Significant Reduction in Petroleum / Gasoline Prices, HOW?
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It's always been clear to everyone who will take a bit of time to research issues, that this entire oil runup is a FINANCIAL phenomenon. (not just oil, but also base metals etc)
Nowadays untold billions are flowing into long-only commodity funds. The reasons are pretty obvious, to escape ongoing fiat currency depreciation, to front-run China/India/etc (buy today what China will want to buy tomorrow) and to follow the trend.
In that sense, oil and copper are better alternatives than gold, because of the almost price insensitive, inelastic demand.
It's all happening at the futures markets of NYMEX and IPE, despite a GLUT of oil at the physical side. It has NOTHING, ZERO, NADA to do with current supply and demand issues.
Oil still costs $1.5/bar to OPEC producers (and about $6/bar for non-OPEC producers).
So, why wouldn't someone buy the extra 2M bar/day offered by OPEC and bring this market down?
The problem is that due to how the oil contracts are defined, it's practically impossible to do any MEANINGFUL arbitrage, which would bring the two markets (futures and physical) back in sync for the current contracts.
The big trading houses are making $$$ like bandits (look at where most of the their revenues come from) and so do the oil companies.
Even "investors" in oil make money, as long as this price rise lasts, because they're charged huge carrying costs.
But almost everyone else is getting scr*wed.
I think Westerners "investors" are shooting themselves in the foot. The windfall profits made by oil producing nations mean that in the next few years, will not only result in Arab states record buying of e.g. Boeing planes (as has been the case sofar) but more of "XYZ (e.g. UAE) Investment Authority" buying toll roads, ports, companies etc in US, EU etc.
Therefore, IMO, the lack of action by Western leadership against this is nothing short of criminal.
Ofcourse I wouldn't expect any better from people who are having their country mortgage its future (borrowing from the future) to fund its overconsumption today. What Buffet called "sharecropper society" a year ago.
Ordinary people deserve what they get because they are lazy. No one is stopping them from hedging against higher fuel prices, that is what the futures market is really for. No one is stopping anyone from inventing a new product or technology to compete with oil. The energy problem will be solved with something that no one knows anything about, much like Edison's light bulb vs gas lights. Strife causes the free market to work wonders. The energy problem may be bad, but it is not causing widespread strife yet. Imbalances create opportunities. New products and tecnologies that solve big problems need social and politcal upheaval to fund their start ups. No one is interested if the car still goes, the TV still works, and the A/C stills cools.
They (ordinary people) deserve what they get only because they have faith that their government is doing the best for them and that the media is actually informing them.
If all you hear from the media (which IMO are just shills for those making $$$ from this) is that oil is going up because the world is running out of oil, or because China etc is using so much, then you accept $70+/bar oil like a "natural disaster".
Whereas the truth is that commercial stockpiles are at the highest levels in 6+ yr (ever?):
US strategic oil reserve is 100% full since Aug-2005.
OPEC has been saying for YEARS that REAL, PHYSICAL demand is NOT there and nobody took their extra 2Mbar/day capacity offer after 4Q2005. Just what OPEC calls "paper barrels".
As per recent congressional testimony China's oil demand was up only 1% in 2005. China itself said that since 2004 it's going to rely on domestic supplies for 95% of its energy needs.
It's an issue of money flowing into oil futures and inability to do arb between futures and physical. For some background read http://www.oxfordenergy.org/comment.php?0008
What would happen, if there was no arbitrage between futures ES and cash $SPX ? This is what we have in the oil market for the past couple of years and I don't see anyone doing something about it.
So, I can only conclude there is some hidden agenda behind accepting the broken price discovery mechanism in oil market today and that despite what they claim in public, the people in charge are happy with the rigging of oil price and its consequences.
let me go tell the first responders in just about any city's municipal government, that has already overspent their fuel budget and are into next year's allocations, and this year isn't finished yet.
I am sure they will appreciate your suggestion and solution
The reason that crude inventories are high is simple.
When you have a contango market (expect prices in the future to be higher later in general more than now) then physical oil dealers find it more profitable to run "at the top of the tanks" for the reason you can now understand.
You can consider other hypotheses for the data, breaking of correlation between inventories and price rises.
The most obvious one is that the easily monitored US inventory no longer controls the market because of increased demand elsewhere.
When you have a contango market (expect prices in the future to be higher later in general more than now) then physical oil dealers find it more profitable to run "at the top of the tanks" for the reason you can now understand.
You can consider other hypotheses for the data, breaking of correlation between inventories and price rises.
The most obvious one is that the easily monitored US inventory no longer controls the market because of increased demand elsewhere.
Yes, I'm aware of the effect of contango on the buildup of stockpiles.
My point is that oil price is driven up because funds are buying the futures, off which oil is priced (since the 1988), despite plenty of supply (or even a glut) at the physical market, due to no arbitrage between spot and futures.
OPEC has been talking since 2000 about the effect of "paper barrels" (i.e. the derivatives markets) on the price of oil:
I guess in recent years they have decided that if Westerners insist on driving oil 3x higher than OPEC's target price ($25-28) through their futures markets at NYMEX and IPE, then the oil producers will be happy to accomodate us.
My point is that oil price is driven up because funds are buying the futures, off which oil is priced (since the 1988), despite plenty of supply (or even a glut) at the physical market, due to no arbitrage between spot and futures.
OPEC has been talking since 2000 about the effect of "paper barrels" (i.e. the derivatives markets) on the price of oil:
I guess in recent years they have decided that if Westerners insist on driving oil 3x higher than OPEC's target price ($25-28) through their futures markets at NYMEX and IPE, then the oil producers will be happy to accomodate us.
YOU can. Get rid of that SUV and other energy-wasting ways of life.
A lot of whining, blaming, and scapegoating going on here. Instead, how about a look at the mirror? The "culprit" can very often be found right there staring at you.
Last time I heard, those trucks that nobody really needs are still selling well in the US. Obviously, gas prices are not high enough yet, not even close. Guess it's time to buy some (futures).
Contrary to what the media of mass deception would have you believe, oil consumption *IS* flat or dropping:
Per recent 4-May-06 testimony by Yergin before the US Congress world oil demand was up only 1% in 2005 (source).
Also, China said that since 2004 it's going to rely on domestic supplies for most of its energy needs. According to China's recent announcements its oil demand and imports in 2005 are actually LOWER than 2004:
"The National Development and Reform Commission said recently that China's dependence on oil imports was 42.9 per cent in 2005, 2.2 percentage points lower than in 2004. It also said China consumed 318 million tons of oil last year, 1.08 million tons less than in 2004." source
People need to open their eyes about what's happening here!