Makey

Oil Futures: It's Not Manipulation, It's Stupidity

Paper doesn't mean anything, huh? By that rationale you never really own money in your checking account because it is just a statement or electronic balace. You don't actually have the physical commodity in your hand, but you have the RIGHT to get it out of your checking account if you wish. If the BUYER of the commoodity WANTS the OIL, then he gets it.

This is my last comment on this, as we are getting into semantics. Many people have mentioned that the market is "rigged" or manipulated and I think that the market is rigged by OPEC, and that GS and MS and other banks have more information, better research, order flow ect to make their trading decisions. BP or Shell also have more information about true supply/demand for oil and they have an advantage. So what. Life isn't fair. Don't play the game if you dont' like the rules. My point is that no group of speculators can artificially inflate the price beyond some politicians expectation of what the "real" price should be. It is not possible.

Speculators aren't to blame. Goverment doesn't help and OPEC certainly doesn't help the market find an effecient price. No one has presented even a shred of evidence or described just how these speculators magically drive up the price of oil at their will. You know why? Because they don't.

If the US govern sold the whole SPR, eliminated the DOE, and opened up all drilling anywhere on US property and we found a 100 trillion barrel oil field off the coast of Maine, where would oil go? If your answer is lower, then you have broken your own argument.

Is Excessive Speculation in Oil and Commodities Markets Actually Occurring?

Bravo. Well done.

Oil Futures: It's Not Manipulation, It's Stupidity

ummmm.. gosh you are misinformed!!! Yes, there are physically and cash settled contracts. So what. Nymex WTI oil contracts are physically settled and the seller at expiration has to deliver the good. It became physically settled in 2006 and that is where the volume is. They don't define who can receive or deliver contracts. I have no idea where you are getting this information. If I end up short a corn future after expiration, I HAVE to deliver the corn or the receipt at the elevator. You are wrong.

I understand that most futures contracts don't get delivered. The reason for is geographical, quality, ect. That is not the point. The point is that when you purchase a futures contract, you are committing to purchase a REAL commodity on some date in the future.

I also am aware that the market can move out of contango. That is because the demand for the commodity in the spot market is very high. That has nothing to do with what we are talking about or the oil market at this time.

I wish that people would educate themselves before spouting off and spreading misinformation.

On Jul 09 12:45 PM Alex Filonov wrote:

>

Oil Futures: It's Not Manipulation, It's Stupidity

SageNot: Very good. I love the Gartman letter!

Ferdinand: I said the open interest thing, not the author. Open interest has nothing to do with actual production.

Global annual oil consumption 84m bpd x 365 = 30.6 B barrels of oil a year =30.6 MILLION equivalent futures contracts.

Open Interest of WTI Crude oil = 1.159 million contracts or 1.159 billion barrels, about 3.3% of total oil usage.

Another example is corn which as about a million open interest at 5k bushels a contract. - 5m bushels of Open interest versus annual crop size of 11-12 billion bushels.

Oil Futures: It's Not Manipulation, It's Stupidity

Mr. Filonov,

I disagreed with some of the premises of your article, but a good deal of my comments were regarding the comments about your article.

You say that. ."If they bought commodities, it would be different. They'd quickly found out that storing commodities is an expensive proposition. Storing oil costs you a dollar per barrel per month. The asset class they are holding is paper, not commodities."

Ummmm, oil futures ARE the physical good. They are not "pieces of paper," but an agreement (hence the term contract) for the SELLER of the future to DELIVER crude to you. If I buy crude futures for April of 2010, the seller has to deliver physical crude to me. You are not right. I know crude cost a lot to store. That is why the futures market is showing that the price is higher in the future, accounting for the cost of storage.

This kind of misinformation is so one-sided, it is unreal. Very few people really understand how futures markets work.

You also said, "Do you really think that real and expected supply/demand situation in oil market changed enough in the last 4 trading days to justify more than 10% drop in price? Funds lost hundreds of billions on oil futures last year, they are going to lose this year. They are losing right now."

Good point, speculators, producers, users all can lose money in the futures markets. Yes, I do think that the expected value of crude can change quickly, so what? Alcoa lost over 450m last quarter as announced last night and their stock rallied 5%. Do you really think that their profitability potential increased 5% in 2 minutes?

On Jul 08 11:49 PM Alex Filonov wrote:

> Some responses below.

Oil Futures: It's Not Manipulation, It's Stupidity

www.lewrockwell.com/ro...

Here is a good link.

Oil Futures: It's Not Manipulation, It's Stupidity

Wizard,
Did you not read my comment? Most commodity index funds are FULLY CAPITALIZED. They are putting up 100% of the commodity value. Are you going to make small specs pay full price (or 70%) as well or just big guys? If you make limitis on participation and I was JPM or GS I would just own a bunch of subsidaries that all had the max allowable limit. If I was the CME I would just create a new contract that was 10k barrels of crude versus the current 1k. I promise you this will make the crude oil market rally if you try to "rid" the market of specs. FUTURES are a zero sum game. Any time one person makes a dollar, someone else loses a dollar. Does no one know this???

.... What about farmers of corn or beans? They sell commodity futures and still have a hard time maintaining margin with the big price spikes we saw in corn and wheat. What about airlines? Are you going to make them fully margin their needs in the oil market? That will raise their costs and increase everyone's airfares, causing your wages have less purchasing power.

Throughout history, whenever goverment has tried to outlaw or restrict speculation it has resulted in increased volatility from the herring to the onion. Are you aware that Ford helped pushed through a law in 1958 banning futures trading on onions that still stands? Farmers complained that futures traders were pushing down the prices (instead of increasing number of farms in Wisconsin) You would think that this would limit onion price volatility correct? Onion prices rallied 400% from 10/2006 to 4/2007, then fell 96^% by March 2008 and rallied 300% in April of 08. How can this be???

Oil Futures: It's Not Manipulation, It's Stupidity

This is a very naive article, with some uneducated comments.

1. 80% of commodity index funds FULLY CAPITALIZE their positions. That means that margin is not an issue.

2. Futures aren't reflecting supply/demand. They show expected/anticipated supply/demand, which clearly is unknown.

3. How do you explain that the open interest in the oil markets is half of actual annual usage and 10thsof a percent of the world supply. How can someone manipulate the market by buying 1/10th of 1% of the world's supply?

4.If commodity index funds and other groups decide to treat commodities like an asset class....why is that bad? Everyone is America has Exxon in their 401k...... Just to be clear, accounting for tax changes and inflation, the equivalent cost of a gallon of gas to 1970 is $3.13 a gallon, much greater than average price over the past 2 years.