Monday, April 23, 2012

Now That Gas and Oil Prices Are Falling, Do Speculators Get Any Blame or Credit for That?

Retail gasoline prices have been steadily declining for about the last three weeks, falling by more than six cents per gallon and almost 2%, since early April, see top chart above from Gasbuddy.com.   The falling gas prices follow falling oil prices, which have dropped almost 5% since the late February peak.

And on Intrade, speculators have been driving down the chances of gas reaching $4.50 per gallon by December 2012 from about 60% at the end of March to less than 35% in recent trading, see bottom chart. 

42 Comments:

At 4/23/2012 8:39 AM, Blogger PeterK said...

glad to see you link to gasbuddy. I use it all the time,even when I'm on business travel. Thursday evening I was filling up my car (97 Expedition) at Sams Club, when I went to report the posted price to GasBuddy ($3.93/gal for premium) got a msg from them asking "that seems too low" a really effective app for smartphones

 
At 4/23/2012 8:40 AM, Blogger Krishnan Chittur said...

MJP - you do not understand the rules - the rules are WHATEVER the "progressives" say they are. So, a refresher:

a) When prices rise, it is the fault of the speculators and profiteers (they are evil)
b) When prices fall, it is because of the "free market"
c) Government intervenes only when people make "excessive" profits
d) Apple's higher profit margin is OK, Exxon's lower profit margin is NOT OK (Why? You dare ask WHY?)
e) GE can do anything and not pay any taxes (because Immelt is such a good guy)
f) add your own
g) you know the drill now
h) So, just listen to "progressives" and do as you are told

 
At 4/23/2012 8:47 AM, Blogger VangelV said...

Sadly you can thank a collapse in the real economy for the decline. The oil market is global and with the EU crashing, the US in a deep slump, and the developing world slowing rapidly we could be set up for the speculators to take us down quite a bit lower. While the longs can still be saved by pressures coming from a war against Iran, turmoil in SA, or bad news from the Alberta elections the short term ride could be bumpy, particularly for marginal projects that cannot be financed from cash flows.

 
At 4/23/2012 8:48 AM, Blogger Methinks said...

Non, non, Krishnan!

The rules are that speculators only effect results unfavourable to you. Results favourable to you are proof of lack of speculators.

They're like bad genies, see? The appear and magically disappear and if you can make them disappear, then all will be well with the world.

Never mind that every entrepreneur who starts a business and every investor in it is speculating on the success of it.

 
At 4/23/2012 9:50 AM, Blogger Krishnan Chittur said...

Re: Methinks - I stand corrected - because if the "progressives" "speculate" and make money, THAT is good ... Anyone else making money other than the self styled ruling elite IS bad and evil.

When James Cameron makes money off Avatar (or whatever tripe he makes) THAT is good - when HE spends HIS money spending gazillion dollars on energy (fossil fuels and all that) THAT is good - when anyone else burns fossil fuels THAT is evil ... If Cameron were to speculate on planetary mining AND make money THAT is good - anyone else risking their investment and making money THAT is bad

Thanks for that clarification (!)

 
At 4/23/2012 9:53 AM, Blogger Larry G said...

Many folks do not immediately jump to "speculation" if demand is high and prices rise.

They start to suspect speculation when demand is down and prices are still going up.

Many do not fully appreciate that it's world demand that affects our prices not domestic supply which is actually being exported to foreign buyers willing to pay world prices for it.

But those who have domestic energy agendas actually use that very (increase domestic supply to reduce prices) argument - that more drilling in the US can lead to lower fuel prices so some of the public actually believes it and when those folks perceive increased drilling, lower fuel demand and prices still go up, then they believe it is speculation.

If we did not lie to them to start with and told them the truth about world demand vs domestic drilling, they would understand that high world demand trumps lower domestic demand and even increased domestic supply.

 
At 4/23/2012 9:59 AM, Blogger Methinks said...

Don't forget that Hillary Clinton is a master cattle futures trader. That's cool too.

And insider trading is also only wrong for the little people.

The hue and cry about speculators is now and has always been the song of the crony. There's no shortage of dopes who will happily join the lynch mob to their own detriment.

 
At 4/23/2012 10:10 AM, Blogger Karl said...

I wrote a significant amount about this over at Cafe Hayek, but just as a note there is a reasonable argument that financialization is driving up the price of oil.

A lot the confusion I think comes over the use of the term "speculator" which suggests that someone is making a bet which way oil prices will go.

Instead the buyers could be better thought of as a type of "hedger" who wants to reduce various types of risks and is using oil to do that.

One of course is the fall in the dollar but another is credit availability, as commodity ETFs serve as a liquid asset.

The issue then is that the introduction of these players will tend to flatten the forward curve and/or push it into contango.

This then encourages oil producers to slow the rate of extraction and in extreme cases of contango to simply load vessels full of oil and let them sit.

Both of these effects remove oil from the spot market. Though the tanker holdings can ultimately only add to volatility, a slower extraction rate can cause a potentially permanent increase increase in the price.

 
At 4/23/2012 10:35 AM, Blogger juandos said...

"There's no shortage of dopes who will happily join the lynch mob to their own detriment"...

Amen! If that weren't enough there's an incredibly expensive dope in the Oval Office to lead that lynch mob...

 
At 4/23/2012 11:28 AM, Blogger Methinks said...

karl,

You did write a lot of nonsense at the cafe. It all finally congealed into a more understandable (if incorrect) bit of nonsense in your last post to Neal. There is nothing reasonable about your argument.

The cafe has issues with facebook comments and neither mine nor the blog owner's attempt to post a reply to you was successful.

I don't think you understand futures or forwards very well, otherwise you wouldn't have insisted on drawing such a sharp distinction between cash and physical settle. You would have also been aware that the deepest, thickest (most liquid) oil futures are a physical settle.

You also don't seem to understand that contango is the normal state of a market in non-perishable commodities and results from a positive cost of carry. A market merely being in contango does not provide producers with arbitrage opportunities - even if contango is above TVM plus storage. You also seem to be under the impression that oil production can be turned off and on like the faucet in your bathroom. It cannot.

The ETF argument you finally came to is mocked because it is laughable. Here's why:

1.) Even the most inflated estimates of the energy funds you finger put them at no more than $240 Billion and have grown to that figure from $13 Billion five years ago. That's Michael Master's estimate and it's wrong because he includes funds that invest in energy stocks as well as oil derivatives, but I'm happy to use his insanely high number because even the inflated number makes his claim ridiculous.

2.) The SPOT market in oil trades approximately $3.1 trillion annually.

4.) For these funds to grow to $240 Billion from $13 Billion in five years, they'd have to grow (either by creating new funds or growing existing ones) by about $45 Billion per year. In a $3.1 Trillion market. What kind of a price impact do you think the growth of those fund had?i

The oil loaded onto tankers is NOT "removed" from the spot market and stored on tankers waiting for someone to come along and buy it at some future date. It is sold in the futures market at today's spot price and stored until delivery, but all of that oil is already purchased and these purchases ensure both the supply and price of a key input primarily for refiners. Now, I know you kind of understand that, but the only way to support the assertion that the steep drop in price in 2008 is supported by this theory of yours and Masters is that you think producers were just paying for storage and rolling the dice, dumping the oil on the market when demand collapsed. And, really, the fund managers do overpay for contracts, but the suppliers aren't dumb enough to buy high and sell low.

I remind you that refiners are key buyers. The $240 Billion (it's much less) sitting in ETFs is a rounding error. BTW, you should know that all of these commodities funds make use of Futures and options because they must be able to sell contracts to meet redemption demands. Forwards are too illiquid for that.

 
At 4/23/2012 11:35 AM, Blogger Benjamin said...

Why does the GOP think the federal government should control milk prices, but not oil prices?

Is there a principle at work here, or just craven interest-group politics?

Please explain the principle.

For the record, I do not favor government price controls on oil or milk, but I do favor transparency in markets, especially futures market.s

Free markets work best when information is abundant,accurate and transparent.

 
At 4/23/2012 11:38 AM, Blogger Benjamin said...

Oil could tumble from here, as it has been artificially propped up for a few years (sucking hundreds of billions of dollars out of the USA). The demand and supply for oil is price inelastic in the short-run, but pressures build up in the longer run.

At $100 a barrel, global demand goes flat, while any oil field on earth is worth developing, and conservation begins to kick in, and other liquid fuels make sense.

Look for big crack in oil prices, or long, long, long stagnation, ala 1990s.

Cushing is full, oil tanker rates gave pummeled.

 
At 4/23/2012 11:53 AM, Blogger Ken said...

Why does the GOP think the federal government should control milk prices, but not oil prices?

Is there a principle at work here, or just craven interest-group politics?


Yes, that covers it. Why do you assume that people who support free markets are GOP?

For the record, I do not favor government price controls on oil or milk, but I do favor transparency in markets, especially futures market.s

What about political markets? Should people be forced to disclose who they voted for?

Free markets work best when information is abundant,accurate and transparent.

Of course, not having an abundance of accurate and transparent information is not an argument against free markets. Government operatives purposely keep information opaque and limited. This is why so many politicos (and those on the left) were so upset with the Citizens United decision - it exposed what the Hillary campaign and Hillary herself was all about (corruption btw). Making the abundant information about Hillary available to the wider public horrified and appalled people who knows what happens if anybody can simply publish the actions of their political campaigns - they would be exposed for the hypocrites they are.

 
At 4/23/2012 12:00 PM, Blogger Buddy R Pacifico said...

"US gasoline futures post biggest weekly loss since Sept"

"RBOB gasoline's crack spread against U.S. crude -- the profits refiners can make processing crude into the fuel -- closed at $28.94 on Friday, down $8.77, or 23 percent from a week ago."

How can this occur if speculation taxes consumers?

 
At 4/23/2012 12:40 PM, Blogger james said...

I do not know who should be blamed for sky high oil prices. Natural gas prices have been falling for years nobody talks about that but oil is another matter altogether. I do not think that in the end that anyone can control the price of a commodity.

 
At 4/23/2012 12:53 PM, Blogger Benjamin said...

Ken-

I am not fooled; I know the GOP stands for Grifters on Parade. The D-Party is no better.

I do not favor transparency in political markets, as it could lead to intimidation (as has in the USA past, when balloting was not secret).

I do favor transparency in equities, bonds and most financial markets. Such markets are ripe for manipulation, and have been manipulated many, many times in the past. This leads to public distrust of capital markets, and then disintermediation. (People put money into US Treasuries, gold and suitcases of cash etc).

Ken, I enjoy your honest commentary, and viewpoints. It is refreshing to have comments made here by someone who does not resort first to personal invective, The fact that we disagree on some issues makes for an interesting conversation. No one learns anything in an echo chamber, whether it be Fox News or New Republic.

I hope you give me ideas to ponder.

 
At 4/23/2012 12:54 PM, Blogger Benjamin said...

Retail gas prices are falling? But I thought we were on the cusp of hyperinflation ala Zimbabwe. Weimar Republic. Argentina.

Dang, prices keep going down. WTF?????

 
At 4/23/2012 1:06 PM, Blogger Unknown said...

Larry G, you seem to be functioning on the false caricature of the argument the "drill now" crowd is making (a caricature made by the anti-drilling crowd). Drilling is not proposed as a solution simply because it would result in prices going down in the US, but because it would effect the global market. It happened in the summer of 2008 (all goalpost-shifting aside).

You are ASSUMING there is a failure to make a connection to the global market when there is no such failure (though the connection is implied, more often than not).

 
At 4/23/2012 1:11 PM, Blogger Methinks said...

Bunny, you don't learn anything in any kind of chamber.

I just love your idiotic idea of total transparency in the financial markets. It'll be handy when a mob of violent anti-Wal-Mart activists want to go intimidate 82-year old Mrs. Jones in Rochester, NY into selling her shares by surrounding her house and harassing her as she tries to get to the grocery store. Or, hey, if somebody wants to go kill John Smith because he's as sharp a thinker as you are and blames John Smith for his losses in a stock that he owned and Mr. Smith was short. That's actually happened.

Yeah, we need more transparency in every market. How do I know that you're just buying enough milk to meet your family's needs? How do we know that you haven't bought some storage facility and are now trying to corner the milk market? That retail milk market is as ripe for manipulation as you are for the looney bin or as the financial markets are for manipulation. We should have a national registry for every purchase ever made by anybody in the United States. And it should be accessible to everyone.

I always love a "libertarian" in love with the police state.

 
At 4/23/2012 1:12 PM, Blogger juandos said...

This comment has been removed by the author.

 
At 4/23/2012 1:27 PM, Blogger Benjamin said...

Some commenters here are turning this section into a hopeless toilet.

I assume they are sniveling GOP catamites, but then their commentary is so shrill, they might just have Asperger's Syndrome.

I hope for more discussion of issues, and less personal invective.

 
At 4/23/2012 1:35 PM, Blogger Methinks said...

As opposed to what, Bunny? A "hopeful toilet"? Is that what you think the nonsense you post is?

BTW, nice use of a thesaurus!

 
At 4/23/2012 1:40 PM, Blogger RichmondG30 said...

"Now That Gas and Oil Prices Are Falling, Do Speculators Get Any Blame or Credit for That?"

That's rhetorical, right?

 
At 4/23/2012 4:29 PM, Blogger Walt G. said...

Benjamin, "Some commenters here are turning this section into a hopeless toilet."

I agree. I pulled Carpe Diem as required reading for my classes this week. I was spending too much valuable class time explaining all the personal attacks. There is way too much crap to sift through to find the nuggets of brilliance.

There are some smart people here, but it’s just not worth it anymore. People should be able to disagree without being personally attacked for their opinions just because they differ from others.

 
At 4/23/2012 4:45 PM, Blogger Methinks said...

Walt,

Don't you teach something technical like shop or mechanics class? Why would you require your students read an economics blog? That's always puzzled me.

 
At 4/23/2012 5:06 PM, Blogger Walt G. said...

Methinks,

I teach in the bachelor of service management program program, too. It's like a bachelor of business degree for the service industries of auto/diesel and HVAC. I helped design it.

The program is designed to teach service managers leadership, safety, accounting, budgeting, marketing, public relations, operations and planning, and industry labor and economic trends. We use OSHA. EPA, BLS, NLRB, and various other Internet sources like the WSJ for the classes.

I retired from GM in February, and I now teach two associate degree HVAC classes and two bachelor marketing classes at the moment with a combined 100 students. I have online students in other states, in the Navy on a nuclear sub, and in the Army in Afghanistan. They keep me on my toes because I am available for them all the time through our electronic classroom.

 
At 4/23/2012 5:58 PM, Blogger Methinks said...

This comment has been removed by the author.

 
At 4/23/2012 6:03 PM, Blogger Methinks said...

I see, Walt. And your students in Afghanistan and on nuclear submarines are too delicate for the varying opinions and commenting styles at Carpe Diem?

 
At 4/23/2012 6:09 PM, Blogger Walt G. said...

Methinks,

It's not a matter of delicate or not delicate. It's a matter of the amount of time I have to spend on explaining caustic comments instead of discourse substance. In my opinion, the commenting styles are not value-added anymore.

 
At 4/23/2012 6:28 PM, Blogger Methinks said...

Walt, style is always a matter of opinion. I, for instance, find inane gibberish more annoying, but that's just me. And, of course, you should run your class the way you see fit, but I find it strange that you should have to explain caustic comments to adults with normal IQ's.

 
At 4/23/2012 6:28 PM, Blogger Methinks said...

A matter of preference, rather.

 
At 4/23/2012 7:33 PM, Blogger Walt G. said...

This comment has been removed by the author.

 
At 4/23/2012 7:34 PM, Blogger Walt G. said...

Methinks,

I also find the discussion board threads break down when the students try to copy what they read on Carpe Diem. If I recommend the blog, I guess they think I agree with both the content and the style.

Maybe the cloak of anonymity causes the current and common lack of civility here; however, I am not very anonymous. I don’t find the back-biting socially entertaining or educationally useful anymore. It’s time I move on.

 
At 4/23/2012 7:38 PM, Blogger Buddy R Pacifico said...

Methinks, caustic remarks don't have to be insults. Let's not have this commenting site turn into a personal disparagement carnival, like what happened at Cafe Hyak. Your arguments might be of value, but name calling is surely bullying and an overall negative.

 
At 4/23/2012 7:58 PM, Blogger Abir Mandal said...

The speculators got scared of Obama's superpowers and stopped buying oil.

 
At 4/23/2012 8:09 PM, Blogger Methinks said...

Bunny, the other problem at Cafe Hayek was an onslaught of idiots babbling disjointed . So, I'll make you a deal:

Stop saying inane, idiotic things and I'll stop pointing out how inane and idiotic what passes for your arguments are.

Mostly, you just don't like that everyone on this blog points out the obvious to you and you feel that your drivel is somehow more tolerable than people pointing out to you that it's drivel.

Now, look Bunny, I'm sure you're a very nice person and you don't drown kittens in your spare time, but that doesn't make most of what you say any more intelligent. Make an effort.

Walt,

I don't reveal my identity because I am more free to tell the truth about my regulatory overlords and talk about my profession in general. Yes, I fear my overlords. The cloak of anonymity does not change what I say. It might change you, but some of us stay authentic even when anonymous.

 
At 4/23/2012 8:37 PM, Blogger VangelV said...

Walt, style is always a matter of opinion. I, for instance, find inane gibberish more annoying, but that's just me. And, of course, you should run your class the way you see fit, but I find it strange that you should have to explain caustic comments to adults with normal IQ's.

Frankly, I have to say that I admire Walt's hubris. If I were as confused and ignorant of most of the issues as he is I would not allow anyone I knew to read the comments I made. Of course it is possible that his students are eligible for the Special Olympics and don't have the reading comprehension required to figure out his shortcomings.

 
At 4/23/2012 8:38 PM, Blogger VangelV said...

Bunny, the other problem at Cafe Hayek was an onslaught of idiots babbling disjointed . So, I'll make you a deal:

Stop saying inane, idiotic things and I'll stop pointing out how inane and idiotic what passes for your arguments are....


Good luck. Bunny has been what he is for quite some time. It is actually my thesis that he can't be as stupid as he tries to seem and that he is just pushing buttons to see what reactions he would get.

 
At 4/24/2012 3:50 AM, Blogger Ron H. said...

"Many do not fully appreciate that it's world demand that affects our prices not domestic supply which is actually being exported to foreign buyers willing to pay world prices for it. "

Many? Only one that I know of who doesn't understand this.

 
At 4/24/2012 4:03 AM, Blogger Ron H. said...

Bunny: "I hope for more discussion of issues, and less personal invective."

Do you have some new comments to post? Oh, happy day.

 
At 4/24/2012 4:18 AM, Blogger Ron H. said...

Walt,


"It's not a matter of delicate or not delicate. It's a matter of the amount of time I have to spend on explaining caustic comments instead of discourse substance. In my opinion, the commenting styles are not value-added anymore."

I too find it odd that you should have to explain blog comments to adults. How will these delicate flowers manage when they no longer have you to guide their thinking?

Is your might-makes-right world view hard to justify when tour students ask about it after reading comments at Carpe Diem?

 
At 4/25/2012 12:11 PM, Blogger Ken said...

Ben,

I do not favor transparency in political markets

Really? No investigative reporting should be done and reports into public officials should be silenced? Transparency in political markets is bad? I really don't understand this at all.

Such markets are ripe for manipulation, and have been manipulated many, many times in the past.

How have markets been manipulated? Please explain this, don't just say it as if it's true. Then explain why this occurred because of private actors.

And even if that was the case, why is you business, I mean at all, what other people do with their own money? If you don't want to participate in some market because you don't trust it, fine. why do you feel the need to force others not to participate in markets even when they do trust it? Do you really think that you are so much better at rooting out situations that can be trusted than other people?

 

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