Friday, May 11, 2012

Oil Prices Have Fallen $10 per Barrel Since May 1, Proving That Prices Are "Stubbornly Flexible"

From Delta Airlines CEO Richard Anderson writing in Delta's Sky Magazine (May issue):

"Why do gasoline prices remain stubbornly high? The reason is that the commodity futures markets have become the new stock market for the 21st century. No matter what we do as energy consumers and producers in the United States, there is little direct effect on what we pay for barrels of crude oil.

Passive futures investments on the part of large commodities traders, commodity funds and passive investors have led the oil futures market to become disconnected from the true fundamentals of the market. The increase in the oil futures markets is largely due to speculation, which has undermined the historical relationship between supply and demand on one hand, and oil prices on the other.

Record high fuel prices increase our costs, constrict our flying and ultimately increase the fare you pay. To dampen the speculative inflation of oil prices, we’d like to see rules in place that would limit trading to the companies that actually intend to use the oil they trade. It is clear that market forces are not at work here."

MP: Where to start?  

1. Obviously gas and oil prices don't "remain stubbornly high," they remain "stubbornly flexible" or "stubbornly volatile" maybe, but "stubbornly high"?  I don't think so.  Gas prices at the pump change almost daily, reflecting the reality that they are market-determined, and have been falling now almost daily for the last month. "Stubbornly high" would mean retail gas prices would still be at mid-April peak levels of $3.90 per gallon, but instead they've fallen steadily to the current average price of $3.73. 

2. Likewise, oil prices are now at year-to-date lows and crude is selling below $96 per barrel for the first time since last December (see chart above).  In just the last 8 trading days, oil has fallen more than $10 per barrel from $106.17 on May 1 to $95.83 in late afternoon trading today.  How can oil prices be "stubbornly high" and yet fall by almost 10% in less than two weeks?   

3. And now that oil prices have plummeted 10% in the first two weeks of May, are those price declines due to speculative trading? Or have market fundamentals suddenly re-appeared after disappearing for some time?

Bottom Line: Delta's CEO should know better, and he can't have it both ways. If speculators get the blame for rising prices, they should also get the credit for falling prices.  It would be inconsistent to claim that rising oil prices are "disconnected from true market fundamentals" due to speculators, but that falling prices result from market forces?  Do speculators only appear occasionally and create havoc by forcing prices higher, but then disappear when prices are falling? 

The logic of the "speculators cause high prices" crowd is so inconsistent and flawed that I think they would have a more convincing case if they instead took the "speculators cause price volatility" position, which is also a refutable and flawed position, but at least it's plausibly more consistent and convincing. And at least that way the speculators get the credit/blame for falling prices, not just rising prices.

106 Comments:

At 5/11/2012 3:28 PM, Blogger Methinks said...

What is so annoying is that a monkey like Anderson can make such a claim without bearing any responsibility for providing evidence in support of his empty but aggressive assertion.

Instead, speculators are burdened with providing proof of innocence when accused by gutless twerps stooping to new lows in search of scapegoats.

Ironically, it is the speculators who reduce the transactions costs associated with both the hedging and purchase of jet fuel. Speculators reduce the cost of a crucial input.

 
At 5/11/2012 3:31 PM, Blogger PeakTrader said...

Only government has the power to eliminate perfect competition and reduce liquidity in the oil market.

 
At 5/11/2012 3:36 PM, Blogger Larry G said...

well you got a CEO of a major company who actually buys fuel... how "uneducated" could he really be?

but I have another question about how level the playing field is when a good number of the countries in the oil supplier game have nationalized their oil companies and appear to set aside oil at less than market price for their own citizens...

do we really have a true free market in oil or is it just for tye sap countries that believe it?

it would seem that the more the countries who have nationalized their oil industries hold back some for their own folks..the more it would boost the world price.

thoughts? (be polite please).

 
At 5/11/2012 3:42 PM, Blogger Methinks said...

Anderson doesn't actually buy fuel any more than Jamie Dimon actually hedges his credit portfolio.

 
At 5/11/2012 4:13 PM, Blogger Pulverized Concepts said...

Two things:

First, Dick Cheney has been having trouble with his cell phone and hasn't been able to call all the gas stations every morning and tell them what big numbers to put up outside on their signs.

Second, how do we know that the same speculators that paid for their BMWs by driving up the price of oil aren't now selling it short and profiteering again so they can pay for their trophy wives' plastic surgery?

 
At 5/11/2012 4:13 PM, Blogger Benjamin said...

When Bernanke engaged in quantitative easing, oil prices revived (despite actual physical demand for oil that grew only slowly).

Many inflationistas and Fed-haters shouted: "Thanks to Bernanke's easing, and and the perceived weakness of Obama in every regard, speculators are shooting oil prices through the roof!"

Even Richard Fisher, inflationista extraordinaire and Dallas Fed Chief and right-winger to the moon, said QE only led to capital flowing into commodities markets, and jacking prices up there. No real growth was occurring, due to QE, he contended.

Fisher gave a perfect description of speculators jacking up prices. The right-wing embraced Fisher.

Okay, so which is it?

1. Speculators cannot influence the price of oil, except when they can. See 2.

2. Speculators can influence the price of oil. if the President is a D-Party weenie and the Fed is in a perceived moderately expansionist mode. Then sculptors have a field day.

 
At 5/11/2012 4:27 PM, Blogger Methinks said...

Bunny, this has to be the millionth time this has been explained to you.

I'm going to just cut and paste this part of my friend, prof J's, excellent post from earlier this morning. You should consider printing it out and pasting at the top of your computer screen.

"If one believes future prices will be higher than current prices, one will purchase the asset. Enough people doing this can (not will, can) raise the price right now. Certainly it will not lower the price! And, of course, vice versa.

Then, when the future arrives, the speculators cancel their contracts (they don't actually want to take delivery) and this pressure can (not will, can) reduce the price at that time. But that's fine - it makes for a 'lower' high... or a 'higher' low." - Prof J

 
At 5/11/2012 5:20 PM, Blogger Paul said...

Methinks,

"Anderson doesn't actually buy fuel any more than Jamie Dimon actually hedges his credit portfolio.

I thought Dodd-Frank was going to prevent disasters like the Chase trading loss.

 
At 5/11/2012 5:26 PM, Blogger kmg said...

Delta's CEO should know better, and he can't have it both ways. If speculators get the blame for rising prices, they should also get the credit for falling prices.

Leftists don't think that way.

For example, the next time a Democrat says that the Bush tax cuts should expire since the economy boomed under the Clinton tax rates, try getting them to also agree to Clinton spending rates (which would mean a 40% budget cut from where we are now).

They want Clinton tax rates, but not Clinton spending rates. Too bad Republicans don't know how to actually debate this way.

 
At 5/11/2012 5:27 PM, Blogger kmg said...

I thought Dodd-Frank was going to prevent disasters like the Chase trading loss.

Wasn't Sarbox supposed to prevent exactly what happened at MF Global?

 
At 5/11/2012 6:20 PM, Blogger Methinks said...

Paul,

Yeah. The regulators' idea of hedging is shoving a stick of dynamite up your behind and lighting the fuse. That's how well they understand hedging.

This "disaster", btw, is a 0.56% loss ($2 Billion on a $360 Billion portfolio they were hedging). If you can't lose 0.56%, you can't trade at all.

It's unclear if it was a screwed up hedge (possible - they changed how they calculate VaR a little while ago and they started moving the index) or if it was willful speculation. And I'm pretty sure we're not going to figure it out from the press releases or the breathless chatter of the hysterical media.

 
At 5/11/2012 7:34 PM, Blogger Marko said...

Mark, the mistake unfortunately is to think that logic plays any part in politics. Delta's CEO would love for the government to force fuel prices lower, so he argues for that. I guess that is logical. It doesn't matter what he really thinks - because the government is so powerful and intrusive, this CEO has a very strong incentive to get them to help him make more money.

The solution is a less intrusive government.

 
At 5/11/2012 7:46 PM, Blogger Larry G said...

in terms of "intrusive" govt:

Top 10 Sources for U.S. Crude Oil

1. Canada – 1.94 million bpd
2. Mexico – 1.13
3. Saudi Arabia – 1.09
4. Venezuela – 1.01
5. Nigeria – 0.74
6. Angola – 0.48
7. Iraq – 0.47
8. Brazil – 0.30
9. Algeria – 0.28
10. Colombia – 0.25

Countries that Nationalize Oil:

Ecuador
Iran
Iraq
Libya
Nigeria
Saudi Arabia
Venezuela
Argentina
Canada
Mexico
Russia
Brazil

 
At 5/11/2012 7:47 PM, Blogger Methinks said...

Marko,

IMO, the solution is always less government. However, the idiocy of Anderson lies in the fact that what he wants the government to do will NOT lower prices. Very likely it will INCREASE prices, but it certainly won't do a thing to lower them.

 
At 5/11/2012 8:02 PM, Blogger VangelV said...

1. Obviously gas and oil prices don't "remain stubbornly high," they remain "stubbornly flexible" or "stubbornly volatile" maybe, but "stubbornly high"? I don't think so. Gas prices at the pump change almost daily, reflecting the reality that they are market-determined, and have been falling now almost daily for the last month. "Stubbornly high" would mean retail gas prices would still be at mid-April peak levels of $3.90 per gallon, but instead they've fallen steadily to the current average price of $3.73.

Is it possible for you to use a meaningful contract like Bent instead of the much more volatile WTI? If you did pay attention you wold know that oil is 'stubbornly high' even though much of the Western world is in recession. Do you really think that $112 is cheap when the EU looks to be falling apart and much of the US and the rest of the developing world is slowing down?

The simple fact is that light sweet has peaked and many of the shale producers look to be on the ropes as they find themselves with huge negative cash flows, overvalued assets on their balance sheets, a need to restate costs, and huge debt loads. There are no supply side miracles and anyone who has paid attention knows that viable projects that could produce a material amount of oil are being pushed back as permitting problems and supply chain disruptions are driving costs higher.

I would be looking very carefully at decent coal and conventional oil and producers that should be in one's portfolio after the next QE is announced or after the next crash appears. If you don't have exposure to energy and the PMs this is the time to look around carefully at the companies that produce them. If you have the tolerance for risk take a look at some of the long dated warrants but do your homework and run the analysis that looks at risk adjusted returns. Given the volatility it might make sense to look at warrants that do not expire until 2017 or even later.

 
At 5/11/2012 8:07 PM, Blogger VangelV said...

2. Likewise, oil prices are now at year-to-date lows and crude is selling below $96 per barrel for the first time since last December (see chart above). In just the last 8 trading days, oil has fallen more than $10 per barrel from $106.17 on May 1 to $95.83 in late afternoon trading today. How can oil prices be "stubbornly high" and yet fall by almost 10% in less than two weeks?

You are looking at paper markets where overreaction in both directions is very common. None of the moves make any difference to the underlying reality. If the economy keeps slowing down and the producers have no trouble with the falling prices we could see a sharp decline, particularly if the stock markets are taken out. But if there is a supply problem with a producing nation like Venezuela or Saudi Arabia or there is another QE announcement you could see prices approach $150 again before the feedback crashes the economy and drives prices lower yet again.

 
At 5/11/2012 8:08 PM, Blogger VangelV said...

3. And now that oil prices have plummeted 10% in the first two weeks of May, are those price declines due to speculative trading? Or have market fundamentals suddenly re-appeared after disappearing for some time?

The paper markets are mostly driven by speculators using leverage. There is nothing wrong with that because speculation reduces overall volatility over time.

 
At 5/11/2012 8:13 PM, Blogger Larry G said...

" There is nothing wrong with that because speculation reduces overall volatility over time. "

it was pretty volatile from January to now .... this is "better"?

without the speculation would there be even bigger price swings?

it appears that in many if not most other oil-supplying countries that those countries exert much higher levels of involvement in the domestic price than in this country.

How does that hurt those countries?

 
At 5/11/2012 9:05 PM, Blogger Oak said...

Keep in mind the Delta CEO is trying to justify their purchase of a refinery. Saying that the market is biased up helps his case for the purchase. Coincidentally, after it happens, they literally would be one of "the companies that actually intend to use the oil they trade."

http://money.cnn.com/2012/04/30/news/companies/delta-oil-refinery/index.htm

 
At 5/11/2012 9:13 PM, Blogger morganovich said...

traditionally, the airlines are viewed as a hedge for oil. when oil prices rise, airlines tank, and when they fall, their stocks rally.

fuel costs are one of the, if not the, biggest swing factor for airline.

this certainly provides a motivation for an airline ceo to try to jawbone oil down or seek interference in the markets to drop costs.

note that dal has risen from a low of 9.07 on 3/14 to 11.37 at the close today, a 25% move.

the stock started rallying shortly after the oil price high on 3/1.

call me mister cynical, but i have a bit of a suspicion mr anderson would happily promote anti free market idea to get his stock up.

 
At 5/11/2012 9:16 PM, Blogger VangelV said...

it was pretty volatile from January to now .... this is "better"?

without the speculation would there be even bigger price swings?


Look at onion prices for a great example of what real volatility is like when there is no futures market to smooth out the prices.

 
At 5/11/2012 9:17 PM, Blogger Larry G said...

looks like many countries themselves also play in the oil supply/demand game:

" you might be surprised that in a list of the top 10 oil producers, none of the other usual suspects made the cut. Publicly traded giants like Royal Dutch Shell, Chevron, ConocoPhillips and Total may be Big Oil, but they are not Biggest Oil.

That moniker goes to the state-owned national oil companies, NOCs for short, that sit on 77% of the world's oil--accumulations so big they make even Exxon's 12 billion barrels of proven oil reserves look meager"

http://goo.gl/ZeRZH

 
At 5/11/2012 9:17 PM, Blogger morganovich said...

benji-

to influence the price of oil over any significant period of time, you cannot use futures. they involve physical delivery. every buy must be sold before expiration unless you actually want the oil, which is expensive to take delivery of (as you lose you leverage) and expensive and difficult to store.

this makes most futures contracts a round trip. you buy and then you sell before expiry.

mark has shown in the past that markets with futures are less volatile than those without. i think he looked at onions (no futures) vs corn, but i'm not sure.

 
At 5/11/2012 9:19 PM, Blogger Larry G said...

" Look at onion prices for a great example of what real volatility"

true.. but the consequences are way different....

coffee, oranges, onions, even T-bone steaks don't affect the economy the way that fuel prices do.

 
At 5/12/2012 7:12 AM, Blogger Larry G said...

if dang near 4/5 of the total supply of oil in the world is controlled or owned by nation states - how does that truly translate into a "free market"?

The US is one of the few countries that has not nationalized the oil industry and yet it gets hammered for it's "anti-energy" policies.

Most other countries have much more serious involvement with energy than we do. They see their oil resources as strategic national resources as much as they see it as a private property issue.

I'm not seeing exactly how the countries who have exerted control of their oil resources are harmed by doing that compared to us.

How about it?

Can those here who are pretty knowledgeable about such things offer views as to how countries who have nationalized their oil resources have been harmed by doing that?

 
At 5/12/2012 7:40 AM, Blogger VangelV said...

true.. but the consequences are way different....

coffee, oranges, onions, even T-bone steaks don't affect the economy the way that fuel prices do.


Nobody says that onion prices have the same effect on the economy as fuel prices. The point being argued is the effect that futures markets have on prices. I pointed out that they decrease overall volatility as long as the exchanges are doing their job and playing by the rules.

 
At 5/12/2012 7:42 AM, Blogger VangelV said...

if dang near 4/5 of the total supply of oil in the world is controlled or owned by nation states - how does that truly translate into a "free market"?

Look to the manufacturing of passenger aircraft for your answer. Even though there are only two major players that dominate the market the buyers have had the upper hand and the business has not been very profitable. The fact that a cup of oil is cheaper than a cup of mineral water tells you all you need to know.

 
At 5/12/2012 7:59 AM, Blogger Larry G said...

re: onions and futures vs corn and govt commodity policies vs OPEC pricing controls

I'd say that private market futures trading is not the only way to achieve price stability.

Isn't the argument basically that un-regulated/less-regulated markets do it "better" ?

It certainly appears that countries that produce oil but also import it, in large part involve themselves directly in the market.

For instance, does the private sector make OPEC decisions or do those govts make those decisions?

When China buys oil is it the private sector in China that buys the oil or is it the govt?

Does China (or other nationalized oil countries) involve itself (themselves) directly in the oil futures markets directly or via proxies?

anyone know?

 
At 5/12/2012 9:43 AM, Blogger VangelV said...

I'd say that private market futures trading is not the only way to achieve price stability.

Well you could use price controls if you want shortages or gluts. But I do not belive that is what you are going for.

Isn't the argument basically that un-regulated/less-regulated markets do it "better" ?

It is. That is why we had futures markets to begin with. They were not a creation of some government agency but of private individuals.

It certainly appears that countries that produce oil but also import it, in large part involve themselves directly in the market.

You are babbling again. Try making a clear and coherent argument that can be supported by logic and facts.

For instance, does the private sector make OPEC decisions or do those govts make those decisions?

OPEC was created by using the Texas Railroad Comission model, which was an attempt to subvert the market. But in the end the market will drive what OPEC does, not the other way around because it is consumers, not suppliers that ultimately call the shots.

When China buys oil is it the private sector in China that buys the oil or is it the govt?

It is both. The government buys oil to fill its strategic reserves but most of the oil goes to meet market demand.

Does China (or other nationalized oil countries) involve itself (themselves) directly in the oil futures markets directly or via proxies?

anyone know?


For a guy with so many opinions you don't know very much.

 
At 5/12/2012 1:18 PM, Blogger SBVOR said...

Bracing for the flurry of bald faced lies from the space alien known as VangelV...

Coincidentally (or not), in Q1 of 2012, global supply (90.6 million barrels per day) exceeded global demand (89.4 million barrels per day).

For each of the previous 8 quarters, global demand exceeded global supply. And, we all know what happens when demand exceeds supply, right?

See Table 1 on page 54 of this document:

http://omrpublic.iea.org/omrarchive/12apr12full.pdf

 
At 5/12/2012 4:06 PM, Blogger Larry G said...

"For a guy with so many opinions you don't know very much. "

well... no.. they were mostly questions based on the premise that much of the world's oil seems to be in the hands of nationalized companies who are controlled by nations - not a truly free market.

It wasn't that long ago that OPEC was blamed for oil shortages.

Now we have China who apparently controls it's own oil resources - not companies, and who is also buying oil on the open market and appears to also be capable of playing the in the futures market also must like airlines do.

If China plays in the futures market, is it also helping to stabilize prices ?

so I did ask... can China and other countries like OPEC manipulate the market?

what do you think? Is that possible?

Can nations play in the futures markets?

 
At 5/12/2012 5:46 PM, Blogger Methinks said...

This comment has been removed by the author.

 
At 5/12/2012 6:28 PM, Blogger Methinks said...

nationalized companies who are controlled by nations - not a truly free market.

You're confusing a market with company ownership. Regardless of ownership, oil companies all sell their product in the oil market. All of those companies are ultimately price takers.

It wasn't that long ago that OPEC was blamed for oil shortages

People blame a lot of things on a lot of things. It's true that the cartel tries to control the price, but it's had a dismal record of achieving its goal.


Now we have China who apparently controls it's own oil resources - not companies, and who is also buying oil on the open market and appears to also be capable of playing the in the futures market also must like airlines do.

That's just babble, Larry. You're not saying anything.


If China plays in the futures market, is it also helping to stabilize prices ?

Please don't use the term "plays". It's the idiot language TV pundits and assorted talking heads use to look cool and appear as though they know what they're talking about. China is free to participate in the futures market just as anyone else is. Most producers hedge at least a portion of their production the way users of oil hedge against price swings. I don't see why the Chinese national oil company wouldn't hedge.

so I did ask... can China and other countries like OPEC manipulate the market?

Not without paying a heavy price. I don't think that the pure enjoyment of moving the market is worth the financial cost to them.

Note that Saudi Arabia did not win to the oil embargo in the 1970's.

Note also that Bruno Iksil's giant trades (large enough to move the index) resulted in a $2 billion loss for JP Morgan. Bruno did not intend to move the market. He wasn't trying to manipulate it. However he traded so large that he moved the index from intrinsic value and everyone piled into the trade on the other side.

Yes, you can trade large enough to move the price. But, doing so will come at your expense.

 
At 5/12/2012 10:06 PM, Blogger Larry G said...

re: Bruno Iksil and China

seems like what ultimately tripped up Iksil was a shortage of funds to maintain his position.

If China was doing something similar, would they have a deeper financial ability to hold a similar position?

I don't think I'm confusing a Country with an oil company or industry but companies/industries that are nationalized are controlled by the country.

unlike a trade, a country like China COULD take delivery of a contract, right?

my question - is it possible for China to manipulate the futures market?

 
At 5/12/2012 10:44 PM, Blogger Methinks said...

No, that's not what happened to JP Morgan.

You cannot manipulate the market by taking delivery of the physical.

 
At 5/13/2012 7:10 AM, Blogger Larry G said...

" You cannot manipulate the market by taking delivery of the physical."

even if you are China?

If the countries that have nationalized their oil ALSO can trade futures - through proxies - don't they probably have significant financial resources AND the ability to actually take delivery rather than being force to sell at a loss?

I'm just asking.

Some here seem to be actively involved in the markets and know what can and cannot be done so I ask.. can countries like China involve themselves in the futures markets and have advantages over other traders?

 
At 5/13/2012 8:06 AM, Blogger VangelV said...

Coincidentally (or not), in Q1 of 2012, global supply (90.6 million barrels per day) exceeded global demand (89.4 million barrels per day).

You have your facts wrong again. Refinery gains, NGLs, biofuels, etc., are not crude oil. If we look at how many barrels of crude are produced we find no material increase since 2005 even though hundreds of billions have gone into new projects. That has set off the alarm bells but you have to be willing to hear them.

 
At 5/13/2012 8:14 AM, Blogger VangelV said...

" You cannot manipulate the market by taking delivery of the physical."

even if you are China?


As a user of oil China does not want to manipulate prices higher. It may execute a strategy that will create a strategic reserve and that strategy could drive prices higher but that is not manipulation. That is simply paying the going price to meet a need.

If the countries that have nationalized their oil ALSO can trade futures - through proxies - don't they probably have significant financial resources AND the ability to actually take delivery rather than being force to sell at a loss?

It helps to be logical. Countries that produce oil need to sell oil, not buy more oil from other producers. You might try thinking before you write your postings.

 
At 5/13/2012 8:51 AM, Blogger Methinks said...

even if you are China?

Even if you're God. I don't know how many times I have to repeat this Larry, but nobody can profitably manipulate the market by buying and selling.

 
At 5/13/2012 1:50 PM, Blogger Methinks said...

Here's a good thing to remember:

Nobody is bigger than the market.

 
At 5/13/2012 4:59 PM, Blogger Ron H. said...

"well you got a CEO of a major company who actually buys fuel... how "uneducated" could he really be?"

Well, good question. I suppose instead, he could just be a liar.

Besides, airlines are well known speculators.

 
At 5/13/2012 5:42 PM, Blogger Ron H. said...

"If the countries that have nationalized their oil ALSO can trade futures - through proxies - don't they probably have significant financial resources AND the ability to actually take delivery rather than being force to sell at a loss?"

You would have to ask them, but if we assume those two things are true, you then need to ask what they will do with the oil they have bought but have no immediate use for. Would they store it? And then what? What comes next?

Assuming some country or other big time buyer with deep pockets takes delivery of lots of oil, thus driving the global price higher, what do they do next?

What is the whole point of this imaginative scenario?

If you are tempted to say "sell it", keep in mind that the same market forces of supply and demand that caused prices to rise, will now operate to drive prices lower.

 
At 5/14/2012 5:47 AM, Blogger Larry G said...

" ask what they will do with the oil they have bought but have no immediate use for. Would they store it? And then what? What comes next? "

they'd use it instead of pumping more of their own ......

it would appear to be a win/win for those countries that have their own oil reserves, have nationalized them (control their use) and at the same time import additional oil.

what I'm asking is why is this not possible or not feasible?

looks to me that a country with significant financial resources that also has oil and imports it could engage in activities that would benefit itself.

The folks who actually participate in the markets here in CD say it cannot happen that even a nation state does not have enough money to beat the market.

That may or may not be but it certainly does not seem to stop companies like J.P. Morgan from engaging in activities to beat the market .....

 
At 5/14/2012 6:09 AM, Blogger VangelV said...

they'd use it instead of pumping more of their own ......

it would appear to be a win/win for those countries that have their own oil reserves, have nationalized them (control their use) and at the same time import additional oil....


How do producing countries pay for the oil if their revenues come from selling their own oil?

 
At 5/14/2012 6:19 AM, Blogger Larry G said...

" How do producing countries pay for the oil if their revenues come from selling their own oil?"

that's not the only source of their revenues.

Like anyone trading in the market - they are not restricted to using only the money involved in trading.

Any country that:

1. - produces oil (but not enough for all it's domestic needs).

2. - imports oil at market prices

3. - controls it's oil resouces(as opposed to the private sector).

would seem to have quite a bit more leverage than an ordinary market trader who is not a nation-state with control of oil resources.

again.. I'm not saying it is true or there is evidence that I know of - I'm asking why it's not feasible to do it.

Some are saying that no matter how big, they cannot "control" the market but I'm not asking if they can "control" the market - I'm asking if they can take actions that benefit themselves - on a larger scale than ordinary investors?

 
At 5/14/2012 6:40 AM, Blogger VangelV said...

that's not the only source of their revenues.

Like anyone trading in the market - they are not restricted to using only the money involved in trading.


Let me see. Mexico, Saudi Arabia, UAE, Libya, Bahrain, Kuwait, Qatar. Venezuela. Take away the oil revenues and how do you finance all that government spending that depends on it?

You are either playing games or one of the stupidest people around. Pick one answer.

 
At 5/14/2012 7:15 AM, Blogger Larry G said...

" Take away the oil revenues and how do you finance all that government spending that depends on it?

You are either playing games or one of the stupidest people around. Pick one answer"

why would you "take away" the oil revenues?

are they not a valid source of revenues to potentially use as seed money for market trading?

isn't that what all traders do with some of their "profits" from trading?


it is said that China manipulates it's currency to benefit itself.

Is it not possible for it to ALSO manipulate in other things to also benefit itself?

 
At 5/14/2012 7:32 AM, Blogger VangelV said...

why would you "take away" the oil revenues?

Because they are earned when the producing country sells its own oil.

are they not a valid source of revenues to potentially use as seed money for market trading?

You really are a fool. Look at the countries that I mentioned. They depend on oil revenues for their social programs. They can't play games trading on foreign markets because the governments have no intention of sparking revolutions at home.

 
At 5/14/2012 7:34 AM, Blogger VangelV said...

it is said that China manipulates it's currency to benefit itself.

Idiots 'say' many things. Few of them make any sense.

Is it not possible for it to ALSO manipulate in other things to also benefit itself?

The government can't print oil. And only a fool would believe that government bureaucrats are going to be smarter and more effective than traders trying to make a profit for themselves.

 
At 5/14/2012 7:34 AM, Blogger Larry G said...

" They depend on oil revenues for their social programs. They can't play games trading on foreign markets because the governments have no intention of sparking revolutions at home. "

can't they do the same thing that other countries without oil do - to pay for their social programs?

 
At 5/14/2012 7:39 AM, Blogger Larry G said...

" And only a fool would believe that government bureaucrats are going to be smarter and more effective than traders trying to make a profit for themselves. "

you get confused between questions I ask and what you perceive to be an advocacy for such behavior.

I'm not advocating this. I'm asking if it is possible and you yourself point out that countries can "print" money to pay benefits at the same time they are taking in oil revenues.

the funny thing here is that we know of private sector examples of companies buying futures to save themselves money - for-profit airlines do it.

they use money from their revenues to do this.

why can't countries do the same thing on a much bigger scale?

you seem to think just asking this question means I'm in favor of it.

Nope. I'm only asking if it is possible to do it or tell me why it's not possible - not whether or not you think it's a wrong/bad thing for a govt to do.

 
At 5/14/2012 9:37 AM, Blogger VangelV said...

can't they do the same thing that other countries without oil do - to pay for their social programs?

How do you pay when more than half the revenue is gone? Saudi Arabia has little revenue other than what it gets from oil sales.

I'm not advocating this. I'm asking if it is possible and you yourself point out that countries can "print" money to pay benefits at the same time they are taking in oil revenues.

They can't print USDs, RMB, gold, or Euros because no producer will take the newly printed money in return for oil, coal, wheat, or anything else for very long.

You are a fool because you can't think things through, not because you are ignorant. The latter problem is easy to deal with. The former is far more difficult.

 
At 5/14/2012 9:39 AM, Blogger VangelV said...

the funny thing here is that we know of private sector examples of companies buying futures to save themselves money - for-profit airlines do it.

they use money from their revenues to do this.

why can't countries do the same thing on a much bigger scale?


Companies exchange what they produce for money that is used to hedge their requirements. They can only engage in such programs if they take in more than they spend. Governments spend more than they take in.

 
At 5/14/2012 11:38 AM, Blogger Larry G said...

" Companies exchange what they produce for money that is used to hedge their requirements. They can only engage in such programs if they take in more than they spend. Governments spend more than they take in. "

true.. but they can print more when they need more.. right?

re: thinking this through

uh huh...

 
At 5/14/2012 2:19 PM, Blogger Ron H. said...

"they'd use it instead of pumping more of their own ......"

Huh?

One of your premises is that a country interested in manipulating the oil market has "significant financial resources". Where does this significant financial resource come from?

Is it from the people through taxes, and if so, what are they doing to produce so much excess government revenue that oil market manipulation is a possible national pastime?

Is it from national sales of natural resources like Saudi Arabia?

Do you believe an oil producing country should, as national policy, import oil at a higher price than necessary to preserve its own in-the-ground supply for later?

That comes at the expense of consumers everywhere, including those living in the game playing country, you understand.

Should the US follow a policy like that?

What about other commodities? Should Canada import large quantities of corn while leaving its own resources idle?

We still don't know why you think oil market manipulation - which we know isn't possible - might be good policy at a national level.

 
At 5/14/2012 2:25 PM, Blogger Ron H. said...

"That may or may not be but it certainly does not seem to stop companies like J.P. Morgan from engaging in activities to beat the market ....."

Are you done discussing global oil market manipulation, and now wish to change the subject?

There is a significant difference between beating a market and manipulating it, and financial firms are very different from oil companies.

This sudden change of direction makes my head fly...or is that "head spin"?

 
At 5/14/2012 2:33 PM, Blogger Larry G said...

One of your premises is that a country interested in manipulating the oil market has "significant financial resources". Where does this significant financial resource come from?

most nation-states have revenues. Nation states that control their oil resources have significant revenues.

"Is it from the people through taxes, and if so, what are they doing to produce so much excess government revenue that oil market manipulation is a possible national pastime?"

are you serious here - given the fact that many country's have substantial revenues that can be spend on things - for instance the US buys oil to store.. where does that money come from?

"Is it from national sales of natural resources like Saudi Arabia?"

if that country derives revenues from the sale of oil?


Do you believe an oil producing country should, as national policy, import oil at a higher price than necessary to preserve its own in-the-ground supply for later?

do I think they "should"? I think it depends on their definition of what their strategic goals are. Europe places a very high tax on oil to discourage over-use of it.

"That comes at the expense of consumers everywhere, including those living in the game playing country, you understand."

it might. I was asking for some examples of the harm done as I'm not seeing it...

"Should the US follow a policy like that?"

we buy oil to put in a strategic reserve...right.. is that wrong?

"What about other commodities? Should Canada import large quantities of corn while leaving its own resources idle?"

they would not leave the other resources idle. They make choices of which there are consequences. That does not keep them from making choices. We choose to create ethanol from corn, corn that is created from fossil fuels, right?

"We still don't know why you think oil market manipulation - which we know isn't possible - might be good policy at a national level. "

let's be clear. Because I ask a question does not mean I advocate something in particular.

it's a search for more info.

Do I think it is possible for countries who produce and control their oil to participate in the futures market?

Well. I'm asking that very question here and so far the response is to question my motives for asking that question. WTF?

 
At 5/14/2012 2:39 PM, Blogger Larry G said...

There is a significant difference between beating a market and manipulating it, and financial firms are very different from oil companies.

This sudden change of direction makes my head fly...or is that "head spin"?

"beating the market" is not a good term.

how about participation in a market to make money by betting on something that you have some ability to control?

what I'd accept is that no one "beats the market" everytime they play.

but do some folks have built-in advantages like inside info or actual control of some of the supply?

If Saudi Arabia can put 3 billion gallons MORE into the supply OR they can withhold it and someone knows what they are going to do - can they make money off of that info?

Do you think there are folks in Saudi Arabia that know what they are going to do with their oil?

these are questions - not proof nor advocacy... for or against..

 
At 5/14/2012 3:30 PM, Blogger Ron H. said...

"true.. but they can print more when they need more.. right?"

Do you understand that those things that are printed have no intrinsic value, but represent things that people DO value? Oil is one example.

Money is a medium of exchange, and is really handy as a proxy for things that people actually DO value, but the more physical dollars printed, the less each one is worth in exchange for things people actual use. This phenomenon is known as "inflation", and explains why the price of everything goes up over time. It is government "printing" that causes it.

Then, you should be aware that the USD is used globally to represent the price of oil, so a country merely "printing more money" as they needed it, would find their currency worth less compared to the USD, which means the price of oil would be higher in terms of their currency.

Is that too much at one time?

 
At 5/14/2012 3:44 PM, Blogger VangelV said...

true.. but they can print more when they need more.. right?

re: thinking this through

uh huh...


Any government can print as much of its own currency as it wants. But unless trading partners accept that currency they can't buy things with it. That is the problem with your stupid thought experiment. You think that money is wealth and that producing more money means that you can buy more stuff. I guess that you missed the Zimbabwe story.

 
At 5/14/2012 3:52 PM, Blogger VangelV said...

most nation-states have revenues. Nation states that control their oil resources have significant revenues.

Very true. But they get the revenues from selling those resources, not by buying them. And as they get revenues they use them to finance activities. If they stop selling they have to stop funding their welfare programs. That brings revolt and a change in government, something that you fail to understand.

are you serious here - given the fact that many country's have substantial revenues that can be spend on things - for instance the US buys oil to store.. where does that money come from?

The US runs huge deficits because it has the world's reserve currency. Other countries do not and cannot do the same thing. If they want to buy something they need to find USDs, Euros, RMB, gold, or something tangible that can be accepted for trade. The more they print the less they can buy.

 
At 5/14/2012 3:53 PM, Blogger VangelV said...

Money is a medium of exchange, and is really handy as a proxy for things that people actually DO value, but the more physical dollars printed, the less each one is worth in exchange for things people actual use. This phenomenon is known as "inflation", and explains why the price of everything goes up over time. It is government "printing" that causes it.

We have this debate with our mentally challenged friend a few times per year. I don't think that he wants to understand.

 
At 5/14/2012 3:55 PM, Blogger Ron H. said...

"are you serious here - given the fact that many country's have substantial revenues that can be spend on things - for instance the US buys oil to store.. where does that money come from?"

It is borrowed in the form of treasury bonds. The federal budget is in deficit, remember?

The US Strategic Petroleum Reserve has existed since 1974, and doesn't include major ongoing federal expenditures for more oil.

The idea of a strategic reserve was explained to you by VangelV in an earlier comment on this thread. Did you miss it?

It's not a good example of a national attempt to manipulate the market.

 
At 5/14/2012 4:20 PM, Blogger Ron H. said...

""beating the market" is not a good term."

Then why did you use it?

Here it is:

"That may or may not be but it certainly does not seem to stop companies like J.P. Morgan from engaging in activities to beat the market ....."

"If Saudi Arabia can put 3 billion gallons MORE into the supply OR they can withhold it and someone knows what they are going to do - can they make money off of that info?

Do you think there are folks in Saudi Arabia that know what they are going to do with their oil?
"

Well of course, but that is a different question. Someone can make money on the *information* they have, but they cannot make money by moving the market as you are suggesting.

Will you now suggest that there are folks in Saudi Arabia who make money at the expense of the Saudi government and the Saudi people using insider information? I don't know of anyone with cojones that big, but who knows?

You should reread Methinks excellent comments on the topic.

"most nation-states have revenues. Nation states that control their oil resources have significant revenues."

They have significant revenue from selling their oil, Larry, are you suggesting that they can sell oil so they can buy imported oil?

 
At 5/14/2012 4:23 PM, Blogger Ron H. said...

"but do some folks have built-in advantages like inside info or actual control of some of the supply?"

Insider info = yes, control of enough supply to move the market = no.

 
At 5/14/2012 4:46 PM, Blogger Larry G said...

" Do you understand that those things that are printed have no intrinsic value, but represent things that people DO value? Oil is one example."

to ordinary people who can spend it to buy groceries, you point is esoteric.

"Money is a medium of exchange, and is really handy as a proxy for things that people actually DO value, but the more physical dollars printed, the less each one is worth in exchange for things people actual use. This phenomenon is known as "inflation", and explains why the price of everything goes up over time. It is government "printing" that causes it."

agree. now explain how we have printed scads of money but inflation is low... seriously.

"Then, you should be aware that the USD is used globally to represent the price of oil, so a country merely "printing more money" as they needed it, would find their currency worth less compared to the USD, which means the price of oil would be higher in terms of their currency."

this is true.

Is that too much at one time?

nope.

it still does not mean that countries don't have real revenues from nationalized oil they sell - valued in dollars.

and it still does not mean that countries who have oil can choose to hold it until they get the price they want while they continue to receive tax revenues to pay for their ongoing expenses.

that's the difference between a country that has nationalized oil resources and one that does not.

that country COULD participate in the futures market and bid up futures that it will benefit from by selling it's oil "high" and holding on to it when it is "low" - which actually restricts the supply and drives the price higher also.

Do you think it is IMPOSSIBLE to do this?

 
At 5/14/2012 6:01 PM, Blogger Ron H. said...

"It still does not mean that countries don't have real revenues from nationalized oil they sell - valued in dollars."

That's correct. Are you suggesting they use that revenue to buy imported oil so as to move the market price higher? To do that they need to store physical oil to reduce world supply relative to world demand. They cannot just "use it" as you suggest. I see that pesky supply & demand thing is still a problem for you, as the idea of a global commodity.

Keep in mind that if someone moves the world price of oil higher by reducing supply, other producers will be encouraged to provide that supply at the higher price, so the hoarder can end up with oil worth less than they paid for it.

None of this is new, Larry, it has been covered ad nauseam in previous comments for your benefit. It seems there's no way to reach you with new information.

"to ordinary people who can spend it to buy groceries, you point is esoteric."

That group obviously includes you, but everyone understands that "things cost more" than they used to.

"agree. now explain how we have printed scads of money but inflation is low... seriously."

Although it's not my job to explain things to you, Larry, and I certainly don't owe you any type of explanation, I will do so briefly.

First of all, you should define what you mean by "inflation is low". Then you should reread some of morganovich's inflation comments to see if your definition agrees with his.

The newly created money is currently mostly on bank balance sheets as excess reserves. the Fed pays interest on these reserves, so banks are content to keep it rather than loan it. When that money is loaned, prices will head skyward.

Read up on Zimbabwe VangelV has suggested, or perhaps you prefer the Weimar Republic from 1019 to 1933, or for something more current read up on the success Chavez is having in Venezuela.

If this response isn't good enough for you, you are more than welcome to look somewhere else for answers.

 
At 5/14/2012 6:03 PM, Blogger Ron H. said...

Of course that date range should read 1918-1933, not 1019-1933.

 
At 5/14/2012 6:07 PM, Blogger Ron H. said...

"We have this debate with our mentally challenged friend a few times per year. I don't think that he wants to understand."

I don't think so either. I think he likes to ask nonsense questions in response to what others write, so as to appear clever or knowledgeable.

 
At 5/14/2012 6:14 PM, Blogger Ron H. said...

"do I think they "should"? I think it depends on their definition of what their strategic goals are. Europe places a very high tax on oil to discourage over-use of it"

It's not clear what that has to do with your question about the ability of a country to manipulate the oil market. Try to stay on topic.

 
At 5/14/2012 6:16 PM, Blogger Ron H. said...

By the way, Larry, when you write about nationalized oil companies, you are only pointing out who owns the oil company, nothing more.

 
At 5/14/2012 6:19 PM, Blogger Ron H. said...

Me: "Then, you should be aware that the USD is used globally to represent the price of oil, so a country merely "printing more money" as they needed it, would find their currency worth less compared to the USD, which means the price of oil would be higher in terms of their currency."

You: "this is true."

Then what did you mean when you wrote that a country could always print more money if they needed more? Was there a point?

 
At 5/14/2012 6:23 PM, Blogger Larry G said...

" "do I think they "should"? I think it depends on their definition of what their strategic goals are. Europe places a very high tax on oil to discourage over-use of it"

It's not clear what that has to do with your question about the ability of a country to manipulate the oil market. Try to stay on topic. "

again you confuse my questions with advocacy to do so.

countries DO strategically act to effect the price and use of oil by taxation and by strategic reserves.

Can countries who, in addition to the above, who have nationalized their oil and thus have the ability to control how much is sold - have the ability to influence the availability and thus the supply and price?

I've asked is it impossible and if you think it is..why you think that.

it's a pretty simple question that you seem to what to chew on at length in between your condescending lectures...

 
At 5/14/2012 6:25 PM, Blogger Larry G said...

" Then what did you mean when you wrote that a country could always print more money if they needed more? Was there a point?"

are you saying that this is not what central banks do when they want to increase the supply of money?

are you saying that "stimulus" is not a real policy that is carried out?

what is YOUR point?

 
At 5/15/2012 11:26 AM, Blogger Methinks said...

Nobody is bigger than the market.

Nobody is bigger than the market.

Nobody is bigger than the market.

Nobody is bigger than the market.

Write that 1,000 times or until it sinks in.

 
At 5/15/2012 12:11 PM, Blogger Larry G said...

I "get" your sentiment Methinks but it's a bit non-nonsensical in that no one ever claimed than anyone was "bigger" than the market.

Instead.. it was more along the lines that if you as a trader have inside info and possibly even some ability to control supply... can you benefit from that?

If an entity like OPEC can interrupt supply - and at the same time use their knowledge of the timing of their actions to make bets... can they benefit from that?

I asked if this was impossible not if it meant being "bigger than the market".

If I KNOW that there is going to be a supply interruption in the market, can I use that info to some advantage in trading?

If I KNOW this as a direct result of my role in a govt that makes such decisions does that advantage me?

In the LONG RUN - I totally agree - no one is bigger than the market but most people who trade know but they also know that insider info can be exceptionally helpful.

 
At 5/15/2012 6:30 PM, Blogger Methinks said...

it's a bit non-nonsensical in that no one ever claimed than anyone was "bigger" than the market.

It doesn't make any sense to you because you have no idea what I'm talking about.

If an entity like OPEC can interrupt supply - and at the same time use their knowledge of the timing of their actions to make bets... can they benefit from that?

Why do I get the feeling that you're fantasizing about the possibilities after watching "Trading Places" eight too many times?

OPEC can't even get its members to stick to the agreed upon production ranges because cheating is so enticing. Their probability of achieving this fantasy scenario of yours is a number not different from zero.

One reason it's zero is that even if they were able to get everyone to cut production for the first time ever (which is as likely as me traveling to mars tonight. More on that in a minute), they won't benefit from it. Shutting down production is expensive.

If the goal of the collusion is to drive up price, then it'll only be the first movers who benefit and everyone is going to want to be a first mover. Guess what's going to happen? Have you ever seen a giant pile-up?

So, for instance, let's say it's actually possible to turn production on and off like a faucet (it's not). They all agree to cut production. You'd like to think they can all go buy futures and make up whatever they lose in sales of oil in the futures market. That is the first big wish.

Any dreams of that will quickly vanish as all the OPEC traders descend on the market and start driving up the price en masse. As a trader, when you see massive orders coming at you, you start backing up. A tidal wave of bids means you're going to increase the price of your offers and vice versa. Knowing this, everyone in your unholy posse is going to want to be the first to get in - and since they're all trying to get as much size done as quickly as possible, they're all going to arrive in the market with their giant orders at that the same moment and the price will jump like crazy, eliminating all their advantage. Remember: they don't win by driving the price up. They win only if they buy low and then sell high.

BTW, that's an excellent indication of insider trading (for that's what we're talking about here). You don't generally see it in stocks as they like to hide in the multiple strikes and expirations in the options instead. But, insiders know that as soon as they tip their hand, the cat's out of the bag. So, they try do as much size in their first trade as they possibly can. When you have all of OPEC attacking the market at the same time, any price advantage they might have imagined they had will evaporate in a matter of seconds.

....which is probably why you don't see OPEC or China or Putin or anybody else trying to do something so stupid. When you trade, the very fact that you're trading gives the market information. Ever play poker? It's just like that. Every time you act, you're giving up information.

And so, once again, nobody is bigger than the market.

 
At 5/15/2012 6:40 PM, Blogger Larry G said...

but all I really asked you is if it is impossible...no chance of it every happening..ever...

I did not say ALL of OPEC.. I said SOMEONE who knew of one of more of the countries plans with regard to production targets.

you said:

" You don't generally see it in stocks as they like to hide in the multiple strikes and expirations in the options instead. But, insiders know that as soon as they tip their hand, the cat's out of the bag. So, they try do as much size in their first trade as they possibly can. When you have all of OPEC attacking the market at the same time, any price advantage they might have imagined they had will evaporate in a matter of seconds. "

I understand that when a crapload of people with the same info try to rush the market - what happens.

but don't you also acknowledge that one or two people with the right info can benefit from that info and if that info has to do with their connections to a country that has nationalized it's oil resources... it's not impossible?

 
At 5/15/2012 6:47 PM, Blogger Methinks said...

I mean, Lar, do you seriously not think that if this BS worked, OPEC wouldn't have tried it in the late 90's when oil was between $10/bbl and $15/bbl, dipping to just below $10/bbl even and all of their national budgets were in the toilet?


I don't know how you would KNOW that there will be a supply interruption. Even if you had a friend who is a terrorist who is intent on blowing up a major oil producing field, you can't KNOW that he'll be successful. You're just speculating. And, sure, maybe YOU can benefit from it. But, you and five of your friends are not going to benefit from it because you'll all give up too much information in your trades.

In the long run, in the short run in any run, nobody is EVER bigger than the market and anyone who has ever thought he was gets his balls ripped off in a very painful manner. The street is littered with these failures. Only about 10% of traders survive and very few of us are actually what we would call "successful" (as opposed to "getting by"). The rest think they're smarter than they are. Those of us who are successful remember that our opinions are as common as *^@$holes and nobody is bigger than the market.

Nobody.

 
At 5/15/2012 6:49 PM, Blogger Larry G said...

Okay.. I accept your view. thank you.

 
At 5/15/2012 6:53 PM, Blogger Methinks said...

Lar, your latest question is not about oil. It's about insider trading.

Yes, if you have inside information, you can benefit from it because you have an informational advantage AND (importantly) because it is illegal to trade on material inside information, choking off the supply of that information.

Of course, if you create scarcity, then the price of the item goes up. Right?

So, you will benefit from your trade. At first. But, you'll also give up your information pretty quickly and the market will move against you quickly. So, you have one shot. Make it a good one - not too big, not too small.

But, all that's different from governments capping wells in order to gain advantage in the oil futures market. And besides, Putin isn't going to go out at night capping Russia's wells. Thousands of people will know about it. How does he keep them from front running his trade?

 
At 5/15/2012 6:56 PM, Blogger Larry G said...

yeah.. you sorta convinced me.

how long have you been at this if you don't mind me asking?

 
At 5/15/2012 8:29 PM, Blogger Methinks said...

Decades.

 
At 5/15/2012 10:08 PM, Blogger Ron H. said...

Methinks: "Of course, if you create scarcity, then the price of the item goes up. Right?"

"Is that a supply and demand question? I know how the "theory" works, but I look at the reality, and it differs from the "theory"

Guess who.

 
At 5/15/2012 10:10 PM, Blogger Ron H. said...

"I "get" your sentiment Methinks..."

That wasn't sentiment, Larry.

 
At 5/16/2012 8:03 AM, Blogger Larry G said...

well if we had a true-to-the-theory supply and demand world... we could fairly easily calibrate gas prices with oil prices.

but there are a lot of "messy" things that prevent such precise calibration whether it's onions or oil.

Any govt can conceivably take over any industry or commodity and essentially dictate a fixed guaranteed profit - in exchange for a goal of more stable prices.

how else would you explain how our govt interferes with the supply/demand of ag commodities and electricity to seek more price stability?

If the power companies had their way, they'd charge higher prices for higher use especially during high demand periods but govt basically forces them to supply electricity at more stable rates that would likely be much more volatile if the govt stayed out.

what I point out is that the "theory" does not describe the realities.

It's not an advocacy for more govt interference in the markets but a acknowledgement that it is the reality.

the vociferous advocacy to have "pure", unfettered markets falls completely apart as soon as someone says that electricity providers should have the ability to dynamically price their product according to supply/demand.

In a theoretical electricity "free (true supply/demand) market" - the price would vary frequently and the price would likely skyrocket during high demand periods.

I notice the "free market" affectionatoes here do not like the idea of congestion tolling either... a VERY free-market idea also.

we could pay for all of our roads by dynamic tolling...and get rid of the gas tax all together if we did that.

the technology to change prices - on the fly - readily exist in virtually all markets now.

For instance, a Doctor could raise or lower her rates according to supply/demand.

WalMart could hourly price produce or meats....

you cable company could charge you by the elapsed time use of your TV - like your cellphone does for data.

your cellphone company could charge more for high-demand periods than low-demand periods.

there are thousands of examples of markets that are not "pure" supply/demand markets.

point this out is not advocacy for them just recognition.

 
At 5/16/2012 12:42 PM, Blogger Ron H. said...

"Any govt can conceivably take over any industry or commodity and essentially dictate a fixed guaranteed profit - in exchange for a goal of more stable prices."

Of course they can, and they do. Do supply and demand change as a result, I wonder? What do you think?

How well are government controls serving the people of Venezuala? That's something even you should be able to find out.

"how else would you explain how our govt interferes with the supply/demand of ag commodities and electricity to seek more price stability?"

The suppliers beg for such regulation Larry, who do you think benefits from a guaranteed return on their investments?

Isn't it farmers and large ag companies that lobby for farm subsidies? Utility companies love to have their own service areas with guaranteed profits and no competition.

"If the power companies had their way, they'd charge higher prices for higher use especially during high demand periods..."

Either you don't use electricity, or you don't ever see the electric bill at your location.

Most people are not aware that electricity prices fluctuate widely throughout the day, let alone exactly how much they pay at the moment they flip a switch.

Prior to "smart meters", electric companies have for decades used tier pricing to charge for higher monthly usage.

How can you not be aware of that?

All that previous discussion of supply and demand, and you still don't understand it.

Yes, Larry there is a theory around here, and it's that you don't have any idea what you're talking about. That theory has yet to be falsified.

 
At 5/16/2012 12:46 PM, Blogger Ron H. said...

By the way, without guaranteed rates and profits, wouldn't it seem bizarre that utility companies advise you to use less of their product?

 
At 5/16/2012 12:52 PM, Blogger Larry G said...

" How can you not be aware of that?"

why don't you tell me where Smart Meters are in use and not and then you might know yourself...

Once again, I point out to you that there are thousands of examples of where there are NOT pure supply/demand markets - not because I am in favor of that but because it is the reality.

" Yes, Larry there is a theory around here, and it's that you don't have any idea what you're talking about. That theory has yet to be falsified"

it's a "theory" - and often - not the reality.

I totally support free market supply/demand principles but we don't have that system.

What we have is a system that we LIKE to think is free market but in reality - if we did things like roads that way - people would go ape-shit over it.

I'm all for supply/demand tolls by the way... 100% - are you?

 
At 5/16/2012 12:58 PM, Blogger Larry G said...

" By the way, without guaranteed rates and profits, wouldn't it seem bizarre that utility companies advise you to use less of their product? "

depends on what they have to do to bring more power online... it could be very costly for them to do that and hard to recover that cost easily.



:-)

 
At 5/16/2012 5:25 PM, Blogger Methinks said...

This comment has been removed by the author.

 
At 5/16/2012 5:26 PM, Blogger Methinks said...

how else would you explain how our govt interferes with the supply/demand of ag commodities and electricity to seek more price stability?


Agricultural subsidies are simple vote buying schemes introduced in the 1930's and electricity is a government created monopoly. Neither has anything at all to do with price stability.

And what makes you think stable prices for electricity are so good?

Such a scheme undercharges during peak times and overcharges off-peak. Thus, the demand during peak hours doesn't adjust and you get things like rolling brownouts. So, instead of reducing the load during peak times by increasing price, you get increased load with the possibility of not getting the product no matter how much you're willing to pay.

The law of supply and demand is still at work, Larry. It's just expressed differently - in terms of gluts and shortages instead of variable price.

And, BTW, it's not the "theory" of supply and demand, it's the "law" of supply and demand. You know, like the "law of gravity".

 
At 5/16/2012 5:34 PM, Blogger Larry G said...

ya'll still get confused.

I'm NOT really in favor of govt commodity programs nor govt control of electricity - I point these out as 2 of many examples that we do not have a pure supply/demand market.

But it sure appears to me that one of the goals of the govt approach is stability on availability and price and it appears to me that if ag and electricity were allowed to "float" that we'd see more movement in prices more often.

doesn't the AG program work with the govt trying to control production and storing excess when it's storeable and converting milk into products with longer shelf life, etc?

again.. I'm only pointing these things out - not advocating for them...

I saw a sign yesterday in a store that said "lowest legal price for milk" .... but PLENTY OF IT!

proof positive!

;-)

 
At 5/16/2012 6:41 PM, Blogger Methinks said...

Larry, whether you advocate for it or not is not the point.

The government can create perfect price stability by setting price, but without a price mechanism to clear supply and demand, you'll get gluts and shortages.

In other words, you'll either overpay for milk via price floor and subsidy or you'll suffer shortages.

Supply and demand don't go away because government sets price.

 
At 5/16/2012 7:10 PM, Blogger Larry G said...

" Supply and demand don't go away because government sets price"

well I never said that...

I said that supply and demand do not work according to theory in every case and in some cases, it bears little relation to how it is "supposed" to work and that is the reality.

The AG and Electricity Policies do not seem to have obvious downsides other than "in theory" it is said that they would work "better" if it was a less fettered market.

Virginia went through the electricity de-regulation drill a few years back and it got stopped cold when a study indicated that unregulated prices would be much higher and the utility did not rebut it. Turned out that commercial electricity is profitable and residential is not so many utilities essentially subsidize residential.

Some states like California and NY do not subsidize and prices are considerably higher and probably better represent a truer market.

I support smart meters and time-of-day pricing by the way.

 
At 5/16/2012 9:21 PM, Blogger Methinks said...

I said that supply and demand do not work according to theory in every case and in some cases, it bears little relation to how it is "supposed" to work and that is the reality.

The law of supply and demand always works. If price is prevented from balancing supply and demand, it will be out of balance.

re electricity:

It's not that simple. The system we have in place now is the result of government created monopolies. Thus, it's not going to work or be as profitable as it would have been if it were built by profit seeking companies. It may be plenty profitable to provide residential areas, but not the way the grid is currently constructed. Worse, deregulation does not include allowing new companies to build alternatives. You're stuck with the existing infrastructure.

"Deregulation" in these monopolies is just re-regulation. I don't know what happened in Virginia, but in California, the price controls were removed from the wholesale market, but not from the retail market. Forced to provide electricity to their customers, the local electric companies had no choice but to pay whatever price they had to in the wholesale market.

That market was set up for manipulation by regulatory rules. Another market that is regularly manipulated (and set up by the regulator so that it can be manipulated) is the stock loan market. In a normal market, this couldn't happen. But, the SEC implemented rule 204, which both increased demand and worsened the artificial scarcity problem.

Almost every complaint you've brought up is a direct result of regulation or government interference.

Some states like California and NY do not subsidize and prices are considerably higher and probably better represent a truer market.

If you think about it, you'll come to the conclusion that this is probably untrue. The subsidy comes from somewhere. It comes from money taken from you in taxes. So, when you look at the price per watt in subsidized markets, you have to add in the subsidy everyone pays. I'll bet you'll find the actual price paid per watt is not different than unsubsidized markets. It's just that in subsidized markets, you pay whether you use it or not and in unsubsidized markets, payment is dependent on use. I don't think it's fair for people with houses much smaller than mine with fewer lights, appliances and air conditioners to have to subsidize my electricity.

 
At 5/16/2012 9:22 PM, Blogger Methinks said...

Thus, it's not going to work or be as profitable as it would have been if it were built by profit seeking companies...in a competitive market, I should add.

 
At 5/16/2012 9:50 PM, Blogger Larry G said...

" So, when you look at the price per watt in subsidized markets, you have to add in the subsidy everyone pays. I'll bet you'll find the actual price paid per watt is not different than unsubsidized markets. It's just that in subsidized markets, you pay whether you use it or not and in unsubsidized markets, payment is dependent on use. I don't think it's fair for people with houses much smaller than mine with fewer lights, appliances and air conditioners to have to subsidize my electricity. "

agree.

 
At 5/17/2012 4:01 AM, Blogger Ron H. said...

"why don't you tell me where Smart Meters are in use and not and then you might know yourself..."

That's just lame. Why can't you actually respond to the comment?

notice that the article I linked to is 5 years old. Smart meters are much more common now. I have one.

Where smart meters are used or not used has no bearing on your ridiculous claim that there is no increase in price for higher usage.

"depends on what they have to do to bring more power online... it could be very costly for them to do that and hard to recover that cost easily."

Geez. Another response that doesn't actually respond to the sentence you're quoting.

Is there any way you can get someone to help you with this activity?

 
At 5/17/2012 4:07 AM, Blogger Ron H. said...

This comment has been removed by the author.

 
At 5/17/2012 4:10 AM, Blogger Ron H. said...

"said that supply and demand do not work according to theory in every case and in some cases, it bears little relation to how it is "supposed" to work and that is the reality."


After all this time you are still having problems with definitions. It's as if everything others have written for your benefit has just whizzed right by you. You wrote something like the above months ago. It was wrong then, and it's still wrong.

 
At 5/17/2012 5:38 AM, Blogger Larry G said...

geeze Ron... I don't know what to think......

Smart Meters are just starting out and in pilot projects - like he article you supplied.

I SUPPORT THEM guy.

can you say something nice?

 
At 5/17/2012 1:29 PM, Blogger Ron H. said...

"geeze Ron... I don't know what to think......"

It's not WHAT, it's HOW.

This isn't about smart meters, which are widely used these days, or about tier pricing, which has been in use for a very long time. Those are examples I used to refute your asinine assertion that electric rates didn't increase with higher usage.

Before you claim you never said that, reread your own previous comments.

What nice thing can you imagine saying to someone who asks the same lame questions over and over and shows no understanding of the answers others provide, and then argues in circles that the answers must be wrong as they don't fit their limited understanding of reality, and jumps from subject to subject whenever one is offered as support for a previous topic?

 
At 5/17/2012 1:40 PM, Blogger Larry G said...

" This isn't about smart meters, which are widely used these days, or about tier pricing, which has been in use for a very long time. Those are examples I used to refute your asinine assertion that electric rates didn't increase with higher usage."

yeah it is.

if you knew what you were talking about, you'd know where they are actually in use (and not) ..and I can tell you that they are not yet in widespread use and in the places where they are in use..there is significant opposition.

but perhaps to settle this easily.

tell me which states have smart-meters now - statewide...

do you know?

Is it 49 or 34 or 22 or 3?

you make such an ass out of yourself dude.

 
At 5/18/2012 12:26 AM, Blogger Ron H. said...

"if you knew what you were talking about, you'd know where they are actually in use (and not) ..and I can tell you that they are not yet in widespread use and in the places where they are in use..there is significant opposition."

Larry, you are such a clown. smart meters are used all over the world. Look it up.

You made a stupid statement about electric prices, and I pointed out that you were wrong. Give it up.

You're hardly in a position to suggest others don't know what they are talking about, it's a way of life for you.

 
At 5/18/2012 4:55 AM, Blogger Larry G said...

Smart Meters are not in use all over the US fool.

I asked you to name the states.

and what did you do?

you just engaged in more ad Hominems.

clown is the least of your issues.

 

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