OPEC has widely been thought of as having a loosening grasp on the world’s oil markets. Most analysts believe the oil producing members are pumping at or near maximum for several years, and because of this fact, OPEC power moves or bluffs have less and less impact on the world’s markets.
Is OPEC Irrelevant?
OPEC, the Organization of Petroleum Exporting Countries, is a group of 12 countries banded together based on common oil exporting interests. Generally, the goal of OPEC Is to stabilize the oil markets in favor of the member nations and provide for their general benefit and gain in regards to oil production. The group has been famous for increasing or reducing their oil output to manipulate oil markets to maximize profits. Large oil deposits discovered in other parts of the world in the 1970s and later have reduced the power wielded by OPEC. ”OPEC became powerless the moment it sold its last barrel of excess capacity, and that was maybe a year ago,” said researcher A.F. Alhajji of Northern Ohio University back in 2005. Read more…
Despite recent reports of the minimal impact of speculation on the price of gas and oil, tighter regulations on the trading of commodities could be forthcoming. – Oilfuturesx.com
(Reuters) – U.S. regulators this week will finalize their toughest crackdown yet on volatile oil and metal markets, concluding nearly four years of fierce debate over whether limits on speculative trade can tame prices.
As Wall Street bemoans the measure as a sop to politicians who have vilified speculators for driving grain and oil prices to painful peaks since 2008, the Commodity Futures Trading Commission will push through a groundbreaking rule to restrict the number of commodity contracts a trader can hold.
Scott O'Malia on the Possibility of New Oil Speculating Regulations
This according to a recent report from the St. Louis Federal Reserve bank. The Washington Post’s Brad Plumer continues below:
Back in 2008, when the price of oil was zooming up to $140 per barrel, there was a lot of chatter about whether Wall Street deserved the blame. And that debate hasn’t vanished. Last month, Sen. Bernie Sanders (I-Vt.) cited a report from the Commodity Futures Trading Commission as proof that “Wall Street speculators dominated the oil futures market.” Economists like Paul Krugman, meanwhile, have argued that supply and demand were the chief culprits. Oil was getting pricier because China, India and Brazil kept using more and more of it, and production couldn’t keep up. So who was right?
Oil Prices Rising in 2004-08 Cause Huge Price Increases at the Pump
A new paper from the St. Louis Fed finds that both camps were, in a way. The authors, Luciana Juvenal and Ivan Petrella, combed through a wealth of economic and oil data to tease out various factors affecting the price of crude. Their conclusion? The sharp rise in price from 2004 to 2008 wasprimarily driven by supply and demand. Asia’s thirst for oil was growing, and the ability of countries like Saudi Arabia to keep up was declining. But a decent portion of the price increase, about 15 percent, could be chalked up to “financial speculative demand shocks.”
In the past decade, the authors note, the oil market has changed in a striking way: Large financial institutions, hedge funds and other investors have started pouring into the futures market to take advantage of oil price changes. In 2004, there was just $13 billion invested in commodity index trading strategies. By 2008, that had ballooned to $260 billion (though it collapsed for awhile after the financial crisis struck).
That, in turn, proved significant. Speculators can affect the oil market by buying a large number of futures contracts and pushing up the price of oil for future delivery. Producers, in turn, respond by deciding to hold oil back from the market so that they can sell for a higher price later on. In theory, this should lead to a notable build-up in oil inventories — and some economists have often cited the lack of such inventories as evidence that speculation isn’t to blame — although this can get tricky. Data on global inventories can be shaky. Plus, producers can just as easily respond to higher futures prices by cutting back on production or by, say, ordering their tankers transporting oil for delivery to move more slowly.
The St. Louis Fed authors tried to disentangle these factors, looking at how different shocks affected demand for oil inventories and cutbacks in production. They found that, from 2004 to 2008, shifts in global demand were the most important drivers of the oil market, accounting for about 44 percent of price fluctuations. But financial speculation proved to be the second most important factor, accounting for about 15 percent of price shifts. (Speculation, the authors found, also drove a small portion, 17 percent or so, of the supply cuts from OPEC and elsewhere.) That’s not as crucial as, say, Bernie Sanders has often implied, but it’s still pretty significant.
- Washington Post
Two sources mention a possible drop in oil prices late this week or early next week. A post by analyst Ivan Kitov at Seeking Alpha and a survey by Bloomberg News both indicate a possible dropping soon. Full text of the Bloomberg article below. Full credits at the bottom of this post.
Sept. 30 (Bloomberg) — Oil may fall next week on concern that Europe’s economy is showing increasing signs of a slowdown as governments struggle to contain the fiscal crisis and avert a Greek default, according to a Bloomberg News survey.
An index of executive and consumer sentiment in the 17- nation euro area fell to 95 from a revised 98.4 in August, the European Commission in Brussels said yesterday. That’s the lowest since December 2009. In Germany, Europe’s largest economy, business sentiment decreased for a third month in September and investor confidence dropped to the lowest level in more than two and a half years.
Thirteen of 28 oil analysts, or 46 percent, forecast oil will decline through Oct. 7, while eight respondents, or 29 percent, predicted prices will increase. Seven estimated there will be little change. Last week, 55 percent of the surveyed analysts projected a drop.
“It will be another down week for oil, as sentiment worsens over the prospects of a looming recession,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said in an e-mail.
Total products supplied, averaged over four weeks, fell 0.6 percent to 19 million barrels a day in the period to Sept. 23, the fifth straight weekly decline, according to a U.S. Energy Department report on Sept. 28.
Crude oil for November delivery rose has climbed $2.74, or 3.4 percent, to $82.59 a barrel this week on the New York Mercantile Exchange. Futures have fallen 10 percent this year.
The oil survey has correctly predicted the direction of futures 47 percent of the time since its start in April 2004.
–With assistance from Christian Schmollinger in Singapore, Grant Smith and Simone Meier in London, and Mark Shenk in New York. Editors: Richard Stubbe, Bill Banker
To contact the reporter on this story: Justin Doom in New York at jdoom1@bloomberg.net
To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net
Sources: Seeking Alpha, Bloomberg News
Light sweet crude bounced back up to $84.45 thanks for Euro zone debt resolution possibilities, the WSJ reported late Tuesday. Fred Rigolini, VP of Paramount Options, said that a lot of the rise was due to shorts being covered, however. Read more at the Wall Street Journal:
OIL FUTURES: Crude Jumps More Than 5% On European Debt Hopes
Trading oil futures, in many ways, is similar to trading futures of any other type. Just like trading ES, the S&P E-Mini futures contract, trading oil futures on NYMEX (symbol:CL) can be extremely rewarding, as one can have so much leverage with which to wield powerful trades. On the other hand, trading oil futures is a lot tougher than trading the E-mini S&P. Crude oil prices are affected so heavily by outside, non-technical sources, that the usual analysis techniques used of financial futures will occasionally have little effectiveness in oil. Crude oil can be heavily influenced by supply and demand, OPEC reports, inflation, etc. With that in mind, remember to keep a few points in mind when beginning your oil futures trading planning. Read more…
Oil Prices Rising
Reports from various news agencies and Wednesday, 9/21/2011′s Wall Street Journal show that oil prices are climbing. Talks of stimulus in the U.S. economy helped matters, and shorts were being covered ahead of a key Fed conference on Wednesday, which certainly helped prices rise.
The Wall Street Journal reported Wednesday that inventories released recently showed lower volume than expected which raised prices even more. Light sweet crude oil stands at 87.52 at the time of this writing.
Oil Prices Rising, WSJ
Iraq Oil Production Best Since 2003
Iraq’s Oil Ministry stated Sunday, September 18, 2011 that the country’s oil production has grown to meet the mark it hit back in 2003, before a US-led coalition of nations invaded the country to topple the Saddam Hussein regime. In July it hit 2.75 million barrels per day, its biggest output since 2003.
Iraq sits on the 5th largest oil reserve in the world. For more details: Iraqi oil.
September 15′s Washington Post contains an interesting article detailing the author’s theories that oil speculating is driving up oil costs and profits for the oil companies. After a quote from ExxonMobil Chairman Rex Tillerson, who said that excessive speculation has driven up oil costs over 40%, the article basically takes a stab at Wall Street and banks in general. The author is U.S. Senator Bernie Sanders.
I am all for more transparency in the oil speculating business, but we must be sure to not venture too far to the left and cripple business to the point of stagnation.
Oil Futures Rising
A weakened dollar and rising stock prices pushed up the price of West Texas Intermediate crude today. Supplies were more limited than normal as well, driving the price higher than its been in six weeks.
$90 was a huge resistance level for a month now, so breaking through was a major event. Stock risings came amid concerns of the European debt crisis. U.S. oil supplies are about 5% higher than they were last year, and this is in spite of oil usage leveling off for the period.
Crude is at its highest since August 3, 2011.
