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Speculators Stabilize Oil Prices: Here's Proof

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I am sad that you are not a believer in free markets

Speculators Stabilize Oil Prices: Here's Proof

"The CFTC has granted Wall Street banks [like Goldman Sachs] an exemption from speculative position limits when these banks hedge over-the-counter swaps transactions.

Right. The exemption was granted to permit banks to hedge the transactions they enter into with Oil & Gas companies (who are hedging production). Why should a bank's hedge of such a transaction be included as a speculative position when it is plainly "Commericial" in nature.?

I do agree that classifiying a bank entirely as "commericial" yields inaccurate data because they do also take speculative positions. However, the broad brush you are using overestimates the magnitude of the distortion.

"The really shocking thing about the Swaps Loophole is that Speculators of all stripes can use it to access the futures markets. So if a hedge fund wants a $500 million position in Wheat, which is way beyond position limits, they can enter into swap with a Wall Street bank and then the bank buys $500 million worth of Wheat futures. "

Except that the vast majority of HFs don't execute a position of such magnitude on a linear basis (ie, long/short). Moreover, banks don't take unlimited credit risk on HFs. Such a position (long/short) would most likely need to be fully collateralized making it cost prohibitive. Moreover, the counterparty would need an ISDA agreement and credit/risk limit approval

" Another example of the effects of speculators in the crude oil commodities market was the “ Rogue Trader” who with a 16 million barrel order of crude, pushed up the price of crude oil $4 in the blink of an eye."

I trade oil for a very large bank. No salesman would execute an 18MMbbl order without insuring it is authorized. Moreover, an order like that isn't executed "in the blink of an eye". It is executed quietly and slowly over the course of one or more trading sessions. Finally, a "rogue" trader can and does happen in ALL markets.

Remember $20 Oil? Looks Like It's Coming Back

"the 20 $ price if it occurs would create great unhappiness among
the people who filled their tankers to the brim & now have them
parked in the gulf of mexico or wherever."

Absolutely false, those tankers were filled with nearby priced oil and hedged with long-dated futures. The profit is locked in. It's called CONTANGO !!

Crude Reality: How Long Can Oil Stay Down?

Probably not a lot since there is no oil in that geographic region and the Middle East economies are too oil dependent to really limit production.



On Jan 15 05:50 PM henarl wrote:

> Wow, lots of comments on this subject. Here's one more: Since perception
> is as important as reality to the short term price of oil, how about
> the perception of a possible war in the whole middle east. If Hezbollah
> starts lobbing more rockets into Israel in sympathy with Hamas and
> in an effort to eliminate Israel once and for all (after all, they
> are both controlled by Iran), and then Israel in desperation bombs
> Iran - Hello WW3. What effect do you think that would have on the
> price of oil?