JREwing

Record High Crude: Free Markets Meet the Cartel

Oh, Lord... where to start?

First of all, Sir:

The EIA inventory report was NOT bearish! When you look at the rise in crude supplies, one would think you are right. But you're not!

Refinery utilization is pretty damn low at 85% (Maintenance season before the driving season). Crude imports on the other hand are up. So, now we have to do a little thinkin'. Why would somebody fill up a tanker, send the big guy around the Horn of Africa, unload the stuff in a port in the US and put the stuff in holding tanks, all of which costs a fortune, by the way. (Just take a look at the tanker rates, just in case you don't believe me.) Let me think.. hmmm why would anybody do a silly thing like that??. Uhh yea! Somebody ordered it. Who might have ordered it?

Refineries, yesssssssssss! Refineries order that stuff, because they know driving season is coming. They are gonna need that stuff all the way through the summer.
And guess what, distillate supplies are pretty damn low, too. And distillates give the direction these days. As soon as driving season comes to an end, refineries will have to scramble to make heating oil and diesel.

And now the surprise: The market anticipates all of the above. Men! How about that? A market discounts future events! Now I've seen it all.

Second: The emerging market thing. You got that right. No demand destruction goin' on there. These guys act like a stock-buy-back-program for the oil market.

Third: The price discovery thing.

Why shouldn't a retail investor go long oil? Huh? Why shouldn't a retail investor hedge his very own price risk????? That is perfectly alright. In fact, these are the people who do NOT have to cry out loud for government intervention. Ahh men! I can hardly write that: government intervention. That hurts!
I don't how it is in the US, but here in Germany i can go short oil all the live long day, if I were insane, I mean.

Fourth: The Margin Requirement thing. I'm down with that.

Fifth: Black Box Trading. Why not? I wish I had one!

Sixth: Technical Levels: Fuel for Manipulation?

Where did you go to school, Sir? Every time you buy or sell something you MANIPULATE the market. The only question is: Is the manipulation within the law or not?
If that report really were bearish, it would have sold off massively.

Seventh: Case for Intervention

Sure, US consumers will suffer. In the short run. In the long run, they will buy more efficient cars, companies will buy more efficient trucks, airlines will buy more efficient planes and so on.

That is called progress and it only comes with necessity, not with, oh here it comes again, government intervention. My guess is: In five years the US economy will be stronger than ever, provided we don't get a communist in the White House.

By 'most powerful cartel' I assume you mean OPEC. You couldn't be more wrong. You could try, but you would not be successful. OPEC is absolutely and utterly powerless. When the world was drowning in oil, every member pumped over their quotas. Now they can't produce their quotas, and believe me at these price levels, THEY WANT TO!

Eighth: The SPR.

Holy cow, Sir. You don't mess with the SPR! Never ever! Get that out of your interventionist head, Sir! Because: Once a maniac like Ahmadineshad, or one of a lot of maniacs in charge out there, goes 'Charles Manson', YOU WANT THAT SPR FULL UP!!

'Cause when those 8 million barrels stop shippin' through the Straits of Hormuz, 122 $ oil will look like a goddamn stimulus package.

Ninth: How to Intervene.

You don't!

The only thing the US government should do, is to persuade CHINA, INDIA, BRASIL and a couple of other countries to STOP SUBSIDIZE THEIR PETROLEUM PRODUCTS!

But, all powerful like the market is, sooner or later they will have to stop, because they simply won't be able to afford to subsidize that stuff.

The Oil price wouldn't be a problem, if every government of the world would simply stay out of it. It is that poetry socialist interventionist stuff that messes up markets.

And once again, I extend my invitation, please post articles like this one on Moveon.org. Readers here want to profit from things like the price of oil. DO-GOOD-STUFF belongs somewhere else.

Yours sincerely,

CrossingtheT