CFTC Report Blames Speculators For Oil Price Swings: Duh

Quote from 5yrtrader:

Ok, lets say you have convinced me that speculators are responsible for the oil price spike to $148.

So who was responsible for the fall from $148 to $32?
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Speculative buyers covered their positions, left the market, and some went short.

The relationship between supply, demand and price, still holds. The distinction here is the motives of those buyers and sellers. Are they buying and selling the underlying to hedge future production or guarantee inventory? Or are they using the contract as a vehicle to realize speculative gains? If so, how much does that speculative volume contribute to demand? And therefore, price?

Another point to consider with bubbles is money flow. During the oil run-up, a huge amount of cash was siphoned off index futures and equity markets during their crash. The thing about bubbles is they suck in indigenous capital native to any one contract, but also from exogenous pools to fuel the run-up. Thats what Tulip Mania is all about.
 
Quote from achilles28:

Speculative buyers covered their positions, left the market, and some went short.

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In futures, for every long there is a short... you can't have a net long position or a net short position in the market, its always equal. If index funds are buying a ton of contracts, you have a bunch of pit traders short. In all futures markets true hedgers make up a very small percentage of contracts traded, they rely on the speculators to make a liquid market. Speculators motive is always to make a profit, what is your motive? Is making a profit somehow wrong?

If speculators are to blame for the run up, they must be cheered for how quickly they brought prices down.

Is it just a coincidence that demand was higher than supply during the run up and that now supply is out pacing demand (actually demand just fell off) during the current down turn?




In 2008 Exxon Mobil made $45 billion in profit, Goldman Sachs made $1.6 billion. If Goldman is involved in some crude oil market rigging, they are not receiving the benefits of all their hard work. Keep in mind that although Exxon is the largest publicly owned Oil producer it is dwarfed by the state owned giants like Saudi Aramco and Gazprom.

So Goldman, speculators and pension funds collude with one another to eke out a profit for themselves and the lions share of the gains goes to the oil producers. That arguement doesn't really hold water.


5yr
 
Stating platitudes doesn't make for a convincing argument - "for every buyer, there is a seller." A little cliche, don't ya think? :D

Yes, speculators brought it up and down. I made that same argument a year ago when oil was crashing.

Is profit from speculation wrong? No, but excessive leverage - which enables most speculation- is wealth destructive because it creates bubbles. Seems I have to repeat myself here.

You're insistent that futures transactions are motivated largely to hold the underlying. There's a plethora of evidence to the contrary. Someday, if you "Get it", you'll come to understand that markets are governed overwhelmingly by price action. Not fundamentals. Successful traders know this.

I'm not sure why you brought up Goldman and Pension funds. Interesting straw-man, but something i never alluded too. Since we're on Goldman, don't you think it best to investigate profits derived from oil trades, as opposed to the overall firm? Probably a better metric. And everyone knows Big Oil plays a huge role in futures. You think because they sell, they don't buy? Or aren't leveraged???

The whole crux of your argument is flawed. If oil was legitimately valued @ 140$, where was the later quadrupling of supply? Or the 75% reduction in global demand??

Leverage exacerbates market moves. At year 5, you should know that. Good luck.
 
The underlying cause of high oil prices was the artificial leverage injected by the FED.

The same cause which created a housing bubble.

Come on folks, you can argue all day until you are blue in the face however, the obvious should be kept simple. Discussing the relative effects of who contributed and how will only entertain the pundits, placing your flag in the same corner as the CFTC and DemoPublicans.
 
You are dead wrong!..
Just take a look at the USD relation to WTI over the last 12 month and you'll get a clue.

Quote from achilles28:

Speculative buyers covered their positions, left the market, and some went short.

The relationship between supply, demand and price, still holds. The distinction here is the motives of those buyers and sellers. Are they buying and selling the underlying to hedge future production or guarantee inventory? Or are they using the contract as a vehicle to realize speculative gains? If so, how much does that speculative volume contribute to demand? And therefore, price?

Another point to consider with bubbles is money flow. During the oil run-up, a huge amount of cash was siphoned off index futures and equity markets during their crash. The thing about bubbles is they suck in indigenous capital native to any one contract, but also from exogenous pools to fuel the run-up. Thats what Tulip Mania is all about.
More...
 
Quote from 5yrtrader:


Is it just a coincidence that demand was higher than supply during the run up and that now supply is out pacing demand (actually demand just fell off) during the current down turn?
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The was some underlying 'reason' for the move, but the price of oil also carries the forward looking view of buyers and sellers, if everyone stars to believe in peak oil the price goes up today even if there is a surplus in production. That is because everyone will try to guarantee supplies now and sellers will wait for the future

So yes, supply and demand was out of balance but the extend of the move suggests that people really thought the price was a one way bet, it became a momentum trade that feed on itself. Imbalances happened in the past and if people were paying attention to housing they would have realized surpluses lied ahead. They didnt, they thought shortages would happen(and its easy to believe that if the prices rises daily), hence $147 oil
 
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