Oil at 57

such volatility in such an important commodity is astounding. How can the planet "plan" with such price variations. From 140 to 57 in 3 months? How can this be the result of offer and demand.

Comments

Juha Lindfors said…
Funny I was thinking the same thing some time ago, maybe around $80 mark about all the talk how the $150 price was result of demand, peak oil and all those theories.

No speculation involved, right?

Other great financial non-sense theories: decoupling. How's that working out now?
November 13, 2008 at 1:27:00 PM PST
Roy Russo said…
I don't recall anyone credible pointing to the price spike being a supply/demand cause. Everyone kept pointing to speculators. Housing bubble, meet oil bubble.
November 14, 2008 at 7:23:00 AM PST
Anonymous said…
It was a bubble, driven by speculation about the rate at which a fixed supply will be exhausted by a growing demand. Given supply remains fixed, at some future point, supply and demand will drive the price up, therefore owning some of that fixed supply will be of increasing value - someday. The things the speculators tends to miss are the possibility of substitutes for the good and the belief that recent measured global economic growth rates and related consumption rates could be extrapolated. Robert Shiller (economics professor at Yale, "Irrational Exuberance", and "The Subprime Solution") does a great job of explaining speculative price bubbles in goods like land and oil. A more reasonable forecast of future global economic growth rates and a reasonable expectation of growing availability of substitutes and offsets for oil demand would predict a much longer time horizon for exhausting the supply of oil than Peak Oil theorists and speculators would predict, and a much shallower rate of increase in average price.
November 14, 2008 at 10:03:00 AM PST
adt43wt342 said…
Bill,

thank you for the post. Yes, I believe the commodities bubble was the result of hot-money movement.

Where is it going next. It can hide in Treasuries for a while? We are talking about a 5T thing? Bring it on...
November 14, 2008 at 11:08:00 AM PST
adt43wt342 said…
Roy,

I was surprised too but there was a debate. I have to read up on how price is set in oil markets. I think it does involve a part of expectations which makes it a futures market. Futures are speculative, by definition.
November 14, 2008 at 11:12:00 AM PST
Anonymous said…
There may be quite a bit less hot money out there for quite a while, the result of de-leveraging, higher regulatory capitalization ratios, more entities subject to regulatory capitalization ratios, and sovereigns (especially China) investing more at home. That said, commercial paper and corporate bonds are going to look pretty attractive for awhile as liquidity fears dissipate and until spreads come back into line.
November 14, 2008 at 12:39:00 PM PST
Arthur B. said…
Over the past year (Nov 14 2007 to now), a troy ounce of gold has bought little as 6.3 barrels of oil and much as 13; 1:2. Oil went from a high of $145 to a low of $56 (1:3)

Over the last 18 years the oil gold ratio has been between 6.2 and 27.9 (1:4.5) while the price in dollar has been between 10.7 and 145.3 (1:13.6)

A big part of the volatility is volatility of the dollar, not the oil. True, gold supply depends on the price of oil, still.
November 14, 2008 at 1:32:00 PM PST
Stan Silvert said…
A few months ago during the days of the childish "drill baby, drill" debate, I watched a senate hearing on oil speculation. They grilled a panel of oil economists, some of whom worked for the petroleum industry.

Remember that famous tobacco hearing where all the tobacco CEOs pledged that tobacco was not addictive? They did that for these economists. The question was, "If we put in the proposed limits on oil speculation, how much will the price go down?" The most conservative estimate, even from the oil lackeys, was 40%.

"And if we enact this legislation, how long will it take that price to go down?" Answer: "About 30 days."

The congress passed legislation to let Exxon drill for oil on your kid's sand castle, but they never passed the speculation limits. However, the economists were right. As soon as the speculators were scared out of the market, oil dropped like a rock.
November 16, 2008 at 4:13:00 PM PST
Post a Comment

Popular posts from this blog

$6.66B for BEA: Larry goes Shopping

Oracle has made a $17 per share offer to buy BEA. This putting a somewhat theatrical "number of the beast" valuation on BEA. Yesterday the stock was sitting at $13 and this morning it is at 18 and change representing a 30% jump. Obviously the crazy dude over at BEA is going to put up at least a simulacrum of a fight. Thinking of it, I expect Alfred "I am compensating for..." to put a heartfelt final battle into this, he has probably already super-glued his naked chest to the BEA boardroom table. It is going to get nasty and he will be dragged out kicking and screaming. Alfred will mumble something about not wanting to be Larry's power point bitch, or waxing his boat, or some other non-sense. But Larry is going to make sushi of that board and will feed it to the koi fish he has in his compound and cost more per head than Alfred's car... This one is going to be funny to watch. Pass the popcorn please. First, because of ICahn's shareholder activism, th
Read more

Thug vs Thug: Porsche 1, Hedge Funds: 0

The latest drama is fun. VW became the largest company in the world, in terms of market cap, ahead of EXXON on a little financial market coup d'etat orchestrated by Porsche. Apparently VW stocks was on the way down, I don't know the details but many Hedge Funds (HF) were short the position. Fine. The price goes down. Porsche starts buying the anonymous float (and probably some private too?), but the point is they build a 73% market share without many people noticing. In the US you would need disclosure after 10% or so. Point is, that many HF wake up and realize that their short position is about to lose a lot of money. So what do they do? those idiots? they short cover all together, which means they buy the stock to cover the short. The stock zooms up, by a full multiplier and overtakes EXXON. Porsche makes A KILLING in the process and has robbed the city robbers to the tune of "potentially $30B". Not bad for a days worth of work. PS: hey, psst Porsche! With t
Read more

Quickies #3, protecting IP in OSS

Now enjoying my status as a sage of the industry, which is to say I am older than 20, but alas, not a billionaire, God fuck-it; people are all the time asking me for nuggets of wisdom from my vast experience at the top. Quickies from marcf #3: What IP is there to protect in OSS? B.D asks: "marcf, my open source project is starting to enjoy a measure of success, I am thinking of going professional with it, I am thinking about business models. How much thought should I put in protecting my Intellectual Property?" Answer: B.D. protecting IP in OSS is extremelly important. The only "private" property that exists in OSS are 1- brand 2- URL. Both are obviously related but really you need to protect your brand name, in other words REGISTER your trademarks, use them, declare they are yours and enforce the trademark, meaning protect against infringement. Other products, specifically based on your product should not include your name. Consultancies will be able to say the
Read more