Do we have an oil bubble?

[GRG55]

Re: We have an oil bubble : the proof

...The only reason this has not occurred in the US yet is because most of our debt is denominated in dollars - benefit of being the fiat currency home.

Of course rather than accept this mulligan, the US as a nation has decided to double down. So all the pain being saved up thus far, plus the negative spiral outlined above, could all potentially hit at once.

Make no mistake, this country is playing with matches in a highly flammable environment.

Sure seems that others are acknowleging this, and changing strategy to try to position so their economies can still work in an inflationary world where the US$ has more to fall:

Yuan Rises on Speculation China Allows Gains to Curb Inflation

By Aaron Pan and Judy Chen
July 8 (Bloomberg) -- The yuan rose to its strongest since a dollar link ended in July 2005 on speculation the government will allow faster gains in the currency to help curb inflation.

The yuan was the second-best performer today among the 10 most-traded currencies in Asia outside Japan as Premier Wen Jiabao said July 6 the fight against inflation will have a ``preeminent'' position among macroeconomic controls. Leaders from the Group of Eight countries today signaled that China needs to let the yuan strengthen against a broader range of currencies.

``Currency appreciation is effective in curbing inflation,'' said Zhang Yujie, a foreign-exchange trader at Industrial Bank Co. in Shanghai. ``The currency is still undervalued.'' ...
More...

[c1ue]

Re: We have an oil bubble : the proof

c1lue when did say that?

Sorry - it was GRG who said that.

My bad.

Editted previous post.

I guess all those wild card characters overloaded my buffer...;)

[GRG55]

Re: We have an oil bubble : the proof

Correct me if I'm wrong PLEASE, be has the industry as a whole taken to reducing refinery throughput to REDUCE capacity since the last oil bust.

Seems to me that THAT would be a very profitable way to make "excess profits" don't you think?

The Big Oil conspiracy to curtail refinery capacity is alive and well...

Shell scraps plans for new Canadian refinery
Tue Jul 8, 2008 4:16pm EDT
By Jeffrey Jones
CALGARY, Alberta, July 8 (Reuters) - Royal Dutch Shell Plc (RDSa.L: Quote, Profile, Research, Stock Buzz) has canceled plans to build a new multibillion-dollar refinery near Sarnia, Ontario, due to poor market conditions and surging construction costs, the oil major said on Tuesday.

Shell had been studying the feasibility of a new plant in St. Clair Township in southwestern Ontario over the past two years to process crude from its expanding Alberta oil sands operations. The refinery was to have processed 150,000 to 200,000 barrels a day...

...The company had studied the environmental impact and held consultations with residents in the Sarnia area, where it already runs a 72,000 barrel a day refinery.

Some environmental groups opposed the new project.

Surging costs and a stretched labor force have hit projects throughout Canada's oil and gas industry, forcing some to be delayed in recent months...

..."So there's not a lot of incentive to get these refineries up and operating, even though there's pretty strong demand for gasoline and lower gasoline prices," Tristone Capital analyst Chris Feltin said.

"There's a lot of uncertainty surrounding construction costs, whether it's for materials like steel, or labor in terms of welders or electricians, all of the key components that go into these large, long-term projects."

Plans for a $4.6 billion refinery on Canada's East Coast were thrown into limbo last month when would-be developer Newfoundland and Labrador Refining Corp filed for protection from creditors while it restructures.

At the media briefing, David Collyer, Shell's chairman for Canada, said the company may build upgrading capacity at two U.S. refineries rather than going with a full, C$27-billion expansion of its Alberta upgrading complex near Edmonton...
More...

[Supercilious]

Re: We have an oil bubble : the proof

Going back to the subject.. Are the commodities (oil) ETN's the new CDO's?

Does the Sullivan & Cromwell loophole play a role of tax incentives and create favorable conditions for a bubble?

[metalman]

Re: We have an oil bubble : the proof

Going back to the subject.. Are the commodities (oil) ETN's the new CDO's?

Does the Sullivan & Cromwell loophole play a role of tax incentives and create favorable conditions for a bubble?

you can reasonably argue that the Sullivan & Cromwell loophole play a role of tax incentives and create favorable conditions for a bubble. assume that's true as were telco dereg and housing tax rules. how do we meet the other conditions to make oil a bubble?

- launched by new discovery
- funnels cap gains tax revenue to pols
- wall street gets rich
- press all for it, gung ho stories on oil millionaires and entrepreneurs
- massive fraud, regulators look the other way
- popular enthusiasm vs voters at their congress critters' throats

to name six obvious missing ingredients.

[jtabeb]

Re: We have an oil bubble : the proof

you can reasonably argue that the Sullivan & Cromwell loophole play a role of tax incentives and create favorable conditions for a bubble. assume that's true as were telco dereg and housing tax rules. how do we meet the other conditions to make oil a bubble?

- launched by new discovery
- funnels cap gains tax revenue to pols
- wall street gets rich
- press all for it, gung ho stories on oil millionaires and entrepreneurs
- massive fraud, regulators look the other way
- popular enthusiasm vs voters at their congress critters' throats

to name six obvious missing ingredients.

Fine, Show me how this is ANY different than Enron and the California Electrical Grid (Same rules listed above WOULD NOT HAVE made that episode a bubble BTW) And I will lick you toes!

If it ain't different, then it's the same and that is what some of us are arguing exactly.

An artificially created (manipulated) shortage of supply leading to a bubble (and fantastic profits for the perps BTW). You can't claim that it HASN'T happened, because it already has.

[metalman]

Re: We have an oil bubble : the proof

Fine, Show me how this is ANY different than Enron and the California Electrical Grid (Same rules listed above WOULD NOT HAVE made that episode a bubble BTW) And I will lick you toes!

If it ain't different, then it's the same and that is what some of us are arguing exactly.

An artificially created (manipulated) shortage of supply leading to a bubble (and fantastic profits for the perps BTW). You can't claim that it HASN'T happened, because it already has.

enron was a california racket backed by a few corrupt pols and headed up by an old boy who had the good sense to kill himself when the gig was up. can such a thing be pulled off on a global scale? is opec in on it? how about china and everywhere else food riots are happening? or are china et al all little helpless victims?

my toes tingle in anticipation.

[GRG55]

Re: We have an oil bubble : the proof

Fine, Show me how this is ANY different than Enron and the California Electrical Grid (Same rules listed above WOULD NOT HAVE made that episode a bubble BTW) And I will lick you toes!

If it ain't different, then it's the same and that is what some of us are arguing exactly.

An artificially created (manipulated) shortage of supply leading to a bubble (and fantastic profits for the perps BTW). You can't claim that it HASN'T happened, because it already has.

OK It's a bubble. ETNs are the new CDOs. Pension funds and small towns north of the Arctic Circle and in the outback are stuffing themselves on them. "Wealth" is being created everywhere. New Enrons stalk the land. The regulators are in on the game, either that or too ignorant to understand what's going on. You and your fellow citizens are getting screwed. And I heard on good authority that next week Greenspan is going to make a speech urging everyone to buy into commodities [maybe so Goldman has a market into which they can sell to exit].

Now that we are agreed on that, let's examine one final characteristic of a bubble. By definition every financial bubble ultimately pops. "Pops" means the object of desire reverts violently to the mean; e.g. the nominal price falls back to nothing greater than inflation adjusted price [both bart and Finster have posted numerous charts on this site that show what that should be]

So when the oil market finally pops oil should crash quite some distance. And when that happens I'll agree it was a bubble. I hope iTulip lives that long...

[Supercilious]

Re: We have an oil bubble : the proof

OK It's a bubble. ETNs are the new CDOs. Pension funds and small towns north of the Arctic Circle and in the outback are stuffing themselves on them.

Pretty much yes. With all these Iran or umpteenth Nigerian attacks scares, with the stocks falling and dollar on life support, the safest refuge seems to be in comodities

"Wealth" is being created everywhere. New Enrons stalk the land.

Not sure about that. The main source of artificial wealth is the Fed. IMHO the banks and big funds are mainly recycling artificial wealth and bad debt (through the swaps loophole)

Here is an interesting point of view (although not directly related)
http://blogs.cfr.org/setser/2008/07/...ourth-of-july/

The regulators are in on the game, either that or too ignorant to understand what's going on.

The fact that ETN's are considered forwards and therefore exempt form taxes based on the legal opinion of a law firm and nobody has challenged for 2 years seems pretty strange.

You and your fellow citizens are getting screwed.

To some extent yes, but I would guess that the main subjects of this sexual-financial exercise are overseas.

And I heard on good authority that next week Greenspan is going to make a speech urging everyone to buy into commodities

I think this is unwarranted newbee bashing sarcasm

[maybe so Goldman has a market into which they can sell to exit].

I wouln't be surprised. They took almost no direct CDOs losses last time. (I guess they have good a risk management department )

Now that we are agreed on that, let's examine one final characteristic of a bubble. By definition every financial bubble ultimately pops. "Pops" means the object of desire reverts violently to the mean; e.g. the nominal price falls back to nothing greater than inflation adjusted price [both bart and Finster have posted numerous charts on this site that show what that should be]

I'm not sure that in the case of a financial bubble the secondary physical asset bubble created, results in sudden and complete reversal of the physical asset. The average house price did not go down to 2000 levels in one month or two. Plus let's not forget that due to the Cheap Oil Peak (which is real). The reversal may have a low elasticity.

So when the oil market finally pops oil should crash quite some distance. And when that happens I'll agree it was a bubble. I hope iTulip lives that long...

I hope that iTulip lives long past the next bubble (the green/renewable energy T Bone bubble)

[GRG55]

Re: We have an oil bubble : the proof

Something from the NYTimes. Would appear we have a ways to go yet since energy spending as a share of PCE has just barely come back to mid-70's levels.

And don't take any of my sarcasm as newbie bashing. The ONLY things I may bash around here are illogical & unsupported statements promulgated as facts, and the behaviour of public figures [like Greenspan] who desperately deserve it, and really should know better...

As for ETNs being the new CDOs, etc. you and I will have to agree to disagree on that; at least for now.

[metalman]

Re: We have an oil bubble : the proof

I hope that iTulip lives long past the next bubble (the green/renewable energy T Bone bubble)

don't know why i get stuck setting the record straight but... t bone is following the itulip's alt energy bubble call.

[jtabeb]

Re: We have an oil bubble : the proof

Something from the NYTimes. Would appear we have a ways to go yet since energy spending as a share of PCE has just barely come back to mid-70's levels.

And don't take any of my sarcasm as newbie bashing. The ONLY things I may bash around here are illogical & unsupported statements promulgated as facts, and the behaviour of public figures [like Greenspan] who desperately deserve it, and really should know better...

As for ETNs being the new CDOs, etc. you and I will have to agree to disagree on that; at least for now.

Wake up and smell the "ICE"

No new deregulation you say?
What about 2006 commodities "deregulation"

No new apparent corruption you say, lack of transparency, securitization? What about the unregulated, non transparent pricing activity in Oil Spot prices promulgated by the International Commodities Exchange, who was of course created by founding partners GS and JPM.

No new source of added liquidity to fund this activity?
Well, I had have to agree with that except for save, maybe, the TSLF, TLF, other fed "temporary lending facilties" that the public may or may not be privi to, and the billions tenured to JPM at taxpayer expense so that the latter could assume the liabilities of Bear Stearns (with minimal actual exposure to said transaction). Of course, all of these tenured funds went into losing CP, ABCP, Residential and Commercial CDO's, to support the value of these securities and in no way would have made their way into a roaring bull market like energy which would of course have generated beyond substantial returns to parties invested in such a manner.

As I recall, California "paid" for the success of Enron to largely private benefit. The public beneficiaries we totally wiped out as you know when the firm collapsed. So the public paid the price of success and also the price of failure. I recall that only the shareholders of Enron (and the traders that worked for the firm and the firms invesment banking partners) were the ones who benefited from the rise in California's electrical rates. What a shame that in the end only the traders and partnering investment banks were able to hold on to those illusory profits.

Furthermore, as you will recall this was played out daily on the national evening news. A constant debate raged regarding the source of Califoria's unfortunate electrical crises. Those with a vested financial interest in the sustained vertical rise in electrical utility rates were interviewed and were quoted as saying the "the price is strictly a function of limited supply vs increasing demand" and that California had failed to foresee the growth in demand that would render it's previously robust electrical supply woefully incapable of meeting present demand. The energy users of California, most notably then Gov. Grey Davis, claimed that this price action, far from being the result of natural laws of supply and demand was "the result of deliberate, criminal, market manipulation on the part of Energy trading firm Enron.

In the end Davis was ultimately proven correct, but only in the aftermath of the Enron collapse, when the full breadth and scale of its activities were publicly exposed.

My sincerest Appologies, Itulip.

How could I have been so naive.

Of course the first line of defense in any shortage is to blame evil "Speculators" when everyone knows that the true source of the crisis is a fundamental supply/demand imbalance. And that this ruse is often used by politicians to cover the true source of the problem.

I have learned my lesson. I will get MY facts straight next time, before engaging in further debate and wasting everyone's precious time with my feeble and whimsical arguments.

My mistake.

Umm, could I please obtain some assistance? I can't seem to get this light bulb to come on.

( I was going to write the real pissed of type stuff here, but then I thought, "what a ******* waste that would be")

[metalman]

Re: We have an oil bubble : the proof

The energy users of California, most notably then Gov. Grey Davis, claimed that this price action, far from being the result of natural laws of supply and demand was "the result of deliberate, criminal, market manipulation on the part of Energy trading firm Enron.

100% correct. now how do you run that racket globally?

[jtabeb]

Re: We have an oil bubble : the proof

100% correct. now how do you run that racket globally?

In California's case we learned EXACTLY how, AFTER the fact.

I suspect that we, in our present situation, will also learn exactly how, AFTER the fact.

I will say this however: Quoted from "The Smartest Guys In the Room" a documentary about the collapse of Enron.

"Enron's only mistake was getting caught. Had they not been, they could have run the same racket not just in the US and not just in electricity, but globally and in much more universal sources of energy such as natural gas and oil. The world was their oyster, ripe for the picking, and they pissed it away".

I would argue that some have managed to pick up Enron's "fumble" and run it all the way into the end-zone.

[GRG55]

Re: We have an oil bubble : the proof

Wake up and smell the "ICE"

No new deregulation you say?
What about 2006 commodities "deregulation"

No new apparent corruption you say, lack of transparency, securitization? What about the unregulated, non transparent pricing activity in Oil Spot prices promulgated by the International Commodities Exchange, who was of course created by founding partners GS and JPM.

No new source of added liquidity to fund this activity?
Well, I had have to agree with that except for save, maybe, the TSLF, TLF, other fed "temporary lending facilties" that the public may or may not be privi to, and the billions tenured to JPM at taxpayer expense so that the latter could assume the liabilities of Bear Stearns (with minimal actual exposure to said transaction). Of course, all of these tenured funds went into losing CP, ABCP, Residential and Commercial CDO's, to support the value of these securities and in no way would have made their way into a roaring bull market like energy which would of course have generated beyond substantial returns to parties invested in such a manner.

As I recall, California "paid" for the success of Enron to largely private benefit. The public beneficiaries we totally wiped out as you know when the firm collapsed. So the public paid the price of success and also the price of failure. I recall that only the shareholders of Enron (and the traders that worked for the firm and the firms invesment banking partners) were the ones who benefited from the rise in California's electrical rates. What a shame that in the end only the traders and partnering investment banks were able to hold on to those illusory profits.

Furthermore, as you will recall this way played out daily on the national evening news. A constant debate raged regarding the source of Califoria's unfortunate electrical crises. Those with a vested financial interest in the sustained vertical rise in electrical utility rates were interviewed and were quoted as saying the "the price is strictly a function of limited supply vs increasing demand" and that California had failed to foresee the growth in demand that would render it's previously robust electrical supply woefully incapable of meeting present demand. The energy users of California, most notably then Gov. Grey Davis, claimed that this price action, far from being the result of natural laws of supply and demand was "the result of deliberate, criminal, market manipulation on the part of Energy trading firm Enron.

In the end Davis was ultimately proven correct, but only in the aftermath of the Enron collapse, when the full breadth and scale of its activities were publicly exposed.

My sincerest Appologies, Itulip.

How could I have been so naive.

Of course the first line of defense in any shortage is to blame evil "Speculators" when everyone knows that the true source of the crisis is a fundamental supply/demand imbalance. And that this ruse is often used by politicians to cover the true source of the problem.

I have learned my lesson. I will get MY facts straight next time, before engaging in further debate and wasting everyone's precious time with my feeble and whimsical arguments.

My mistake.

Umm, could I please obtain some assistance? I can't seem to get this light bulb to come on.

( I was going to write the real pissed of type stuff here, but then I thought, "what a ******* waste that would be")

OK, so once again, who's the Enron here? ICE? JPM? GS? The Fed? Hank's PPT? OPEC? Aramco? Nameless, faceless speculators? Pension funds, endowments and PIMCO buying commodity futures?

You seem to be trying to tell us that it's conclusive that we have a global gaming of the oil markets. Modelled after what a small group of Enron electricity traders did in California, no less.

Have you ever wondered if that was all Enron alone, then why did these Houston based traders restrict themselves to just California? Surely something that lucrative would have made it irresistable to game the electricity market in every state in the Union, by every energy trading company out there [all the big energy trading houses were concentrated in a few blocks around Enron in downtown Houston, so there were no secrets]. Traders are always looking for an angle they can scale up quickly. How could they have possibly missed that fat pitch?

As I have already pointed out, there is no apparent shortage of transport fuels. Nobody in the importing nations of North America or Europe is carrying a ration card, or has to line up to get a tank of gasoline or diesel. There is no shortage of crude oil either. The world is swimming in the bloody stuff now. The only problem is that too much of it is heavy and sour, and therefore some of that surplus, just like bar scotch in Utah, is going no-bid right now. Until there is demand destruction at a rate faster than the current depletion of light, sweet crude, OR enough new heavy oil refining capacity comes online worldwide, this squeeze is going to continue.