Actaully Beethoven.
Americans are car crazy, but if you look at the sales of the gas guzzlers, SUV's. Sports Cars , so on. You will se a downward trend already. Now if you look at the newer tech vehicles, Hybrids. You will see they have exploded, with serious backlogs on delivery because of it. Like the Toyota Prius, which has a 5 month delivery time right now in Hawaii.
You will also see in the truck market a downswing in full size trucks with an upswing in compact/midsize trucks. The crunch is being felt, and Americans are already adjusting.

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Actaully Beethoven.
Americans are car crazy, but if you look at the sales of the gas guzzlers, SUV's. Sports Cars , so on. You will se a downward trend already. Now if you look at the newer tech vehicles, Hybrids. You will see they have exploded, with serious backlogs on delivery because of it. Like the Toyota Prius, which has a 5 month delivery time right now in Hawaii.
You will also see in the truck market a downswing in full size trucks with an upswing in compact/midsize trucks. The crunch is being felt, and Americans are already adjusting.

There's still incentives to drive large, heavy, fuel inefficient SUVs. There's a tax exemption for individuals driving vehicles over a certain weight (6000 lbs).

http://www.taxpayer.net/TCS/whitepapers/SUVtaxbreak.htm

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A fellow over at Rosetta's forum asked me an interesting question and I'm copying here my answer too:

------------

Have you studied the effect of oil price on the other commodities? I mean if price of oil goes up, it will cost more to run a tractor across a field and harvest sugar cane, or cotton or oranges... and electricity costs will increase which has a great impact on smelting of metals, precious or otherwise. I mean how much of the increase in the prices of these other commodities is directly attributable to the increase in oil prices?

This is a very good question and it sounds logical.

In my opinion (being a participant in the markets for many years) is that it's primarily a FINANCIAL phenomenon, initiated by the tsunami of paper money and credit, unleashed by the world's central banks, starting back in 2002. Basically it's been just monetary inflation via an explosion of paper money and credit. Official reported inflation was masked mostly by changes in the CPI (if CPI were calculated as in 1980s, inflation would stand at 8% yoy) but also in part by the deflationary forces of globalisation.

In the process, we experienced a "Flucht in die Sachwerte" by more savvy investors.

Now, to answer your question about whether energy costs cause the price of other goods to rise, I'll send some more charts of commodities, which attempted to rally along with the rest but couldn't hold those gains:









So WHY do some commodities rally but others not e.g. cotton or corn or wheat or coffee? By now you'll probably have put the pieces in the puzzle, by noticing that the commodities which enjoyed big price increases (and held onto those price gains) were the ones which are either STORABLE (base and precious metals) or had a BROKEN price discovery mechanism (as in my opinion has oil, with no link between futures and spot and priced off futures).

So, basically in all cases the rally in prices has been due to "investor" ("speculator") money inflows. Obviously for those commodities where storage is too cumbersome and/or rot/decay/decompose etc it didn't work so well.

Btw, orange juice is in fact "frozen concentrated orange juice", which is why it's storable and it worked.

Also, don't think that e.g. cocoa supply caught up with "demand" and brought the price down (you know, from the billionz of Chinese and Indians who suddenly found out the joys of drinking hot chocolate as the media of mass deception would say :-), because a cocoa-tree needs about 5yr to grow.

Finally, you'll also notice, that e.g. natural gas, which is FUNGIBLE for oil in many applications, has dropped quite a bit (-65%) since Dec-05, as storages are full and they have no room to put the extra production! Yet oil has held to its entire gains.

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One more article on the same subject (less technical, as it's aimed at the general audience):

source

Interview: Oil Expert Explains What's Driving Record High Prices
By Jeffrey Donovan
Azerbaijan -- Caspian oil derricks, pollution
(AFP)
Oil prices have climbed steadily since 2004, and today they rose again to new record highs of more than $74 a barrel. What's driving prices -- and can they be brought back down? Government officials and oil executives from more than 65 nations will be asking those same questions when they gather in Qatar on April 22-23 at a meeting of the International Energy Forum. Among the factors driving prices up are fears over possible supply disruption in major oil-producing states such as Iran, Iraq, and Nigeria, where a rebel offensive has cut off one-quarter of output.

PRAGUE, April 20, 2006 (RFE/RL) -- RFE/RL spoke with Leo Drollas, the deputy director and chief economist of London's Center for Global Energy Studies.

RFE/RL: The price of oil continues to climb to record highs. Analysts say fears over the Iranian nuclear crisis is one of only several issues driving up prices. Iranian President Mahmud Ahmadinejad only strengthened those fears on April 19, when he said oil prices are still below their true levels. What's your take?

Leo Drollas: The first thing we must say is that these high prices are really paper prices, in a sense for paper oil, they're not the prompt market -- that is, for real wet barrels, as we call them. So they're obviously driven a lot by news and by sentiment, and they refer to oil that is bought and sold months ahead through paper contracts. And these prices move quite quickly on news, and the news is bad at the moment for oil because of the Iranian standoff, because of problems continuing in Nigeria, and many other factors in the market.

RFE/RL: So you're saying that, beyond fears over Iran or supply disruptions in Nigeria, the futures market is driving up prices?

Drollas: There's a lot of money that has come into the oil market over the last few years. The money that is now tracking commodity indices has increased from about $8 billion in 2001 to about $70 billion today. So we've got a huge influx of money into commodity-tracking indices, and a large part of those indices of course refer to oil. So we've got a lot of speculative money or hedge-fund money or other kinds of investors coming into oil, thinking they're on a roll now and that oil prices will forever increase. And in a sense, this tends to fulfill the prophecy, as long as the money keeps coming in.

RFE/RL: How does that drive prices, exactly?

Drollas: What tends to happen is that the futures prices, especially for months further out, tend to rise, and they create a difference between future prices for outer months and spot prices for oil, especially for "wet" barrels. And this differential encourages people to buy physical oil, and therefore, the pressure from the futures market is transmitted to the actual spot market for oil.

RFE/RL: But isn't capacity part of the problem as well, both in terms of the actual supply of oil and the fact that, particularly in the United States, refining capacity is down, with some refining facilities still not fully recovered from last summer's Hurricane Katrina?

Drollas: Well, this is the huge, unanswerable question as to what component of this price run-up is due to speculation, as we call it, or due to real fundamental factors. My own gut feeling is that maybe $15 [per barrel] or so at the moment is due to these kind of pressures from the futures market, from speculation if you like. In other words, the price should have been quite a bit lower than that, because there isn't actually a physical shortage of oil at this very moment.

RFE/RL: So this gets us back, perhaps, to emotions -- to fears over possible supply disruptions due to crises in key producing countries, such as Iran, Nigeria, Iraq.

Drollas: Of course, the fear is there because of these factors: Iran and Nigeria in particular, and also Venezuela to some extent in the background. But one must bear in mind that there is a physical problem too, in the sense that the spare capacity to produce crude oil in the world is under 3 percent of global demand for oil. And a business that runs with such little spare capacity is vulnerable to all kinds of events that make people worry or fear whether the system is able to cope with the pressures that are put on it in, let's say, the autumn or the winter that we have ahead of us.

rest of interview in the link above

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Is up and down, like a barmaid's knickers!

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It's good to be back amongst friends and colleagues

More stuff posted in the mainstream media about this. Basically, I think everyone who has done his homework knows the oil price spike is due to "investor" demand.

As long as -due to small spare world production capacity for THOSE PARTICULAR CRUDE OIL TYPES- investors control the "marginal barrels" of the oil type used for physical delivery in futures (light sweet crude), they can set price to just about anywhere.

The question is whether something ought to be done about this bleeding of ~$500-$600bn/year from western nations into the hands of oil producers (at current prices it's going to be even more).

Bhushan Bahree and Ann Davis wrote in WallStreetJournal in Apr-06 (source):

Crude oil closed above $70 a barrel for the first time, highlighting a phenomenon reshaping the petroleum world: investment flows into oil futures are supplanting nitty-gritty supply-and-demand data as prime drivers of prices

In contrast to past bull markets in crude, this year's run-up has occurred even though oil inventories in the U.S., the world's largest market, have swelled to their highest levels in nearly eight years....

The answer to the puzzle posed by rising prices and inventories, industry analysts say, lies not only in supply constraints such as the war in Iraq and civil unrest in Nigeria and the broad upswing in demand caused by the industrialization of China and India. Increasingly, they say, prices also are being guided by a continuing rush of investor funds into oil markets. Institutional money managers are holding between $100 billion and $120 billion in commodities investments, at least double the amount three years ago and up from $6 billion in 1999, says Barclays Capital, the securities unit of Barclays PLC....

Since early 2005, the crude-oil market is in what traders call contango, meaning futures contracts for a given product are priced higher than that same good for near-term delivery. The price of oil to be delivered four months from now is about $3 more than oil to be delivered next month.

In short, it pays for refiners and other oil-market players to buy and hold oil now to sell it down the road. Making that trading opportunity possible, says Colorado-based oil analyst Philip K. Verleger, is the huge volume of new buyers on the other side: investors who he estimates have put more than $60 billion into U.S. crude-oil futures since 2004.

Indeed, San Antonio-based Valero has been operating with its crude tanks full since the start of the year. When the market is in contango, "you tend to operate at the top of your tanks," says Bob Beadle, Valero's senior vice president in charge of crude oil, supply and trading. Mr. Beadle estimates that in the U.S., the difference between the industry operating at full tanks and at minimum operating levels amounts to as much as 75 million barrels of oil, or about three days of supply.

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$2.66 a gallon here

Just thought I'd rub it in

:)

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$2.66 a gallon here

Just thought I'd rub it in

:)

Please do, then have a nice cigarette to celebrate.

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Reality Internet Personality

$2.66 a gallon here

Just thought I'd rub it in

:)

Please do, then have a nice cigarette to celebrate.

The only point I will make to mitigate, is Europe (meaning the UK as well) has access to new cars capable of more than 60 mpg. These are as quick as petrol vehicles, but use only 55% of the fuel.

So, the relative price per gallon (allowing for the smaller US gallon) is $4.85, which is still a lot less than you actually pay but not as obviously bad.

The main advantage the US enjoys on road fuel prices is not entertaining a greedy Revenue Service!

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It's good to be back amongst friends and colleagues

Again copying some interesting Q&A from R's forum (as I copy stuff from this thread to theirs):

-----------

What can be done?

In my blog I offered several ideas:

"So, from the lack of real action for 3+ years now, e.g. no additions of refinery capacity for the heavier types of oil, or expanding the types of futures contracts traded, or adding risk to holding speculative longs by randomly selling e.g. 30Mb from SPR (instead of letting momentum funds front-run mindless price-insensitive buying for filling of US SPR during 2002-2005), or even suggesting that we go back to nation-to-nation contracts, I can only conclude there is some hidden agenda behind accepting the broken price discovery mechanism in oil market today"

There's tons of explanations of why the price is so high and won't come down. Listening to the radio, or reading the paper, I gather that the 'glut' of storage oil on the market has now affected OPEC so badly that they're storing oil in old tankers (and running out of them!). They're looking (begging) for people on the open (spot) market to buy oil.

Indeed, there is a glut of real "wet barrel" oil, yet price remains stratospheric at $72.2 a bit down from all-time-highs of $75. Basically IMHO it's a broken pricing mechanism, which leads to the paradox where oil keeps going up in price (supposedly on surging demand) and yet producers can't find buyers for REAL "wet barrels".

Inflation, inflation everywhere!

Inflation is evident everywhere but the governments' statistics and wages.

Pretty soon, the producers are going to have to start ramping back, correct? And when that happens, the price IS gonna be pretty much set in stone, correct?

The producers ARE cutting back, as they have nowhere to store it (why pump it up?). Wrt price, not really, it all depends on how long this broken system will persist.

Most of the charts and articles you've referenced here reflect the month of April, and they mostly talk about the Western world (specifically the US). What's going on in China? And to a lesser extent, India? Things haven't changed much in three months. It's such a fast changing world, too.

Charts are same-day as posts. Articles, I gather over the Web and may be weeks/months old. Doesn't change much, the real market picture is the same for the past 1.5yr

I'm not an economist, but I would say those "orange" people have something to do with whats going on, too! Maybe these 'speculators' ain't so happy that the world is going flat without them?

I'm afraid I don't understand what you mean "orange people"?

Another interesting thing is that the European price for fuel has always been a lot higher than the US. I remember paying something like 4.50 a liter in Italy 10 years ago. Is that right?

The difference in EU is due to taxes. I'm talking about CRUDE OIL in my articles, not the refined products (gasoline etc).

So, my question is what mechanism could you use to artificially inflate the price of light sweet crude and sustain it, in order to develop new technology that will in the end, defeat it? And to further aggravate the question, who would be developing the new technology? Hate to be an outsider holding on to a bunch of light sweet crude when that happens, but either way, someone is always living behind a dumpster at a 7-Eleven.

Well, one COULD use today's method, i.e. take advantage of the broken price discovery mechanism in crude oil to artificially inflate its price.

But it's like shooting oneself in the foot.

If governments want to reduce our exposure to foreign oil and/or go "greener" (more environment friendly), they can simply TAX the product. e.g. put a $3/gallon tax on gasoline to drive it to $6/gallon. It would force consumers to use less and opt for more efficient vehicles etc etc.

Instead nowadays it's ruining our trade balance. Because 500-600bn/yr goes to oil exporters.

It really makes no sense to me why this situation persists so long and why sheeple haven't revolted yet.

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$2.66 a gallon here

Just thought I'd rub it in

:)

Please do, then have a nice cigarette to celebrate.

Sorry, smoking is for ghetto trash.

Get a real job.....

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NOTE: PLEASE let's keep this thread about CRUDE OIL, there is another one about gasoline prices.

Last week, Iran leased 2 more VLCCs (Very Large Crude Carriers, oil super-tanker ships)for oil storage, claiming lack of demand for heavy, sour crude. With now 9 vlccs, have storage capacity for 18.3 million barrels. (As per latest issue of OGJ.)

So, there is a GLUT of heavier crude oils, a GLUT of nat.gas (they couldn't find where to store it anymore and plunged in price -65% since Dec-05)

And the only "demand" is for light sweet crude oil via "paper barrels" of the futures markets (derivatives). As "traditionally" all crude oils are priced off those futures "paper barrels" benchmark, it causes the entire price chain to spike yet, despite the world being awsh in "wet barrels" of oil.

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NOTE: PLEASE let's keep this thread about CRUDE OIL, there is another one about gasoline prices.

Last week, Iran leased 2 more VLCCs (Very Large Crude Carriers, oil super-tanker ships)for oil storage, claiming lack of demand for heavy, sour crude. With now 9 vlccs, have storage capacity for 18.3 million barrels. (As per latest issue of OGJ.)

So, there is a GLUT of heavier crude oils, a GLUT of nat.gas (they couldn't find where to store it anymore and plunged in price -65% since Dec-05)

And the only "demand" is for light sweet crude oil via "paper barrels" of the futures markets (derivatives). As "traditionally" all crude oils are priced off those futures "paper barrels" benchmark, it causes the entire price chain to spike yet, despite the world being awsh in "wet barrels" of oil.

Thanks for the blog link, Dmitri.

So, if I were to go 'long' on the paper barrels, should I buy a mix of the two or one of them in particular? And you would reccomend what strategy and contract term? The longest? If you care to say, that is.

I pay a fortune in heating oil and could use a hedge against rising prices.

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Beethoven, personally I think consumer nations would be much better served overall, if people pressed for going over to country-to-country contracts for buying oil.

The current pricing system (in use since 1988) is broken under current circumstances, as it is very much detached from the actual physical "wet barrel" supply/demand picture. Financial inflows completely distort the picture and have the potential for doing this for years and years.

Leading to the current paradox, where producing countries can't find buyers for their real oil and actually forced to scale-back production (see previous comments from Saudi Oil Minister, or Iran), yet price keeps going up and up as if there were a constraint.

There are other solutions (I suggested a few in my article), but the country-to-country contracts would affect prices immediately, whereas other solutions would lag significantly.

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Beethoven, personally I think consumer nations would be much better served overall, if people pressed for going over to country-to-country contracts for buying oil.

The current pricing system (in use since 1988) is broken, as it is very much detached from the actual physical "wet barrel" supply/demand picture. Financial inflows completely distort the picture and have the potential for doing this for years and years.

Leading to the current paradox, where producing countries can't find buyers for their real oil and actually forced to scale-back production (see previous comments from Saudi Oil Minister, or Iran), yet price keeps going up and up as if there were a constraint.

There are other solutions (I suggested a few in my article), but the country-to-country contracts would affect prices immediately, whereas other solutions would lag significantly.

I'll have a good read of your material late this afternoon.

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Even the oil producers say on every occasion that current prices are detached from reality (basically, what I call a broken pricing mechanism, for a physical commodity, which unlike a paper stock, is consumed at physical level)

Yesterday from Reuters:

Saudi cut shows record oil defies market logic
Wed Jun 28, 2006 11:58am ET167

LONDON (Reuters) - Oil power Saudi Arabia has offered the most compelling proof yet that record high prices are divorced from the realities of supply and demand.
...
"There is absolutely no relationship between price and supply and demand," Saudi Oil Minister Ali Al-Naimi noted. He told pan-Arab newspaper Al Hayat in early June that crude oil was worth no more than $50 a barrel based on fundamentals.

src

I'll never understand why people don't revolt...

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Even the oil producers say on every occasion that current prices are detached from reality (basically, what I call a broken pricing mechanism, for a physical commodity, which unlike a paper stock, is consumed at physical level)

Yesterday from Reuters:

Saudi cut shows record oil defies market logic
Wed Jun 28, 2006 11:58am ET167

LONDON (Reuters) - Oil power Saudi Arabia has offered the most compelling proof yet that record high prices are divorced from the realities of supply and demand.
...
"There is absolutely no relationship between price and supply and demand," Saudi Oil Minister Ali Al-Naimi noted. He told pan-Arab newspaper Al Hayat in early June that crude oil was worth no more than $50 a barrel based on fundamentals.

src

I'll never understand why people don't revolt...

I'm curious about the price action in the last few days. Did it break out of that flag pattern yet? To the upside or to the downside?

Um, I don't understand what you mean by the people should "revolt". Do you mean demonstrations at the refineries? Protests in the streets?

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Um, I don't understand what you mean by the people should "revolt". Do you mean demonstrations at the refineries? Protests in the streets?

I'm not talking about refineries or BigOil. Ofcourse they're profiteering off a broken pricing mechanism and pretend all is well and are shedding crocodile tears about how sorry they are.

I mean to change the BROKEN mechanism used to set the price of oil, off the price of derivatives whereas there is no real link between derivatives and physical. Isn't it obvious?

When you have even the #1 exporter of oil in the world tell you BLUNTLY that oil should be selling for no more than $50 (see yesterday's Reuters story) and now it's 50% higher, just what more do people need?

If we were talking about the market for apples instead of oil barrels, and you saw the price go up and up and at the same time the producers tell you can't sell their apples, wouldn't you think the market is "broken"? Why don't people do the same for oil?

Apparently people have the misconception that international "open markets" set the price for oil, but due to technical aspects -explained earlier- the oil derivatives markets are neither free nor fair. They're cornered, but unlike a similar situation that might happen in a piece of paper i.e. stock, oil is a basic commodity which everyone HAS to buy and it's getting awfully expensive!

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Um, I don't understand what you mean by the people should "revolt". Do you mean demonstrations at the refineries? Protests in the streets?

I'm not talking about refineries or BigOil. Ofcourse they're profiteering off a broken pricing mechanism and pretend all is well and are shedding crocodile tears about how sorry they are.

I mean to change the BROKEN mechanism used to set the price of oil, off the price of derivatives whereas there is no real link between derivatives and physical. Isn't it obvious?

When you have even the #1 exporter of oil in the world tell you BLUNTLY that oil should be selling for no more than $50 (see yesterday's Reuters story) and now it's 50% higher, just what more do people need?

If we were talking about the market for apples instead of oil barrels, and you saw the price go up and up and at the same time the producers tell you can't sell their apples, wouldn't you think the market is "broken"? Why don't people do the same for oil?

Apparently people have the misconception that international "open markets" set the price for oil, but due to technical aspects -explained earlier- the oil derivatives markets are neither free nor fair. They're cornered, but unlike a similar situation that might happen in a piece of paper i.e. stock, oil is a basic commodity which everyone HAS to buy and it's getting awfully expensive!

Um, I'm not disagreeing with you at all, Dmitri. <kindly said>

I'm just asking about the "How" of it all. What would you like people do to get this changed?

Best regards.


Edit: P.S. I'm seeing the price disconnect at the supermarket every day, on apples and other products. There's a complete disconnect there too. Prices are based solely on demand monitored in real time by the retailers' computers. Only a drop in demand succeeds in lowering prices. These new price disconnects we're seeing are a feature of new computer-enabled business savvy in many fields, I think.

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I've written about it many times, here is once more:

Write to your regulators / legislators / representatives. Surely there must still be a few honest men among them, who care for people's interests. They can't all of them have sold you out, can they?

Take the "investors" who are pouring $$$ in oil "paper barrels" out of the picture. Demand that anyone dealing in oil for over a certain threshold, must be involved in the physical market.

The price mechanism for oil is broken and the market is cornered. One way to immediately solve this crisis, is to abolish the current pricing system and go back to nation-to-nation contracts. If Saudis say they see no reason why oil should be trading over $50, use that price as a start.

There are other options, I get more technical in the links:
http://dhatz.blogspot.com/2006/06/oil-to-38657-per-barrel.html
http://dhatz.blogspot.com/2006/06/oil-price-marginal-barrel.html

This IMHO is NOT a problem which can be solved by reducing demand/consumption or increasing supply (drive less, drill ANWAR) for PHYSICAL, real "wet barrels" of oil (unless we're talking adding 10Mbpd in spare capacity for LSC which can't happen overnight). There is ALREADY a enough real oil to meet demand, the producers can't find buyers for it (not just now, but for some time, S.A. cut -400Kbpd, Iran is leasing VLCCs to store it while looking for buyers). Producers are pumping LESS than what they did 1-2 years ago as they have no buyers, you read about it everyday and yet price is driven up at the "paper barrel" financial trading level.

Remember that the biggest part of US' trade deficit is due to oil imports. And you're paying for it by selling out your country's "silverware", i.e. selling toll-roads, ports, companies etc.

If it were a REAL supply/demand crisis situation, where countries were outbidding eachother for the last few drops of oil, it might have been a "necessary evil" to sell out your country's silverware to pay for it. But always remember that THERE ARE NO REAL BUYERS FOR PHYSICAL OIL IN THE REAL WORLD and this situation exists so that very few people can make even more obscene profits!


PS: As I'm writing this, oil is back near all time highs, over $74/barrel!

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