U.S. did not call for strategic oil release: G20 sources

[Little Tich]

Source: Reuters

MEXICO CITY, Reuters (Feb 25) - The United States did not openly call for a release of countries' strategic oil reserves during Group of 20 meetings this weekend, Group of 20 sources said on Saturday.

Treasury Secretary Timothy Geithner said on Friday the United States is considering a release from its strategic oil reserves as rising tensions between Iran and the West over its disputed nuclear program fueled a rise in oil prices.

At meeting of G20 economies on Saturday, two people familiar with the discussion said finance officials had discussed the risk to the world economy from oil prices, which rose above $125 a barrel on Friday, but the United States did not push for a release of strategic reserves.

Countries hold oil reserves as a buffer against sudden drops in supply.

Read more: http://www.reuters.com/article/2012/02/26/us-g20-oilreserves-idUSTRE81P03220120226

[DJ13]

1. Shame, they should have

[Lasher]

2. Controls on commodity speculation anybody?

How about repealing the Commodity Futures Modernization Act of 2000? Am I the only person alive who thinks derivative trading is driving up the cost of crude oil?

[Spider Jerusalem]

3. I'm not sure how any specific US law is going to affect trading in a global market

most oil trading happens outside the US, and American oil production accounts for only about 7% of the world total. Considering that the US imports more than half of its oil prices on international markets are a significant factor and one that no US-only law can affect--and honestly I'm not entirely certain why the UK, or Dubai, or any other country where a significant amount of trading in oil occurs, should agree to implement any regulations designed to benefit American consumers, when part of the problem is 60-odd years of frankly stupid planning decisions in the US that have led to over-reliance on automotive transport and made continued access to cheap oil necessary to maintain American lifestyles.

[Lasher]

8. Fair enough. Please consider this:

Last edited Sun Feb 26, 2012, 03:27 PM - Edit history (1)

Did Speculation Fuel Oil Price Swings?

April 14, 2009 12:03 PM

(CBS) About the only economic break most Americans have gotten in the last six months has been the drastic drop in the price of oil, which has fallen even more precipitously than it rose. In a year's time, a commodity that was theoretically priced according to supply and demand doubled from $69 a barrel to nearly $150, and then, in a period of just three months, crashed along with the stock market.

So what happened? It's a complicated question, and there are lots of theories. But as correspondent Steve Kroft reports, many people believe it was a speculative bubble, not unlike the one that caused the housing crisis, and that it had more to do with traders and speculators on Wall Street than with oil company executives or sheiks in Saudi Arabia.

<snip>

"Approximately 60 to 70 percent of the oil contracts in the futures markets are now held by speculative entities. Not by companies that need oil, not by the airlines, not by the oil companies. But by investors that are looking to make money from their speculative positions," (Petroleum Marketers Association president Dan) Gilligan explained.

Gilligan said these investors don't actually take delivery of the oil. "All they do is buy the paper, and hope that they can sell it for more than they paid for it. Before they have to take delivery."

http://www.cbsnews.com/stories/2009/01/08/60minutes/main4707770.shtml

Exxon CEO: Wall Street Is Driving Up Gas Prices By 50 Percent

05/12/11 07:00 PM ET

WASHINGTON -- Exxon Mobil Chairman and CEO Rex Tillerson said Thursday that heavy Wall Street trading has driven up the price of oil well beyond the level that normal supply and demand forces would suggest.

Under questioning from Sen. Maria Cantwell (D-Wash.) during a Senate Finance Committee hearing, the Exxon chief said that if oil prices were being dictated by normal economic forces, it would cost between $60 and $70 a barrel. Oil is currently trading just below $100 a barrel and has fallen sharply in recent weeks after soaring for most of the year.

"If you were to use a pure economic approach . . . It's pretty hard to judge, but it would be, when we look at it, it's gonna be somewhere in the $60 to $70 range," Tillerson said.

Several economists have expressed concerns that speculation may be driving up the prices of oil and food. The Commodity Futures Trading Commission, which regulates such activity, says that the number of speculative bets on oil is at an all-time high.

http://www.huffingtonpost.com/2011/05/12/exxon-ceo-wall-street-oil-prices_n_861326.html

[brentspeak]

9. About half takes place inside the US

2008 graph (Lehman is now gone, of course):

[Spider Jerusalem]

11. No it doesn't

the US produces less than 10% of the world's oil and the US imports more than half of its supply.

And as to 2008, the data don't support the hypothesis that speculation drove prices; see the following:

Did Speculation Drive Oil Prices? Market Fundamentals Suggest Otherwise
by Michael D. Plante and Mine K. Yücel


Oil prices began their climb in 2002, reaching a record high in mid-2008, and then collapsed at the end of ’08 amid the global recession. As world economic growth picked up, so did oil prices. Overall, the year-over-year change in oil prices has fairly closely tracked world gross domestic product (GDP) growth (Chart 1).

[center][/center]

[snip]

A speculator wanting to drive up the current price of oil would have to buy in the spot market. Since the price is determined in a cash marketplace where transactions are settled with physical oil changing hands, speculative buyers would have to store their purchases, and inventories would rise. Instead, during the oil price run-up in 2007 and 2008, inventories in the U.S. were being depleted. Chart 3 shows WTI prices and U.S. oil inventories and illustrates the workings of an efficient market—as supplies diminish, prices rise and the market tightens.

[center][/center]

Another possibility might be speculators using floating storage, keeping oil in tankers at sea and off the market. Floating storage appears to increase in 2008, rising from 68.4 million barrels at the end of October to 97 million barrels in May (Chart 4). However, floating storage declined in June and continued falling throughout the summer.

We would have expected to see floating storage rise significantly during the summer if speculators were in the market; instead, the opposite occurred. Floating storage did rise much later in the year, but that was concurrent with the global recession.

There is one additional type of storage—producers maintaining the oil as reserves and not producing. However, if we look at OPEC output, it clearly rose as oil prices went up, until July 2008. OPEC increased production by 2.4 million barrels per day from the beginning of 2007 to July 2008. Non-OPEC production remained relatively constant and did not rise, though this is largely a function of non-OPEC producers’ zero excess capacity rather than an attempt to restrict output.

http://www.dallasfed.org/research/eclett/2011/el1111.html

[brentspeak]

15. You claimed that "most oil trading happens outside the US"

The graph I linked to demonstrates clearly that it does not. So far, you haven't been able to dispute that.

As for 2008 speculation and oil prices:

http://thinkprogress.org/green/2011/09/15/317330/leaked-cftc-oil-speculation-data/?mobile=nc

Leaked Documents Reveal Major Speculators Behind 2008 Oil Price Shock: Hedge Funds, Koch, Big Banks, Oil Companies


As experts from Stanford University, Rice University, the University of Massachusetts, and authorities have concluded, rampant oil speculation was the prime driver of the record high prices for crude oil three years ago:

http://www.cftc.gov/ucm/groups/public/@swaps/documents/dfsubmission/dfsubmission26_091410-ata.pdf

http://thinkprogress.org/green/2011/09/15/317330/leaked-cftc-oil-speculation-data/www.bakerinstitute.org/publications/EF-pub-MedlockJaffeOilFuturesMarket-082609.pdf

http://ourfinancialsecurity.org/blogs/wp-content/ourfinancialsecurity.org/uploads/2011/06/PERI-AFR-Research-Brief-June2011.pdf

http://online.wsj.com/article/SB124874574251485689.html

http://www.businessweek.com/lifestyle/content/jun2008/bw20080626_022098.htm

Oil Prices Are All Speculation
The Administration says oil's runup is due to shortages, but the evidence points to manipulation

The most surprising e-mail came from Chris Cook, a former director of the London Petroleum Exchange—now ICE Futures Europe. Cook wrote: "I am convinced there has been manipulation of the Brent Complex [the term that defines North Sea Brent crude prices] by ICE members for the last 10 years at least. I think it is quite likely that the Brent forward price is being kept artificially high—which does require deep pockets and accounts for the continuing barrage of Goldman [Sachs] forecasts and much of the other oil market hype that passes for news."

[Spider Jerusalem]

18. The graph you linked to is for WTI.

More than half of the world's oil trading by volume happens in London, and Brent sets the price for about 65% of the world's supply of crude oil. And the evidence for speculation in 2008? highly unconvincing. There isn't a serious economist who'll agree with you that anything other than market fundamentals was behind the run-up in prices. (Ask Paul Krugman, for instance).

Also...math. The sum of total long positions accounts for 3.5 million barrels. Total short positions, not much more, and world supply is 89 million.

[brentspeak]

21. Speculation caused part of oil price rise, economists find

http://www.stltoday.com/business/columns/david-nicklaus/article_6758f03a-ff56-11e0-803e-0019bb30f31a.html

Speculation caused part of oil price rise, economists find

This spring, when he was creating a task force to investigate the rise in energy prices, President Barack Obama blamed the increase on "traders and speculators."

He was partly right, a new St. Louis Federal Reserve Bank working paper concludes. Fed economist Luciana Juvenal, along with Ivan Petrella of Belgium's Catholic University Leuven, looks at oil price movements and concludes that some -- but not nearly all -- of the rise between 2004 and 2008 was financially driven. Specifically, they estimate that 15 percent of the runup could be blamed on financial factors, such as investors' growing appetite for commodity-fund investments. Here's part of the paper's conclusion:

We …find that the increase in oil prices in the last decade is mainly due to the strength of global demand, consistent with previous studies. However, …financial speculation signifi…cantly contributed to the oil price increase between 2004 and 2008. Our analysis pins down the start of speculative forces driving oil prices in 2004, which is the time when signifi…cant investment started to flow into commodity markets.

[FarCenter]

17. What does this data mean?

When it says JP MORGAN CHASE BANK has a total long position of 200,062, does that mean that JPMC is long those contracts for its proprietary trading account, or does it mean that JPMC is the broker/dealer of record on 200,062 contracts? Or if the $25 million minimum assets JPM Private Bank customer trades some oil does the trade show up elsewhere?

Is this for JPMC trading in New York and Chicago or is it for JPMC in London, Luxembourg, Paris, Sydney, Singapore, and Hong Kong? Their non-US investment bank is comparable in size to the US.

[brentspeak]

22. Irrelevant. The CFTC can files charges against any trading entity anywhere in the world

The CFTC said it filed a civil enforcement action against Parnon Energy Inc., Arcadia Petroleum Ltd. of the United Kingdom and Arcadia Energy of Switzerland in the U.S. District Court for the Southern District of New York.

[FarCenter]

23. That was filed last May. What happened since?

CFTC Vs. Arcadia: Not So Simple

http://www.hardassetsinvestor.com/features/2809-cftc-vs-arcadia-not-so-simple.html

Besides, Parnon is in Oklahoma and the alleged manipulation was actual physical trading at Cushing, not only manipulation in the futures market.

Arcadia Petroleum Pushes To Kill CFTC Manipulation Claims

http://www.law360.com/articles/292396/arcadia-petroleum-pushes-to-kill-cftc-manipulation-claims

I didn't find any later stories.

[humblebum]

7. No you are not, but politicians know where their funding comes from. EOS

[sarcasmo]

24. +1

[FarCenter]

4. They will need the strategic oil reserve if Israel attacks Iran and Iran closes the Strait of Hormuz

Releasing oil prematurely because of a price rise would be a poor strategic move.

[PuffedMica]

6. Here is a case where a political move can also be a strategic move

If our President moves to release oil from the petroleum reserves and control domestic prices, he insures his chances of reelection. Should a right wing conservative be elected, war with Iran is a certainty.

The choice is simple:

Reelect President Obama, prevent war, and keep the Straits of Hormuz open

Elect a Republican and go to war with Iran and watch oil prices skyrocket

[DCBob]

10. We wouldnt need to release much to have an effect.

The SPR has over 700 million barrels. Last year the President released 30 million barrels to help keep costs down. I suspect that is the same amount he would release again. That's a very small fraction. Not much of risk at all especially considering the benefit that could come from it.

[FarCenter]

13. Global production of crude oil and liquids is close to 90 million barrels per day

US imports are running about 8.7 million bpd, so 700 million barrels is about 80 days supply.

[DCBob]

14. I see you can do math.

what's your point?

[FarCenter]

16. The SPR is too small for partial releases to have much effect on prices over several months

[DCBob]

19. Last year they did a one-time release of 30 million barrels and I think it had an impact.

Sometimes just the threat of doing it can stop the speculators if they believe the threat is real.

[FarCenter]

20. My recollection is that the price had peaked before the announcement

And the process of putting it out for bids took so long that prices were down quite a bit before any oil actually hit the market.

Furthermore, it was actually a coordinated OECD release of 60 million barrels globally, with 30 in the US.

[Strelnikov_]

12. Personally I am not that concerned about a Hormuz closure

If this happens, IMHO I think the combined western forces will have the Strait reopened in a few weeks.

What I am concerned about is Operation Muad'Dib and the subsequent collapse of the industrial economies.

My position is that the SPR is for a time of crisis, not for mitigating high prices due to the 'market' factoring in some risk.

That 30 Mbbl will go a long way to keeping food transport and production operations going.

[JJW]

5. Silly season of election

One aspect of Big OIL trying to manipulate election in the US is the following. When a Democrat is President prices are the pump will sky rocket during election time and if a Republican is in office, prices will fall. During the other 3 yrs of the Presidencies the opposite will occur.