Ok you are up and active, S-f-V. Some speedy thoughts you have there!

I was thinking what the author up in post said: "140 $ oil had much to do with weakness of greenback".
I dont see that "much". Oil goes from about 20 to 140 $/barrel but € increases "only" about 40%. The
axis are not the same scale... that must mean something else than "much".

There are other explanations the rise in price - not this one single that explains "much"?

SFV,

One of your best! Over the last few months anyway,since I 've been reading them.

well, those warships etc. are also there to keep the straits of Hormuz open when the Iranians try to mine them, when the Israelis bomb their alleged nuclear weapons program.

There is an argument that there is a huge crisis about to spring in that respect :
Obama having foolishly promised to force the Iranians to negotiate, Ahmedinnerjacket, encouraged by the Russians, will not negotiate, so Netanyahu will feel free to negotiate via air strikes...
The Russians are delighted with anything that annoys the US, and would profit hugely from $200 oil.

http://www.stratfor.com/weekly/20090915_misreading_iranian_nuclear_situa...

AC,

I just can't see it.

If Oil is overpriced and there IS a spot market then why don't the producers just sell more on the spot directly to independent refiners and capture all this revenue supposedly goig into speculators hands?

If most of the oil is sold by contract between the producers and major refiners then how does the speculator horn in there?

And if there is a huge overhang of speculative oil in storage then when it IS eventually sold and burnt at that time it will DEPRESS prices ,right?So over a year or so it looks like a wash on the speculative thing ANYWAY.

Oil has held pretty steady for several months at a price that seems to be supported by a fundamental to me-between what is shut in by OPEC and what is leaving the market never to return due to decling production in old fields and rising comsumption domestically in the producing countries the price has settled at a point matching demand and supply.

I can see this speculation thing holding up for as long as there is someplace to store actual physical oil brought to market by a high "speculative" price but it seems that inventories are bulging the tanks these days.

Now if somebody could make the case that some of these "speculators" re either major producers or major refiners /distributors I could see the case for speculation a little more clearly.

Just why the heck should the producers -countries with very sophisticated business pros on thier payrolls-allow these speculators to take a huge bite out of thier revenues?

Of course I am but a babe in the woods when it comes to oil but the picture TO ME looks like a Dali painting interpreted with speculation included.

Apply Occam's razor, give it a nice shave and a haircut, and a very clear image of the supply and demand equilibrium villian emerges imo.The nationals and multinationals are supplying a certain number of barrels and the world is buying them.The price will rise-has risen- until the world looses its appetite for more oil at which point supply and demand are matched.

What is so hard to understand about that?

Of course the folks who for one reason or another don't want to see this will continue to insist that the guy in the picture doesn't look anything like the guy who robbed the nationals and the multinationals off all that loot with a cap gun and a bandanna.

(Poor old oil companies-a helpless lot obviously in need of a court appointed gaurdian to look after thier money for them-they are after all getting sorta old and undoubtedly well into thier dotage.)

The people who just simply deny peak oil altogether WILL NOT look directly at the face of the Devil of supply and demand for fear of recognizing him and facing up to a final reckoning on a day of his choosing-which is probably not that far off if the world economy struggles back to its feet.

You have to remember that at the time, there was a tremendous emptying out of the shadow banking system and a run on hedge funds. There were a lot of dollars looking for a place to hide.

I took daily closes of all major commodity classes, SP500 and currency crosses (EUR/JPY, etc) for last decade. The daily cross correlations from Sep 2008 to Feb of 2009 on virtually all asset classes (other than treasuries) were the highest they'd ever been.

I remember this quite well, particularly the yield/appreciation spreads between bonds/equities - why hold stocks when you got the same yield on safe Treasuries?

Speculators had had enough of abstract nonsense such as MBS (mortgage backed securities) and wanted something that could be held in the hand - don't forget the correlated bull market in gold, silver, copper, coal and iron.

Another thing is that while a lot of securities cannot find buyers in a bear market, commodities are completely symmetrical; for every buyer there is a seller and vice- versa. Traders could 'go long' and hold physical oil (in storage) and make their money on the way up ... and sell their contracts and make just as much money on the way down.

Can't do that with a Credit Default Swap, particularly in a market stress period where there is nobody to take the other side of a trade. See 'portfolio insurance'.

... confidence in financial system itself provides liquidity and search for diversification, but fear of entire system rule changes, debtload vs real energy budget, etc. causes all risky (debt based) assets to become more correlated.

Interestingly, it's China desperately hunting around for a hard currency in its death throes ... I recall an editorial in the Wall Street Journal calling for a dual currency system which I thought was quite radical (for WSJ). Hard and fiat, with fiat distilling into a set of 'local' and inflationary mini- currencies. Put another way, it is likely that some kind of hard system (trading gold internationally on sailing ships?) is in the future. Bernanke thinks (along with all the rest of the stooges) that the current situation is a garden variety liquidity crisis and BAU will fire right up in a few more months. Bernanke is wrong. It's always been an energy crisis ... it all began w/ the hated Jimmy Carter..

I expect this will continue, with periods of confidence alternating with periods of increasing systemic risk, with amplitude increasing over time, until a new monetary system/ debt devaluation, more closely linked to underlying assets, is introduced. I've no idea whether that is 1 year or 10, though I expect sooner, given the existing constraints on the old system.

The risk issue is all about moral hazard at this point, it may as well not exist. How can anyone price nothing?

The Euro zone net imports larger volumes of oil and natural gas on a net import basis than the US. So every time oil and gas prices increase, Euro zone citizens have to send more cash overseas than the US does. The per person number may be smaller, but the absolute amounts of cash leaving the Euro zone as a whole (to pay for imported oil and gas) is greater than the US.

This would be consistent with monetary inflation, not speculation. A part of price change is fundamentals, then you have to multiply it by new money in circulation.
To get the clearer picture about influence of the inflation to price of oil, imagine that you own a business that spend 10 $ on oil for every unit produced you sell for 100$. Inflating the money supply by 10% could easily increase your selling price to 110$. If you are on top of the food chain, you could easily pay 20$ and still stay profitable. However, it's inevitable that higher price of oil will feed through the system, increasing your other costs. Especially if supply/demand balance for oil is tight, relative to other supplies.
If it was speculation that rises price of oil then it would not be possible for you to raise the price and sell the same amount of your product. Something has to give, there is not enough money to buy all the goods produced.