Hey Daddio, tell us again how the oil market has been cornered and how those that cornered it will prevent it from falling by half since July. Seein' as how they didn't prevent it from doin' so and all.

If I had the entire world market for oil cornered, I certainly would have.

From the NYT:

OPEC Ponders Choices As Oil Prices Plummet
By JAD MOUAWAD

At the beginning of the year, OPEC producers felt confident that strong economic growth and tight supplies would keep oil prices high. When oil crossed the $100-a-barrel threshold in February, the cartel’s president blamed speculators and said there was not much OPEC could do.

But now, panic is gripping producers as prices drop. Oil is down by half since July, and the speed of the decline has stunned oil-rich governments that have become dependent on high prices.

As the global economy continues to weaken, the Organization of the Petroleum Exporting Countries faces its toughest test in years.

The problem for the oil exporters, who meet for an emergency session in Vienna on Friday, is to find a way to stop the price drop at a time when oil consumption is falling markedly in industrialized countries. Even the Chinese economy, long the biggest engine of growth for oil demand, seems to be cooling.

Most analysts expect the group to announce a production cut of at least a million barrels a day, which would be more than 1 percent of the world oil supply. Chakib Khelil, OPEC’s president, said last week that an output cut was “obvious” and suggested the group might meet often in coming months for further adjustments.

History suggests that OPEC will face a tough time propping up prices as oil consumption slows and the world teeters on the edge of a global recession, analysts said. Some experts warn that if the cartel took too much oil off the market, it could push prices up so much as to worsen the global economic crisis.

“OPEC’s problem is they don’t know how much demand is falling,” said Jan Stuart, an energy economist at UBS. “So the risk they run is either they don’t do enough, or they do too much. That’s a tough choice.”

Nobuo Tanaka, the executive director of the International Energy Agency, said a cut in production could harm consumers and delay an economic recovery. “The slowdown may be prolonged,” Mr. Tanaka told reporters on Monday in Paris, where the energy agency, which advises industrialized countries, is based.

Oil prices settled at $70.89 a barrel on Tuesday, down $3.36 and near the 14-month low they reached last week.

The biggest question is what price the cartel is prepared to defend. In 2000, producers adopted a price band of $22 to $28 a barrel, and adjusted production levels accordingly. The mechanism was imperfect, and many producers felt it constrained them, but it basically worked to ensure stability in oil markets.

But defending a price requires spare capacity, so that production can be raised if prices get too high, as well as discipline on the part of OPEC members, so that production can be lowered when prices fall. OPEC abandoned its price band when its spare capacity virtually disappeared in 2005 amid rapidly rising global oil demand.

Now, with consumption growth slowing sharply and new oil projects coming online, some spare capacity has become available.

Lawrence Eagles, an oil analyst at JPMorgan, said in a research note that he thought the “price-band mechanism offers the best way for OPEC to manage the market under current conditions.” Mr. Eagles said OPEC did not want prices to slip below $70 a barrel, and would be more comfortable with prices around $80.

The cartel, which controls 40 percent of the world’s oil exports, has found it difficult in the past to get all its members to abide by production cuts. When prices fall, producers have an incentive to increase their output to maximize revenue, not stick with OPEC quotas.

Producers are aware that high prices pose a risk to the global economy. Oil consumption is already falling sharply in developed countries, and there is a rising risk that oil demand could slow even in fast-growing developing nations.

OPEC’s researchers recently downgraded their forecasts for global oil demand because of the financial crisis. OPEC expects global demand to rise 550,000 barrels a day this year, to 86.5 million barrels a day.

For many analysts, these expectations are still too optimistic. A growing number of independent experts now say they believe that global oil consumption may fall this year, for the first time since 1993.

“OPEC will have to decide how far it can ignore the global economic crisis and pressure from consuming countries,” wrote researchers at the Center for Global Energy Studies, a London consulting group founded by Sheik Ahmed Zaki Yamani, a former Saudi oil minister. “The real danger is that a big cut will send prices soaring again, putting the global economy at even greater risk.”

Some producers may feel they have little choice. Many exporters have become used to high prices, which feed growing government and social budgets. The group’s 13 members earned $730 billion from oil and gas exports last year, up 12 percent from the previous year, according to OPEC statistics. This year they are on track to hit $1 trillion.

Not all oil producers are affected by falling prices in the same way. Iran and Venezuela, for example, need $95 a barrel to balance their budgets, according to various estimates. Both Nigeria and Iraq recently said they would reduce their budgets for next year because of lower prices.

Iran’s oil minister, Gholamhossein Nozari, has been among the most vocal proponents of an aggressive reduction in output, suggesting OPEC may have to cut production by as much as 2.5 million barrels a day. “The era of cheap oil is finished,” he told reporters in Tehran on Tuesday.

His comments came as Iran, Russia and Qatar discussed the creation of an OPEC-like group for natural gas exports, according to Reuters. The three countries, the biggest holders of gas reserves, will form a “big gas troika” that will meet each quarter, according to Alexei Miller, the chief executive of Gazprom, Russia’s state-owned natural gas giant.

Even conservative oil producers allied with the United States, like Saudi Arabia, may take the view at Friday’s meeting that prices have fallen too much. In the absence of an official price target, Saudi experts estimate the kingdom needs oil at $50 to $55 a barrel to balance its budget. A production cut would be a major turnaround for the Saudis, who have recently been pumping full out and had been eager to see oil prices fall below $100 a barrel.

Outside of OPEC, producers like Russia are also threatened by a prolonged period of lower prices. Last month, the Russian government sent a high-level delegation to attend an OPEC meeting as observers, a sign that Moscow is anxious.

“OPEC will have to act like a cartel for the first time in six years if they want to stabilize the markets,” said Lawrence Goldstein, an energy economist. “The problem is they’ve been fairly ineffective as a cartel. But they are good at crisis management. And this is a crisis for them.”

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Cordially,
Rush

elrushbo2@theobviousgmail.com
Remove the obvious...

Anyone should know that this is a mini/max optimization problem.
Reduce output until maximum profits are achieved over the near term.
It's just an exercise in squeezing the markets for what their willing
to pay. May the Lord help the oil companies if ever the USA administration
put an "Energy Technology Priority" in place.

Oh good luck on that.

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The T1 Trust, PRR T1 Class 4-4-4-4 #5550, 1 of America's First HST's

wait and see and the price of oil will go high again, as one said"the era of cheap oil is finished"

Rushbo,

I think I said that the oil market was being manipulated by:

Speculators
Cartel

If I recall correctly--- The issue was whether or not a commodity market could be manipulated by insider traders, supplier cartels or speculators. There was also an issue as to whether or not a Market could be cornered.

Restrictions on margins on oil futures contracts has probably accounted for one third of the price reduction. Demand reduction has accounted for the rest. Don't worry, the Cartel will meet and try to choke off supply. Margin requirement change also broke the silver market play by Bunkie Hunt and his Arab friends years ago.

The price of gasoline is also not freely determined--I suspect that there will be some refinery fires and explosions that will push us up towards five dollars now that we think $3.00 is a blessing and express relief at this "Low" price.

Do you still claim that oil is traded in a purely Free Market, or there is no hint of collusion in fixing the price of gasoline ?? I do not claim that free market forces aren't in play here; just that they receive perturbations by other forms of Market manipulation.

Best Regards,

Bill
AKA DADDIO

Oh Rush! Really! You must stop teasing the children!

oh...and 'speculators'.....lol

Yeah. Uh huh. Speculators only profit if their predictions are correct. And contrary to the 'populists' and other naieve snake oil salesmen would have people believe they stabilize markets and generally serve a functionality that delimits erratic volatility. That's something that benefits everybody.

Stopping 'speculation' only makes your investments and retirement income less secure. But if you feel like blaming someone other than the government because of your biases........hey, it's Halloween and they can be made to sound Scaaaaary.

---

Founder of BOINC team Objectivists. Oh the humanity! Rational people crunching data!
I did NOT authorize this belly writing!

On the topic: Copper now down well under $2.00 was $7.50 another example of unravelling the shorts. Tough to meet margin requirements apparently. Perhaps we need to rethink how much speculation is too much for the sake of Capital (Free) Markets?.

Any Economists out there ??

Daddio

On the topic: Copper now down well under $2.00 was $7.50 another example of unraveling the shorts. Tough to meet margin requirements apparently. Perhaps we need to rethink how much speculation is too much for the sake of Capital (Free) Markets?.

Any Economists out there ??

Daddio

Especially with other peoples money that speculators are in charge of. Speculation may be fun, But If It's somebody elses money, It should be regulated and regulation of the stock market should never be deregulated even partly.

---

The T1 Trust, PRR T1 Class 4-4-4-4 #5550, 1 of America's First HST's

Falling Oil prices according to this story have fallen to $66.75 a barrel in New York.

http://money.cnn.com/2008/10/22/markets/oil/index.htm?postversion=2008102215


Gas in this area is down to $2.999 a gallon minimum and at a maximum of $4.009 a gallon. :D

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The T1 Trust, PRR T1 Class 4-4-4-4 #5550, 1 of America's First HST's

Hey William,

I think I said that the oil market was being manipulated by:

Speculators
Cartel

If I recall correctly--- The issue was whether or not a commodity market could be manipulated by insider traders, supplier cartels or speculators. There was also an issue as to whether or not a Market could be cornered.

And my response was, of course people manipulate the price of what they own. Just like you can manipulate the price you charge for your used car. However, that doesn't mean you can force anyone to buy it. The price is still dictated by all of the competing interests. Speculators are usually a wash, because every dollar made on a particular deal, results in another speculator losing a dollar on that same deal--but they do provide much needed liquidity. The cartel, well, you've seen how effective they've been in controlling price, since it has fallen 50% since July. They cannot control the market either.

Restrictions on margins on oil futures contracts has probably accounted for one third of the price reduction.

If it has, it certainly is not because you've said that it has, and I seriously doubt every oil market on earth has restricted margins.

Demand reduction has accounted for the rest. Don't worry, the Cartel will meet and try to choke off supply.

And yet they never quite manage to pull that off. Why? Because they have EVERY INCENTIVE to sell all the oil they can, not keep prices so high that alternative technologies become economical.

Margin requirement change also broke the silver market play by Bunkie Hunt and his Arab friends years ago.

I don't know enough about this to comment with any authority.

The price of gasoline is also not freely determined--I suspect that there will be some refinery fires and explosions that will push us up towards five dollars now that we think $3.00 is a blessing and express relief at this "Low" price.

Those things always happen because they are a part of reality. Surely you realize that reducing the number of refineries in the U.S. does nothing more than serve to put upward pressures on prices.

Do you still claim that oil is traded in a purely Free Market, or there is no hint of collusion in fixing the price of gasoline ?? I do not claim that free market forces aren't in play here; just that they receive perturbations by other forms of Market manipulation.

I'm not sure what you mean by this for two reasons. 1) Those that are trying to sell, wish to drive the price as high as possible, thus "manipulating" the market in their favor. Those that are trying to buy, wish to drive the price as low as possible, this "manipulating" the market in their favor. 2) All of these "manipulations" are always part of a free market, i.e., the market is free because the seller cannot force the buyer to buy, exactly as the buyer cannot force the seller to sell. The market remains free. Gov't intervention, or regulation, or whatever, just drives costs up. That affects those that can afford it the least, the most.

The problem today is simple supply and demand. Even if every single drop of oil on earth were pumped out of the ground in, say, Oklahoma, the price of oil today or the price of oil six months ago when it was twice the as much would have been generally the same. Why? Because demand for oil is high. Short of minor shipping costs and other oddities, China would STILL be buying record amounts of oil, reducing supply, driving costs up.

---

Cordially,
Rush

elrushbo2@theobviousgmail.com
Remove the obvious...

Margin requirement change also broke the silver market play by Bunkie Hunt and his Arab friends years ago.

[quote]I don't know enough about this to comment with any authority.




that goes long way