The Price Of Oil
January 11, 2009 4:00 PM
The historic swings in oil prices last year were the result of financial speculation from Wall Street and not supply and demand. Steve Kroft investigates.
Did Speculation Fuel Oil Price Swings? Recent Segments
-
Taking down a cartel, Why are glasses expensive?, Lionel Messi 43:27 June 16, 2013
-
Lionel Messi and the ascent of Barca soccer 13:23 June 16, 2013
-
Sticker shock: Why are glasses so expensive? 13:01 June 16, 2013
-
Taking down Colombia's "super cartel" 13:03 June 16, 2013
60 Minutes Overtime is a weekly web show that begins where the weekly television broadcast ends
-
Soccer academy La Masia: A model for the U.S.?
June 16, 2013
-
Drug traffickers' vehicle of choice
June 16, 2013
-
Summer Series: My favorite 60 Minutes story
June 16, 2013
- 1
- 2
- 3
- 4
- Next »
See all 40 CommentsStrangely, I noticed quite a few posts by people that don't seem to understand the commodities markets.
First, investors buy future contracts for delivery of a barrel of oil at some date in the future at a locked in price - say $100 a barrel. Let's say the delivery date is 90 days. Any time from the moment they purchase the contract, to the expiration date the can sell this contract to someone else, usually for a profit. So let's say Morgan Stanley writes a paper saying they believe the price will be $120.00 in the next 90 days, their legions of salesmen take that paper and encourage investment in the "opportunity" (just like a stock in the old days). This surge of investment - all by itself - drives the price up. Then when it suits Morgan Stanley they write a new article/paper (usually they will tie this to a news event to add credibility), stating that it's time to get out of oil. The smart money starts buying "short sale" contracts for say $110 (which are almost free since the price is at 115 - for those of you that are wall street challenged, who wants to sell a barrel at $110 each when the current price is $115?) Now they are making money on the way down. However, this scheme can only work if their influx of investment swamps the market and overpowers traditional supply and demand. By all accounts, the amount of money and number of "speculative" trades is in fact overpowering actual users of oil. The smart money gets out early at say 115 per barrel while the losers on wall street are the last bunch of investors that hold contracts that are going to expire in say 30 days for 120 a barrel with the price now at $110. But even these guys are usually smart enough to buy a "short sale" contract at say $108 for $12 dollars a barrel to hedge their losses (that way they only lost $12 per barrel instead of the full $120).
It's a great game and I wouldn't really care about it except that a casualty in the process is gas pump prices - and in fact, the people that get hurt the most can least afford to pay for wall street's game: The working poor. How long will we let these unscrupulous salesmen steal from the American people. STOP wALL sTREET NOW. The commodities market needs complete re-regulation and serious oversight. We need to know who is holding future contract positions AND who is holding short sale positions and when they were purchased. Obama should take note that during the last run-up in gas prices it nearly killed the economy all by itself.
Now, the demand is the same this year as last, that supply is days ahead of last year and still the price went up for the summer adjustment. It wasn't as high as last year but still it went up. How can anyone with a brain and any critical thinking skills ask us to believe that the free market is at work here? Supply/demand is not driving the price adjustments. The refineries are only operating at 85-89% capacity and still the supply is increasing. The demand is basically flat. So if the free market principals are in control, the price should trend down until a balance point is reached, which hasn't happened yet. The price should still be dropping. But it isn't. So, more than meets the eye or more than what we expect is going on.
To expect that any less control or regulations will be enacted is ludicrious. We need to put the same kind of controls in place to regulate the important commodities that affect our economy as the stock market has. Automatic "stop-points" when wild swings occur. This should serve to smooth out any big spikes like when short sellers have to cover their a@@'s.
Thank you.
Our country, including the left winged CBS emphatically blamed George W Bush and Dick Chaney. Since they are not in this report of the commodities market, should you not publically apologize? An make note: the new administration will send oil prices through the roof?.very very soon. Please report on that one too. Thank you for the opportunity, I will notify Shawn Hannity as well.
5) production, unlike the claims of the piece, did indeed fall. In fact, as price rose during 2007, both U.S., Persian gulf and worldwide oil production was below 2006 levels. As the super spike began in 2008, the Persian Gulf region increased production roughly 10% to capture the high prices. What is alarming is that U.S. production again fell (could not capture high prices) and worldwide production gained only 6%. despite what the 60 Minutes piece said, world demand for oil waned only slightly during the spike period and production was only then ramping up. Let''s not forget, in Q2 2007 demand fell only to accelerate again to record highs 6 months later.
6)"How could the 60 Minutes crew have missed all of these things?"
Because they are part of the elites. Elites believe that anytime the price for oil goes up it is because of "greedy'' speculators. Curious that the recent collapse in oil prices does not seem to be have been caused by greedy speculators who are shorting oil.
1) No one has ever been able to explain how speculators can influence spot prices without taking delivery. The reason is that they can''t. It''s an absurd assertion.
2) References to the volume of futures trades as "evidence" that speculation is driving prices is equally stupid. For every buyer there is a seller. The volume of sells increased at the same rate as the volume of buys.
3)The $25 dollar rise in oil on Sept. 22nd was horrendous journalism, and it is obvious they have no clue what caused it. I was watching the spot and 2 forward month contracts when that happened. Within 30 seconds, the reason for that rise was quite obvious. The current contract was due to expire that afternoon. Shorts were forced to cover. There was little volume because the real trading was occurring in the next forward month. So a short squeeze occurred. The next day, the oil contract switched months, and the price was back where it was.
- 1
- 2
- 3
- 4
- Next »
See all 40 Comments