is not valid anymore if there is a continuous inflow of funds into the future market (virtual oil or futures hedging debt paper) which can trigger an artificial price hike:

http://www-personal.umich.edu/~keppo/Speculation.pdf

[...] the long-only commodity funds and other institutional investors can increase the oil spot price. This doesn’t necessary require an increase in the traditional oil inventories.
The increase in the spot price discussed here is due to the speculation on the long side (and the actions of the market participants on the other side of the contracts). So, it could be that the oil spot price has got an extra push from the speculation. However, this should be good if the market’s expectation on the future spot price has been too low. Note also that the speculation works on the short side: if there is at some point more speculation on the short side then this can push the spot price down.

However, I slightly disagree with the author of this paper. Besides some minor mistakes, IMHO he completely misses the point that the deluge of contracts on the long side is not due to an intent to increase oil prices by speculation, being simply a byproduct of parking US deficit stored in foreign banks into ETN-like paper.

The ETN-packers simply don't care is the oil price increases 10% or 20% or 8% as long as they can attract more liquidity from investors and continue to keep and use that liquidity.

[Jim Nickerson]

Re: We have an oil bubble : the proof

Oil price falls as US gasoline demand wanes
By James Quinn, Wall Street Correspondent

Last Updated: 10:51pm BST 23/07/2008

http://www.telegraph.co.uk/money/mai...4/cnoil124.xml

Where is oil headed near-term, bubble or not? Here are two opinions both of which suggest lower than where the market closed today: $124.44.

• "Technically the market has the ability to come down to $120 a barrel, but will we see sub-$100, I think not. This is a retracement, not a complete collapse," argues Mr Loughlin.

• But some in the market disagree, with Lehman Brothers' chief energy economist, Ed Morse, arguing that oil is nearing a tipping point. Mr Morse, who drastically cut his forecast for growth in demand next year, said the price of crude oil will fall to an average of $90 a barrel in the first three months of 2009.

"High prices and slower economic growth have driven oil demand in the US lower," wrote Mr Morse in a research note. "With oil prices above $80 for nearly a year and income growth weakening, demand elasticity has begun to show signs of life."

His thesis is based on his belief that world demand has weakened overall, in spite of demand from China and other developing nations.
Lehmans said it expects the price of crude oil to fall back to an average of $90 a barrel in the first quarter of 2009.

[GRG55]

Re: We have an oil bubble : the proof

The hosts on Fox News are losing their shit over this report combined with the barrel price coming down this week. I am 99% the male co-host said that gas prices will "plummet to $3 a gallon within 45 days".

Gas Prices Could Fall To $2 If Congress Acts, Analysts Say

It's not like Fox to recycle month old news...is it?

Monday, June 23, 2008

Gas Prices Could Fall To $2 If Congress Acts, Analysts Say

(Offshore hedge fund manager Michael Masters, who achieved his "15 minutes" of fame with his Congressional testimony last month, came under a bit of scrutiny from Dennis Gartman and a few others. I mentioned that earlier in this thread in this post)

Some crash. $90, $100, what's the difference? Within a few days, weeks or months it'll be something quite different. I'm smiling like Buffett. Some of the highest quality, hardest to replace petroleum reserves [in North America of all places], are getting marked down daily.

The press and TV and iTulip is today filled with as many people falling all over themselves talking about "crashes" and "breaking the back of oil" as there were 6 weeks ago talking about $200 dollar oil. Both are equally unlikely on a sustainable basis. I'm off to do some personal research into wind sourced motive power. Enjoy the crash. ;)

[Supercilious]

Re: We have an oil bubble : the proof

The press and TV and iTulip is today filled with as many people falling all over themselves talking about "crashes" and "breaking the back of oil" as there were 6 weeks ago talking about $200 dollar oil.

GRG55, I believe you are unfair. I've started to talk on the iTulip forum about an Oil Bubble since the beginning of July when the price was still raising and going vigorously towards $200. As it happened it stopped at $147 and right now on Nymex it's $124.

By the way I've got an interesting bit of information from Bloomberg:
http://www.bloomberg.com/apps/news?p...c&refer=energy

Sophisticated paper speculators who never intend to use the oil are driving up costs for consumers and making huge profits with little to no risk,'' the groups wrote. On June 6, when oil gained $10.75 a barrel, 22 barrels of oil were bought on paper for every barrel consumed, they said.

Still I believe we are not actually dealing with speculation , but with an unintended effect recycling US deficit money into liquidity through debt paper hedged in commodities futures (especially oil futures).

One more interesting little bit of information about how ETN-like paper is anchored and hedged into futures:
http://seekingalpha.com/article/8645...il-etfs-ranked

Competition in playing the futures-buying game is an obvious way for a fund to differentiate itself. OIL "rolls over" its contracts by methodically selling contracts it holds five days before expiration date nears and buying new contracts due in one month. USO grants wide latitude to its managers to handle roll but apparently adopts a similar strategy to OIL.
DBO, however, is a slightly different animal. It has a sophisticated strategy called Optimum Yield to improve the results of roll. This proprietary formula tries to dampen contango, or losses when a next-to-expire contract is trading at a lower price than contracts expiring in later months, and to maximize backwardation, when the next-to-expire contract is trading at a higher price than contracts expiring in later months.

Right now the prices can go to incredible lows, especially if the same money that until now were parked in Long ETN-like paper are switched to Short ETN-like paper.

As long as we have huge amounts of US deficit thrown into the futures markets we have no chance of having an accurate price discovery process neither for oil nor for ...rizuki beans.

[Jim Nickerson]

Re: We have an oil bubble : the proof

GRG55, I believe you are unfair. I've started to talk on the iTulip forum about an Oil Bubble since the beginning of July when the price was still raising and going vigorously towards $200. As it happened it stopped at $147 and right now on Nymex it's $124.

By the way I've got an interesting bit of information from Bloomberg:
http://www.bloomberg.com/apps/news?p...c&refer=energy
Still I believe we are not actually dealing with speculation , but with an unintended effect recycling US deficit money into liquidity through debt paper hedged in commodities futures (especially oil futures).

One more interesting little bit of information about how ETN-like paper is anchored and hedged into futures:
http://seekingalpha.com/article/8645...il-etfs-ranked

Right now the prices can go to incredible lows, especially if the same money that until now were parked in Long ETN-like paper are switched to Short ETN-like paper.

As long as we have huge amounts of US deficit thrown into the futures markets we have no chance of having an accurate price discovery process neither for oil nor for ...rizuki beans.

Hey, symbol-name-man?, what is you point with this thread as far as those of us who might be interested in making money? Incidentally, why not get FRED to change your screen name to anything meaningful? I think symbols usually stand for "cuss-words."

Do you think ETN's are an unsafe method of "investing" or betting on whatever might be the underlying asset?

[Munger]

Re: We have an oil bubble : the proof

That is very simple: by eliminating the Enron Loophole, the Swaps Loophole, and eliminate the Commodity ETNs Tax Incentive Loophole (like they did with currency ETN's)

That would brake the bubble mechanism at the physical-paper oil link and everything else would collapse like a house of cards.

By the way, I found a very interesting minipaper from UMich in which the author makes an interesting case:while Krugman is right about the fact that oil speculation per se cannot account for an Oil Bubble as long as there is no strong contango and increase in inventories, his analyses is not valid anymore if there is a continuous inflow of funds into the future market (virtual oil or futures hedging debt paper) which can trigger an artificial price hike:

http://www-personal.umich.edu/~keppo/Speculation.pdf


However, I slightly disagree with the author of this paper. Besides some minor mistakes, IMHO he completely misses the point that the deluge of contracts on the long side is not due to an intent to increase oil prices by speculation, being simply a byproduct of parking US deficit stored in foreign banks into ETN-like paper.

The ETN-packers simply don't care is the oil price increases 10% or 20% or 8% as long as they can attract more liquidity from investors and continue to keep and use that liquidity.

This paper is asinine - he is talking about a bubble due to increasing inventories; he just refers to it as keeping the product in the ground as if that is somehow different.

There is also a big assumption he is making which makes his paper completely ridiculous: that the oil can be pumped out of the well arbitrarily quickly when the demand curve changes slope. This is not at all true. If a producer is artificially keeping supply low, at some point it may increase to maximum capacity - but not some arbitrary capacity that releases all of that crude that was previously kept off the market.

I have not seen evidence for an artificial constraint of supply. Further, the spot price has been above the futures price which makes the hoarding of oil stupid.

[GRG55]

Re: We have an oil bubble : the proof

GRG55, I believe you are unfair. I've started to talk on the iTulip forum about an Oil Bubble since the beginning of July when the price was still raising and going vigorously towards $200....

Nothing unfair about it at all. Just pointing out that you now have a lot of company.

One thing I learned a long, long time ago is to avoid the crowded trade. In a crowded trade one may be right in the long run, but one is unlikely to hold it long enough. I went into oil years ago [1999] when it was anything but a crowded trade.

A tail event that drives oil to "incredible lows" is not entirely out of the question, but that suggests the US$ being driven to incredible highs. Once again not entirely out of the question, and certainly not a crowded trade either, but not one I am willing to believe in. Or bet on.

What is happening now has happened several times in this cycle, and will happen again before this commodity inflation is over. The sequence is exactly the same...1) Refining margins are squeezed because wholesale gasoline prices didn't rise proportionate to the rise in crude [it can also start with wholesale gasoline prices falling while crude initially holds steady - this is what happened in the fall of 2006]. 2) This has to resolve with a rise in product price or a fall in crude oil. 3) As spot crude falls, traders with forward contracts (in contango now) will close their positions which creates the inevitable "avalanche of supply". 4) This drives the curve into backwardation, which is its "normal" state. 5) Rinse and repeat...

[Supercilious]

Re: We have an oil bubble : the proof

Hey, symbol-name-man?, what is you point with this thread as far as those of us who might be interested in making money? Incidentally, why not get FRED to change your screen name to anything meaningful? I think symbols usually stand for "cuss-words."

My name doesn't stand for a cuss-word it's rather related to search algorithm plus it allows me to be always on top of any alphabetical listing.

Do you think ETN's are an unsafe method of "investing" or betting on whatever might be the underlying asset?

ETN-like paper is as safe as mortgage CDO paper. Actually, they are slighly better because instead of relying on fudged credit ratings they rely on a black-box propietary index controlled by the issuer and by the raring of the issuer. That's a match made in heaven...

This paper is asinine [...]

Yes,... as I've said the author IMHO makes some mistakes. Unfortunately, I can't find any sources expressing the same views as mine with respect to the mechanism of driving the spot prices through futures prices maintaining a backwardation without any signs of hoarding:
All the explanations I found in other public sources focus too much on speculators IMHO without realizing the source of all problems is somewhere else. Look for example at:
http://peakoildebunked.blogspot.com/...-physical.html

and a more elaborate one here:

http://seekingalpha.com/article/8280...venience-yield

I have not seen evidence for an artificial constraint of supply.

Actually the constraint of supply exists but it's not an intentional one but, again a collateral unintentional. It's manifested through a high demand of scarce benchmark crudes and a very low demand of non benchmark crudes especially heavier crudes.

http://www.itulip.com/forums/showthr...8463#post38463

"We've already made our plans, and barring something out of the ordinary, I don't foresee making any changes to them," a source with a Japanese lifter told Reuters.

Another lifter added: "We have no interest in extra barrels."
State oil firm Saudi Aramco has made clear to its Asian customers that they can have more crude if they want it. Just over half the kingdom's exports go to Asia.

But most Asian lifters declined offers of additional crude for lifting in July during the monthly allocation process that was concluded last week. Only one refiner took up the offer, buying 1 million barrels, an industry source told Reuters.

Hungry people don't refuse a slice of bread, asking for croissants only. It there was a real problem with insufficient global supply any oil would be good oil.

Further, the spot price has been above the futures price which makes the hoarding of oil stupid.

I'm still trying to find a way to explain this backwardation in extremely simple and intuitive terms you could understand... I've not abandoned you.

[GRG55]

Re: We have an oil bubble : the proof

...Hungry people don't refuse a slice of bread, asking for croissants only. It there was a real problem with insufficient global supply any oil would be good oil...

Your bread and croissants analogy is flawed. Saudi Arabia/OPEC/oil exporters do not sell bread. They sell a variety of grains, most of it still in the husk, some of it high quality such as protein and gluten rich durum suitable for pasta, some of it fit only for animal feed...virtually none of it consumable without threshing, drying, milling, mixing and baking by the end buyer before it can be consumed. The Japanese eat rice. Having filled their limited flour mill capacity they won't buy more wheat from Saudi Arabia, especially animal feed grade, no matter how much is offered up.

[Slimprofits]

Re: We have an oil bubble : the proof

How do they propose that the US Congress control global investment in global oil futures markets?

Not even close to a mention of what their actual proposal is in the article or on the broadcast. The meme of Fox News changed this week to instead of just reporting bad economic news, the anchors are acting energetic and excited about the markets. They keep reminding people that a turnaround is right around the corner and to keep spending (it is patriotic). I don't know how this all works but am guessing there was a production meeting on Monday morning and they were told to perk it up bigtime.

[GRG55]

Re: We have an oil bubble : the proof

This will make you smile...

Release: 5521-08
For Release: July 24, 2008
CFTC Charges Optiver Holding BV, Two Subsidiaries, and High-Ranking Employees with Manipulation of NYMEX Crude Oil, Heating Oil, and Gasoline Futures Contracts


Defendant Caught on Tape and in Email Saying He Would “Bully” the Market

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) announced today its case against Optiver Holding BV, two of its subsidiaries, and three employees, charging them with manipulation and attempted manipulation of New York Mercantile Exchange (NYMEX) Light Sweet Crude Oil, New York Harbor Heating Oil, and New York Harbor Gasoline futures contracts during March 2007...

...According to the complaint, the defendants employed a manipulative scheme commonly known as “banging” or “marking”’ the close. “Banging the close” refers to the practice of acquiring a substantial position leading up to the closing period, followed by offsetting the position before the end of the close of trading for the purpose of attempting to manipulate prices. More...

But paragraph 2 on page 7 of this report from the CFTC probably won't...

[Supercilious]

Re: We have an oil bubble : the proof

This will make you smile...

Release: 5521-08
For Release: July 24, 2008
CFTC Charges Optiver Holding BV, Two Subsidiaries, and High-Ranking Employees with Manipulation of NYMEX Crude Oil, Heating Oil, and Gasoline Futures Contracts

Yeah right! Optiver and other speculators are the culprit for the high oil prices! Komrades let's get rid of these evil speculators who try to get rich at the expense of the soviet people...

In three of those instances, defendants forced futures prices lower, and in two instances, defendants forced futures prices higher.
[...]
As alleged in the complaint, the scheme ultimately permitted defendants to profit regardless of the direction of the market move, provided that Optiver’s futures trading in the close and before the close was in the opposite direction of the TAS position it had accumulated during the trading day.

And the page 7 of that report makes me laugh too. It reminds me of those days when a DOE report was saying that the rise in electricity in California was due to the economic growth out pacing powerplant and line construction ....