Oil Price Boom and Bust Theories

[Bullaholic]

How does oil go from $140+ /Barrel to $40/Barrel in 5 mos. time? Here's one theory....

http://www.oil-price.net/

(Remember--if we bring politics into this discussion---away it goes.)

[LH_Tuff]

Originally posted by Bullaholic
How does oil go from $140+ /Barrel to $40/Barrel in 5 mos. time? Here's one theory....

http://www.oil-price.net/

(Remember--if we bring politics into this discussion---away it goes.)

I think the real question is how it got to $140+ /Barrel?

[Emerson1]

Because Americans drove 15 billion less miles last year lowering demand?

[ronwx5x]

Originally posted by Ernest T Bass
Basically, what happened was, the market didn't reflect reality. This is one of the rare occurances where the laws of supply and demand didn't apply to the market. Supply went up, demand went down, yet the market skyrocketed. Why? Speculation. Basically, the same thing that happened in the stock market during the 1920's, just on a much smaller scale. Brokers and banks would buy a few million barrells of oil before it was even pumped out of the ground, in the hopes that the price would go up a few bucks somewhere between the middle east and here. If it goes up 2 bucks, you just made $2 million. Enough people do this, the amount being bought up alone is enough to make the price jump up. Oil was changing hands 10 to 20 times before it ever got to port. But, this can only happen for so long before all that supply starts to back up and the bubble bursts, just like in 1929.
Think about this. In July of 2008, the largest oil company in the world(meaning that they owned the most oil) wasn't Mobil or Chevron, it was Layne Stanley.

The rocker?

[I_Do_Care]

Originally posted by Ernest T Bass
Wow! No idea why I wrote that. I meant Morgan Stanley, the investment company. lmao forget all that, when is the next crunk train report?

[LH Panther Mom]

Originally posted by Ernest T Bass
Basically, what happened was, the market didn't reflect reality. This is one of the rare occurances where the laws of supply and demand didn't apply to the market. Supply went up, demand went down, yet the market skyrocketed. Why? Speculation. Basically, the same thing that happened in the stock market during the 1920's, just on a much smaller scale. Brokers and banks would buy a few million barrells of oil before it was even pumped out of the ground, in the hopes that the price would go up a few bucks somewhere between the middle east and here. If it goes up 2 bucks, you just made $2 million. Enough people do this, the amount being bought up alone is enough to make the price jump up. Oil was changing hands 10 to 20 times before it ever got to port. But, this can only happen for so long before all that supply starts to back up and the bubble bursts, just like in 1929.
Think about this. In July of 2008, the largest oil company in the world(meaning that they owned the most oil) wasn't Mobil or Chevron, it was Layne Stanley.
It would be (semi) interesting to know how many of those who bought futures at $125-$140/barrel lost their butts now that the oil might be coming out of the ground at $40. :thinking:

[I_Do_Care]

poor people, it's always their fault.:D

[sahen]

Originally posted by Ernest T Bass
LHPM, remember the big banks and investment companies going belly up and begging the government for money? Guess why they went broke?

bingo....we are paying them back for screwing us and having it backfire on them...gotta love our country

[LH Panther Mom]

Originally posted by Ernest T Bass
LHPM, remember the big banks and investment companies going belly up and begging the government for money? Guess why they went broke?
Aw, heck. Here I thought the banks were in trouble because of their stupid lending practices with unqualified buyers. :doh:


How's the yuan holding up?

[Electus Unus]

Supply and demand theory is bullcrap in my opinion. Of course Americans drove less last year with gas prices being $3-4 range. Of course we drove more when gas prices were $1-2 because people can afford to do so.

[SintonFan]

Originally posted by LH Panther Mom
It would be (semi) interesting to know how many of those who bought futures at $125-$140/barrel lost their butts now that the oil might be coming out of the ground at $40. :thinking:
.
Don't you have an option to sell "futures" at a later time? I have wondered about this. You have to have a buyer if you play the "futures" game imho.

[SintonFan]

Originally posted by Electus Unus
Supply and demand theory is bullcrap in my opinion. Of course Americans drove less last year with gas prices being $3-4 range. Of course we drove more when gas prices were $1-2 because people can afford to do so.
.
Supply and Demand is more concrete than you...
you, my friend, are just words I read on a computer screen.
.
Supply and Demand makes me pay more or less from my wallet each time I fill up my Yugo. :p

[I_Do_Care]

Originally posted by Ernest T Bass
Supply and demand had nothing to do with what you paid at the pump in 2008. Supply went up, demand went down, yet prices skyrocketed. and then the bubble went POOF!

[SintonFan]

When OPEC increased production last summer, did it meet current demand?
I don't know but these are just words on a computer screen...
.
I do think that speculation has affected the price we pay at the pump.

[SintonFan]

Originally posted by Ernest T Bass
Demand was already down. Demand went down every year from 2004 to 2008. There will soon be many books written on this, b/c it's fascinating from a financial point of view. Here's a situation that goes against almost every economic law known to capitalism. But, it does show that, in the end, the laws of economics hold true.
.
Capitalism? The laws of economics?
Can you point out which laws of economics you are talking about in context to which you just mentioned?

[SintonFan]

Originally posted by Ernest T Bass
Demand was already down. Demand went down every year from 2004 to 2008. There will soon be many books written on this, b/c it's fascinating from a financial point of view. Here's a situation that goes against almost every economic law known to capitalism. But, it does show that, in the end, the laws of economics hold true.
.
Look here, this shows that demand went up every year from 2004 to 2008 (at least till early 2008):
http://img299.imageshack.us/img299/3056/demandff9.th.png (http://img299.imageshack.us/my.php?image=demandff9.png)
This is from http://crudeoil.wordpress.com/2008/05/02/gasoline-demand-2004-april-2008/
Where do you get your info from?

[injuredinmelee]

is demand down in America only? Has it not increased significantly in India and China?

[SintonFan]

Originally posted by injuredinmelee
is demand down in America only? Has it not increased significantly in India and China?
.
Click on the chart. It shows global demand...

[SintonFan]

Originally posted by Ernest T Bass
Demand was already down. Demand went down every year from 2004 to 2008. There will soon be many books written on this, b/c it's fascinating from a financial point of view. Here's a situation that goes against almost every economic law known to capitalism. But, it does show that, in the end, the laws of economics hold true.
.
Hello! Please respond...:taunt:

[SintonFan]

Originally posted by Ernest T Bass
The laws of supply and demand. Supply went up, demand went down. Yet prices went through the roof. Yes, I was wrong about 04-08, but demand dropped in '08, and supply rose, yet prices went through the friggin' roof.
.
Did demand drop in '08(over the whole year)? Prove it.
Still, speculators betting on future markets might have driven up prices? Isn't that originally what Bullaholic posted about?
You never answered my initial question. What "Laws of Economics" were you talking about?
Where did you hear(or read) that demand went down every year from 2004 to 2008?
Could you have mis-informed?

[SintonFan]

Originally posted by Ernest T Bass
Ok, what's your problem? Can you read ok? I said I was wrong on 04-08. Laws of economics=supply and demand. I said that speculation was what drove up the price.
.
Ernest, no problem here. Just words on a computer screen.
You mentioned how:

Here's a situation that goes against almost every economic law known to capitalism. But, it does show that, in the end, the laws of economics hold true.
I was just curious on where you got your info and what "Laws of Economics" are you talking about. That's it. Nothing more than words on a computer screen:nerd:

[I_Do_Care]

Originally posted by SintonFan
.
Nothing more than words on a computer screen:nerd: did a psychiatrist instruct you to think of them that way to maintain a level head?:D :taunt:
your box is full!

[SintonFan]

I got the phrase from the American Psychological Association's website.:tongue: :D
Clearing out PMs...

[I_Do_Care]

Originally posted by SintonFan
I got the phrase from the American Psychological Association's website.:tongue: :D
Clearing out PMs...
haha :clap: glad to help the coping skills! ;)

[Farmersfan]

Supply and demand did have a impact on the price of oil. but I believe it was "Perceived" supply that was based on the futures traders. Each "Futures" contract represents a set amount of production capability in the free market. If futures BOUGHT exceed the normal production levels then there is a perceived supply shortfall and that will drive up the price. And futures are daily executed trades and will settle at the end of each business day which allows a market correction every single day. Futures traders got into a routine of buying up all available production which would force up prices because of a perceived shortfall in supply and walking away with huge dollars. It was just short of cornering the market without actually handing over a single dollar. Much like options trading you simply buy the "option" to purchase a set amount of oil at a set price at a set later date. If the price goes up you forfiet the purchase price of the "OPTION" and pocket the difference in the purchase price and selling price. And much like options this kind of trading should be outlawed. It was a money making scheme only and serves no real purpose in our economy. It is a vehicle for profiting off the movement of market value and not actual market value itself.
Definition:
In finance, a futures contract is a standardized contract, traded on a futures exchange, to buy or sell a standardized quantity of a specified commodity of standardized quality (which, in many cases, may be such non-traditional "commodities" as foreign currencies, commercial or government paper [e.g., bonds], or "baskets" of corporate equity ["stock indices"] or other financial instruments) at a certain date in the future, at a price (the futures price) determined by the instantaneous equilibrium between the forces of supply and demand among competing buy and sell orders on the exchange at the time of the purchase or sale of the contract. The future date is called the delivery date or final settlement date. The official price of the futures contract at the end of a day's trading session on the exchange is called the settlement price for that day of business on the exchange.

[LH Panther Mom]

http://img262.imageshack.us/img262/701/tradingplacesvc4.png

:thinking: :thinking:

[Farmersfan]

Originally posted by LH Panther Mom
http://img262.imageshack.us/img262/701/tradingplacesvc4.png

:thinking: :thinking:


CORRECTION:

Futures are Obligations and Options are, well, Options...... In a futures transaction the owner must execute the transaction at settlement and in a Options transaction the owner has the option to execute the transaction..........