[QUOTE=FactorEyes;137858]There is definitely speculative pressure in the petroleum markets, and in commodities in general. The conventional funds, as well as those hedge funds remaining, are looking for a place to run with their immense sums of capital, and commodities and energy are the only non-frightening places to put cash right now. Sure, oil investors will be hit hard within the next few months, but what else looks good now?[/QUOTE]

I'm on the sidelines at the moment in cash, waiting for another bear-market rally and resulting opportunity to reload my short positions, mainly in financials and real estate. Fearful of another April-fools-style bear-market-rally-despite-no-good-news I bailed out of my shorts at end of June and missed the juicy continued runup that has occurred since. Even though the fundamentals have not changed - still extremely dire, no prospect of economic recovery this year and quite possibly through 2009 or even beyond - *now* the markets finally get it, and sentiment seems to have really turned. Nevertheless, I dearly hope that there is a hard mass-delusional core in the markets which will rally on even the slightest whiff of news-which-can-be-spun-as-good, and we get at least one more nice little rally we Bears can short the crap out of. But shorting is tricky work - for buy-and-hold-style investors gold is probably as good a place as any to be for the next year.

[QUOTE=cheesehead;137893]So, you're arguing that gasoline demand is more elastic than jet fuel and diesel demands, right?[/QUOTE]
No - in fact I expect demand for jet-fuel is also plummeting due to carriers going out of business and the still-in-business ones slashing their routes. With consumer spending on non-fuel items dropping, I also expect truckers are hauling less. My point there is, for e.g. United Airlines, unless they have a giant fuel depot to draw on, the planes they are flying, even if the number is smaller than last year, still *have* to fly. One would think that similar price competition as there is in retail gasoline would also exist for jet fuel, but I expect there are far fewer suppliers for that, and an airline can't just do like J6P does and keep an eye out for a gas station with a lower price as he goes about his daily business. Also, airlines likely enter into long-term fuel delivery contracts which perhaps specify a price at "prevailing market rate", which has a fixed crack spread built in. Speculation on my part, but it seems fairly plausible [at least to me]. Or it could simply be the aforementioned limited number of refiners and suppliers for Jet fuel makes it easier to control prices.

FORTUNE: OPEC's empty toolkit
 

[url=http://money.cnn.com/2008/07/15/news/economy/okeefe_oil.fortune/index.htm]OPEC's empty toolkit[/url]: [i]The leaders of OPEC says its members have plenty of oil to meet demand. So why aren't they putting more on the market?[/i]
[quote]NEW YORK (Fortune) -- The leaders of OPEC have a long list of culprits for high oil prices: the falling dollar, U.S.-Iranian tensions, and shady speculators.

Here's one they seem to forget: OPEC.

The Organization of Petroleum Exporting Countries consistently claims that supply is not a problem - that there's plenty of oil to meet demand.

But last year, as the price of oil nearly doubled, OPEC was actually cutting production. The cartel produced 1.5% less last year despite adding two countries, Angola and Ecuador, to its ranks. That cutback at a time of growing demand helped drive prices up.

...

Last week OPEC released its World Oil Outlook 2008, a 214-page report that can be summed up in one reassuring sentence from the foreword by OPEC Secretary-General Abdalla Salem El-Badri: "Availability is not an issue." Despite increasing demand, the report promises plentiful oil for decades to come.

Not surprisingly, then, El-Badri, who also runs Libya's national oil company, argues that, at $140, the price of crude oil is out of whack with reality.[/quote]
Perhaps, but even if so, it's out of whack in a way that should have been allowing OPEC member states to be making record profits even with a modest increase in output ... at least until very recently.
[quote]"Today, what is apparent is that oil supply and demand fundamentals are healthy," he writes. "There is, and has been, more than enough supply to meet demand, and oil stocks in major consuming countries are at comfortable levels. This should point away from the direction of current price levels."[/quote]
So where is all this ample supply which should be keeping prices from skyrocketing like they've been doing?
[quote]In recent weeks, while Congress has been holding dozens of hearings to try to figure out who to blame for the rude price of crude, the Secretary-General and his colleague Chakib Khelil, the president of OPEC and head of Algeria's oil ministry, have offered a variety of explanations. Khelil has cited the falling value of the U.S. dollar, referenced tensions between the U.S. and Iran, and pointed the finger at hedge fund speculators. (It's hard to argue with the first two, but I generally side with my colleague Jon Birger in believing that it's bogus to blame speculators.) Saudi Arabia called an emergency oil summit last month, the main purpose of which seemed to be to get out the message that rising prices weren't the cartel's fault.

But it's disingenuous for OPEC's leadership to suggest that reduced production had nothing to do with rising prices. OPEC pumps 44% of the world's daily oil production and, by its own count, has 78% of the world's proven reserves. In an increasingly tight market, there's no room for the largest group of producers to drop its output without directly affecting prices. And indeed, in announcements before and during the summit, the Saudis pledged to boost production by some 500,000 barrels a day.
[b]
Where's the oil?
[/b]
[u]The scary thought - held by observers like peak oil guru Matt Simmons and commodities investor Jim Rogers - is that the cartel can't do much more than that because the easy oil is already out of the ground.[/u]

"They've been telling us for years that they have between two and three million barrels of [daily] spare capacity," says Gal Luft, the executive director of the Institute for the Analysis of Global Security. "If you have it and you don't use it then you are deliberately denying liquidity to the market when it needs it. If they have it, why don't they use it? And if they don't have it, we need to know that. We need to put more oil in our strategic reserve."

OPEC has apparently given its members the green light to pump all they want, according to a survey released by energy news service Platts last month. The Platts press release about the survey says that "OPEC has a 'tacit' understanding that those members capable of boosting crude production should supply as much oil as world oil markets needed."

In other words, the leaders of OPEC are trying to regain control of oil prices and offer relief to their agitated customers, although Platts Global Director of Oil John Kingston sounded skeptical about how successful OPEC could be. "It's clear that with non-OPEC output continuing to sag, and world demand staying flat regardless of high prices, that any additional supply most likely must come from OPEC," he is quoted as saying. "But...its ability to put much more oil on the market looks severely constrained."[/quote]
This may all be moot fairly soon, if the sharp drop in demand in the U.S. due to the contracting economy spreads elsewhere - as it seems to be doing [recent GDP growth in Europe was anemic, UK and Spain economies cratering, etc].

[quote=ewmayer;137896]an airline can't just do like J6P does and keep an eye out for a gas station with a lower price as he goes about his daily business.[/quote]It isn't the pilots who buy the fuel; people in HQ office do that, and they can shop around. But, yes, they do buy ahead; I've heard several times (*) that Southwest was particularly aggressive in snapping up futures contracts last year, which is why they're the only profitable line now.

- - -

(*) -- not least of all, from the second paragraph in your post #147 at [URL]http://www.mersenneforum.org/showpost.php?p=137422&postcount=147[/URL], so I'm repeating the Southwest thing just for those who weren't paying attention back then

[QUOTE=ewmayer;137905]...[quote]...but I generally side with my colleague Jon Birger in believing that it's
bogus to blame speculators ...[/quote]...[/QUOTE]It always seems bogus to blame speculators !

Jacob

[QUOTE=ewmayer;137896]I'm on the sidelines at the moment in cash, waiting for another bear-market rally and resulting opportunity to reload my short positions, mainly in financials and real estate.[/QUOTE]

So far, so good - [url=http://finance.yahoo.com/q/bc?s=SKF]SKF[/url] got absolutely pounded today, down over 20%. [Although *still* up for the rolling-week ... that's how wild the recent runup in this one has been.] By way of perspective, in late March this one seemed a bargain at any price under $110 ... and promptly got driven all the way down to the high 80s at the height of the April Fools rally. Based on that not-too-distant-past experience, it's still much too high for my taste - a couple better-than-the-already-drastically-lowered-expectations earnings reports from the big financial firms could easily knock another 20% or more off this one. Or another bank could go belly-up tomorrow and it could spike right back up over 200. Ultrashort ETFs - not for the faint of heart or wallet.

[QUOTE=ewmayer;137896]I bailed out of my shorts at end of June[/QUOTE]Thanks for that visual.:yucky:

Seriously, because people are slowing down (to save fuel), there is a projected decrease in traffic deaths. The question is, will there be a net increase, because more people will drive vs fly (like post 9/11)? IIRC, more people died as extra traffic deaths after 9/11 than in the twin towers. A study showed that it is safer to fly (major US jet carrier), than to drive, for any distance greater than ~13 miles. The odds only get better for flying from there.

Diesel powered school busses will be doing less field trips. More companies will look toward container train shipping, this will save diesel. There is a greater push for bio-diesel (in all of it's forms). Also, several firms are 'recycling' their used crankcase oil into their diesel. Also, there is large movement for L/CNG for cross town fleets, this will be acclerated as diesel goes up. Also, hybrid diesel transit busses are being used more and more.

So, I think that diesel demand will shrink. (Remeber that as the economy slows, so do purchases, and transport of goods.)

[QUOTE=ewmayer;137896]I bailed out of my shorts at end of June[/QUOTE]

[QUOTE=Uncwilly;137920]Thanks for that visual.:yucky:[/QUOTE]

Believe me, it's a more pleasant visual [and olfactory] than that of me "reloading my shorts." :poop:

(* sigh *) When the OP strays, everyone else strays, too.

(Memo-to-myself)

Though I don't have time right now to develop it, I plan to discuss a phrase from the "OPEC's empty toolkit" article,
[quote]The cartel produced 1.5% less last year despite adding two countries, Angola and Ecuador, to its ranks.[/quote]and the (scary!) Export Land Model ([URL]http://en.wikipedia.org/wiki/Export_Land_Model[/URL]).

[url=http://money.cnn.com/2008/07/24/markets/cftc/index.htm]Government uncovers oil price manipulation[/url]: [i]Trading firm attempted to 'bang the close' by amassing large positions just before markets closed.[/i]
[quote]NEW YORK (CNNMoney.com) -- The government charged an oil trading firm Thursday with manipulating oil prices, the first indictment to come down since the regulators began a new investigation into wrongdoings in the energy markets.

The Commodity Futures Trading Commission charged Optiver Holding, two of its subsidiaries, and three employees, with manipulation and attempted manipulation of crude oil, heating oil and gasoline futures on the New York Mercantile Exchange.

The complaint names Optiver chief executive Bastiaan van Kempen, Christopher Dowson, a head trader of Optiver, and Randal Meijer, head of trading at an Optiver subsidiary.

The CFTC said the firm attempted to 'bang the close' by amassing large positions just before markets closed, forcing prices up, then selling them quickly, driving down prices and pocketing the difference.

"Optiver traders amassed large trading positions, then conducted trades in such a way to bully and hammer the markets," CFTC Acting Chairman Walt Lukken said at a press conference. "These charges go to the heart of the CFTC's core mission of detecting and rooting out illegal manipulation of the markets."

The alleged manipulation was attempted 19 times on 11 days in March, 2007, the agency said. In at least five of those 19 times, traders succeeded in driving prices higher twice and lower three times.

CFTC stressed that the price changes were small and the manipulation isolated, and that the investigation has nothing to do with the recent heat the agency has taken on capitol hill over rising oil prices.[/quote]
The last sentence would appear to negate the implications of the loud headline. I want to know whether any of the Big Boys were/are involved in this sort of thing. This includes the now-defunct Bear Stearns, which had a very large commodities trading division, and significant physical oil storage facilities [now both owned by JP Morgan, obviously].

Gas Price Update | The Oil Speculator Sideshow
 

Gas prices have started to give back a bit of their recent increase - again taken from the same Sunnyvale Valero station as before:
[code]Mon, 07 Jul: 4.49[sup]9[/sup]
Mon, 14 Jul: 4.45[sup]9[/sup]
Wed, 16 Jul: 4.43[sup]9[/sup]
Fri, 18 Jul: 4.41[sup]9[/sup]
Mon, 21 Jul: 4.37[sup]9[/sup]
Wed, 23 Jul: 4.35[sup]9[/sup]
Fri, 25 Jul: 4.29[sup]9[/sup]
[/code]So prices have given back 40% of the 40-cent increase they had in late May though early July - Down 20 cents from the all-time high of 4.49[sup]9[/sup] of early July. Interestingly, the drop in oil prices in the past 3 weeks appears to be more due to demand destruction [perhaps helped by the political sideshow over "oil speculators" - see below], which, rather than being a good thing, is in fact a deeply recessionary signal for an energy-intensive economy like that of the U.S.

[URL="http://money.cnn.com/2008/07/24/news/economy/okeefe_cftc.fortune/index.htm"]Fortune.com: The oil speculator sideshow[/URL]: [I]As the CFTC trumpets its charges against a Dutch trading fund, the fundamental supply-and-demand factors that govern the price of oil haven't changed.[/I]
[quote]Unfortunately, what will almost certainly continue to get lost in the coverage of the Optiver case - and, of course, in the ongoing bickering between Democrats and Republican about the provisions to attach to the speculation bill - is that Congress still has its facts wrong. That was reinforced by the CFTC's other big move this week: the release of a refreshingly reasonable and insightful report on the causes of the increase in the price of oil.

This meaty 40-page document has gotten short shrift this week. But it ought to be required reading for majority leader Harry Reid and his fellow senators before they press ahead with legislation that might do more harm than good.

The big conclusion of the Interim Report on Crude Oil, the product of an interagency task force led by the CFTC, is that "current oil prices and the increase in oil prices between January 2003 and June 2008 are largely due to fundamental supply and demand factors."

And it makes a really strong case. Global GDP has grown at close to 5% annually since 2004, the report points out, driving rising consumption of oil. And production has not been able to keep pace. In June, world surplus production capacity, the task force says, was a mere 1.35 million barrels per day, or about a third of what it average from 1996 to 2003. The market is getting tighter and tighter.

Just as compelling are the report's conclusions about what's not happening: Analysis of the futures markets showed no evidence of speculators driving up prices.

Plenty of smart observers (including my colleague Jon Birger here and here) have done a good job explaining why blaming speculators for $130/barrel oil just doesn't make sense. In their rush to embrace a quick-fix solution to the problem and to appease constituents outraged about $4 per gallon gas, however, lawmakers have seized on testimony from witnesses like hedge fund manager Michael Masters. Masters made a big splash by blaming a flood of money from institutional investors, who he termed "index speculators," for driving up prices.

That doesn't appear to be the case. When the task force examined non-public trading data for the so-called swap dealers (traders such as investment banks) who handle transactions for those institutional investors as well as other market participants, they found no evidence that their activity was providing upward pressure on prices. On the contrary, the analysis showed that the dealers "have held roughly balanced long and short positions in the crude oil markets over the last year and actually held a net short position over the first five months of 2008."

In other words, from the beginning of the year through the end of May, during which time the price West Texas Intermediate crude rose from $96 to $127, the positions of swap dealers would have benefited more from prices falling than rising. So much for blaming "index speculators" for the price rising.

What about regular "speculators" like hedge fund managers? Despite isolated examples such as the alleged behavior by Optiver, the CFTC's statistical analysis again found no evidence that speculative traders had significantly affected prices one way or another. In fact, their trading activity appears to have helped. "[T]he positions of hedge funds appear to have moved inversely with the preceding price changes," the report concludes, "suggesting instead that their positions might have provided a buffer against volatility-inducing shocks."

That's right, in general hedge funds have probably made things better, not worse. Driving out speculators and hedgers is not the way to solve the oil problem. And limiting their activity will only make the market less efficient.[/quote]