Gladiator

I heard part of the US Congressional hearings on oil speculation, and the focus of those hearings was on commodity markets.

The reality of oil speculation would be if Exxon, or some oil company, felt the price was going to rise, teh oil company would back fill an exisitng oil well, in speculation that the price would rise, and then the oil can be pumped back out, and sold for a profit.

One question is, Why do some oil companies feel the price of oil will go higher?

One reason is the asessment of the chances that shipping through the Strait of Hormuz will be restricted. The cost of maintaining a supply of oil for existing customers, needs to be passed on to the customers. So when the West carries out potentially disruptive activities in the Middle East, the oil companies need to create extra supply buffers, which increases the price at the pump.



There are published indicators of available oil supply. But are they complete?

http://www.eia.doe.gov/pub/oil_gas/p...t/txt/wpsr.txt

EIA - Short-Term Energy Outlook

Oil Inventories Report Full of Surprises - Seeking Alpha




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How did Our Oil get under Their Sand?

Gladiator

"Bashing futures traders may well be good politics, but it's stupid public policy. By providing a mechanism for locking in prices, the futures market makes it easier for oil companies to make costly investments in new production - which is the key to lowering prices at the pump.

Futures trading also discourages hoarding in an otherwise tight market. Without speculators willing to take the other side of so many futures contracts, oil refiners and other end-users might be inclined to ramp up their spot-market purchases and store more oil as a hedge against further price increases. "

In defense of oil 'speculators' - Jun. 27, 2008


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SouthernDemocrat

No one is bashing airlines, oil companies, and so on for buying oil futures to hedge against future prices increases. Thats exactly what commodity markets are for.

The problem is that's currently only 30% or so of the those purchasing oil futures. The other 70% are primarily hedge funds, and other outside investors looking to hedge against declines in the dollar, or future mortgage security loses.

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"He's got both a first-class intellect and a first-class temperament."

Gladiator

Hedge fund artifically increase the price of oil:

Are hedge funds distorting the price of oil? - BloggingStocks

Not sure how hedge funds increase the price of oil.

If gasoline suppliers do not agree to pay a higher price for oil as a future, in advance, then the price of oil will come down. It is the fear of suppliers that oil might not be available at a lower ptrice, that creates a gasoline supliers decision to buy a future guarantee.

It may be that gasoline refiners are at the mercy of the future's market, becasue of a lack of capacity for any buffer in a temporary shortage of supply. So gasoline refiners are willing to pay ahigher price for oile, from future traders, to be certain they have a supply. The price is less important to a gosiline refiner, because any cost can be passed on tot he customer. Supply is the key for a gasoline refiner.

http://www.global-change.com/article...edge_funds.pdf



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Gladiator

Hedge funds are not well regulated, so networking between hdge funds may not be illegal.

Hedge funds play interesting role in oil & gas escalating prices | Pipeline & Gas Journal | Find Articles at BNET

Searched Oil Hedge Funds


How Oil Producer, Banks and Commodity markets set prices:

McKinsey & Company - The new power brokers: How oil, Asia, hedge funds, and private equity are shaping global capital markets - October 2007


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Gladiator

"848 hedge funds liquidated -- meaning they closed operations and returned investors' money -- versus 296 fund closures the year before.


That's the highest number of closures ever in a single year, representing 11 percent of the roughly 8,500 hedge funds in existence."

Hedge funds see record launches, closures in 2005 - Mar. 1, 2006

If Hedge funds are raising the price of oil, how come 11% of Hedge Funds went under in 2005?

"During 2006, 1,518 funds were introduced and 717 funds liquidated, compared to 2,073 new funds and 848 closures in 2005, HFR said.
The overall fund attrition rate for 2006 was 8.28%, the second-highest rate recorded by HFR since 1995, when it began tracking such information. The highest attrition rate was 11.4% in 2005."

Hedge fund launches, liquidations drop in 2006, HFR says - MarketWatch


2007 Hedge Fund Closures less than in 2005 and 2006.

Modest hedge funds closures last year - FierceFinance


"... first three quarters of 2007 and 408 hedge funds liquidated..."

Hedge funds steady in 2007 | Futures | Find Articles at BNET






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