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Comments
Do you currently call the futures exchange every week and order your 15 gal.? No -- you just go to the gas station and fill up. The same process of production and delivery would occur without the oil futures traders. That's the point.
"Or if you just watched the Barrett Jackson auto auction, you might consider whether the 10% they collect on each sale was excessive."
The commission B-J charges for classic cars has no effect on the price I pay for my car. And Honda doesn't raise the price of Civics all over the world just because some guy in Arizona paid $200,000 for a '65 GTO.
A central exchange for any commodity is fine, as long as THE MARKET (meaning the consumers of that commodity) sets the prices, not a cabal of middlemen.
"However those of us on Social Security got a 2.3% raise, and so did my Navy retirement. 2.3 % is a joke!"
And the joke's on us! That 2.3% is what our friends in government call the "core inflation" rate. Core inflation "exempts" food and energy prices.
So, if you don't eat, don't drive, and don't use electricity in your home, then your inflation rate is 2.3%. Otherwise, the actual inflation rate for 2007 was over 6%.
Isn't that funny?
Tried milking the cats and the dog, but it ain't workin'. Especially the dog, he really took offense! :surprise: And raiding bird nests and snake lairs for eggs isn't too productive either, so I guess I just have to bite the bullet and pay those higher prices. :mad:
I don't how anyone would have a place to keep a wood pile in Lemko's neighborhood; a better solution would be a pellet stove. The house might even have an old coal bunker that could be used to store the corn, soybeans, or whatever.
Sure, just like Enron didn't want 20 million kilowatts of electricity sent to their headquarters. And all that juice got purchased by the end users in California, anyway. So what's the problem? Oh, wait, now I remember -- the end user pays too much as a result of the speculators and manipulators.
Oil producers don't NEED speculators in order to deliver their product. Oil consumers don't NEED speculators in order to buy it.
"And these speculators aren't siphoning off profits. They can easily lose on their bets if they have to sell this contract for less than they paid for it."
One bet wins, another loses. So what? We simply don't NEED the bettors in the first place.
"If you believe it's some scam or a license to print money why don't you jump in?"
Quite simply, because I'm not one of the insiders.
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I could be wrong but I don't think the OPEC basket price includes the cost of bringing the oil to the market, which can be considerable. I believe the biggest oil tankers charge over $250,000 a day to transport oil. And that price is going up because there is a shortage of tankers.
Right. But you are arguing that the traders and commodity markets should not exist, because they increase the cost of oil/gasoline, and essentially just push paper. And my point is that these traders and commodity markets (middlemen) have to exist. They exist to provide a service to purchase a commodity as the raw material, get it sold to a processor, and then to sell the finished product to the retailer. And there is a cost to providing that service, which is the buildings, the technology, and their livelihoods in these markets.
So if you're dealing with oil the commodity markets are providing the sale-process from Producer (OPEC or Canada or Venezula) to refiner (BP or Exxon), to gas station (7-11, privately owned Exxon station). If it were wheat we're talking about it would go thru the commodity markets like ABC Large Farm Conglomerate to, General Mills or China Fortune Cookie company.
Whether its stocks, oil, or wheat, they are bought and sold in a market. It is your right not to like that system/concept, but it is not unique to oil, and I don't see why you single that out(?), other than it may affect you the most.
No offense intended here but, I've just got to ask - "poor fitting crapie plastic" isn't something that's hidden, or something that happens 2 months after you buy it (like a wheel falling off). Did you buy one without actually seeing and feeling it? And driving it? Maybe you should rent your next car for a few days, before buying one?
No, you don't HAVE TO buy your food at all.
You could plant fields with wheat and vegetables (as long as your property is zoned for agriculture).
You could buy your own cows, and milk them and butcher them yourself (as long as you have an FDA license).
And you could plow your fields and harvest your crops by hand (because you don't HAVE TO use a tractor, which runs on expensive diesel fuel).
And you could quit your job (because growing your own food will take all your time, anyway).
But you'll be much better off, because you won't be subject to the rising prices of commodities (unless your crops fail, and you starve to death, but then commodity prices won't matter to you, anyway).
It's all quite simple. You don't HAVE TO buy groceries. You don't HAVE TO drive cars. You don't HAVE TO heat or cool your home. So, why complain about commodity prices at all?
You're lucky to live in such a free country!
And while you're lying in bed at night, exhausted from your daily labor, but shivering too hard from the cold to fall asleep, don't let feelings of bitterness creep into your mind.
Sure, some guys made millions of dollars "speculating" that corn prices would rise (the day before Congress passed new ethanol mandates), and some other guys made millions "speculating" that oil prices would rise (the day before the White House announced a new offensive in the middle east). But they don't control prices. Oh, no.
Those guys could have lost money.
Honest.
So don't worry about them, and their fancy houses and private jets. You just get to sleep now. You have a busy day tomorrow.
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As recently as 1995, my parents had a coal-burning furnace in the basement. When I was a kid, two of my chores were to keep the hopper filled with fresh anthracite and to take out the ashes. If I failed to do either, the fire would burn out because either the coal would run out or the ashes would back up and snuff-out the fire. I'd have the whole family angry at me if I let the fire burn out as there would be no heat or hot water. Restarting the fire required newspaper, wood strips, lighter fluid, and a few shovels full of fresh coal and took about an hour to really get stoked.
In those cases the speculator just made prices go up one day earlier. Had the following events not happened the price would not have been sustained. If the speculator really controlled prices then no other external factors should matter.
Right now oil prices are falling. That is being driven by people speculating that the global economy is slowing which will lead to a decrease in demand in the future. Certainly the demand has not gone down yet. If this economic slow down doesn't occur prices will rebound. If it does occur then the result will be that you experienced lower prices sooner. In general the markets seem to set prices that anticipate future conditions. This works on both upswings and downswings. In the long run it all comes out to be pretty much a wash.
Yes some people make millions and some people lose millions in these markets. They're not making millions off you. They're making their money off the guy that bought high and sold low. So if you're not one of the players this really doesn't impact you.
That is the way the world works. Farmers try and sell their product for the highest possible price, and so does any other producer of a commodity item. And Intel tries to sell their chips for the highest possible price. And you need to sell your services for the highest possible price.
If anyone wants oil and food and such get out there and work for it, and figure out how to be more productive and make more $.
In a Micro-sense I know many people who are oil-futures traders. Oil heat dealers offer fixed-price contracts for the year to homeowners. So if oil was $2.50/gal in July '07, you could sign a contract to buy this years oil for $3.00/gal. Now the dealer might take your $ and buy the oil on the futures market for you. Basically they are buying the oil coming out of the ground in Saudi Arabia now, getting put on a tanker in the Fall, and delivered about now.
Now the price of oil could have went up only to $2.80/gal and the homeowner would have lost the "futures-bet". But now with heating oil about $3.40/gal these peoples' bets are paying off.
I wonder if gas stations will ever get into this? What if you're gas station offered a contract to prebuy your gasoline for $3.50/gal for the next year. If you took that you too would be a player in the futures market.
You're almost right -- except you're lumping together the traders and the market. I suggested that OPEC should set up its own exchange, and cut out all the speculators. That way, the buyers determine the price, not the middlemen.
Basically, it should work like buying an Ipod from Apple.com. Buyers go directly to the manufacturer's website, and their demand sets the product price. Buyers pay for the Ipods, arrange delivery, and they receive them a few days later.
The way it would work if it were like the oil market:
Apple puts all its Ipods on a separate market, where Ipod futures traders like me buy and sell contracts for them. I, Joe Trader, buy calls when demand is going up, and I buy puts when demand is going down. It's a nice living for me, but my job does nothing to help either Apple or Ipod buyers.
Now, theoretically, I could lose money, because I could be on the wrong end of the demand cycle. But realistically, as a professional trader, I'm so close to the action, and I can change positions so quickly, that losses are non-existent.
Plus, I'm a smart trader. So when the market is stagnant, but I want to make some extra money to buy a new boat, I purchase a bunch of calls, then I make a call ..... to my friend at the Ipod Daily News. I tell him, "Blue Horseshoe loves Ipods."
The next day, a story appears touting the popularity of Ipods, and revealing that new demand in China and India could cause a shortage of them. The article also reminds the readers that Christmas is coming.
Lo and behold, demand for Ipods increases slightly, and demand for Ipod futures increases dramatically! I sell my contracts for a tidy profit, buy the boat, and take a vacation.
When I return, I see that prices remain high, so I purchase a bunch of puts. Then I call the consumer affairs reporter at Ipod TV, and tell him that my kid is going deaf from playing his Ipod too loud. I ask him why the government doesn't regulate those damn things.
The next day, a story airs warning parents about the dangers of Ipods, and announcing a new government agency to regulate them.
Lo and behold, the Ipod market declines, and I make another tidy profit. But, the day before I close my position, my neighbor calls to say he can't make our regular golf tee time tomorrow. He works for the Bureau of Alcohol, Tobacco, Firearms, and Ipods, and he says he just got a call from his boss that they have to raid a factory tomorrow.
Of course, he doesn't tell me which factory, because that would be illegal. Plus, if I used such information for my benefit, I'd be guilty of insider trading.
So I put on my thinking cap, and I merely speculate that the BATFI might be planning to raid the Ipod factory. And instead of selling my puts on Ipods, I purchase as many as I can -- full margin.
Lo and behold, the next day federal agents raid the Ipod factory, and shut it down for several weeks. The market tanks, I make a fortune, and I retire to a Caribbean island.
As I sit on the beach, cold tropical drink in one hand, warm island girl in the other, I smile. Not just because I'm so happy, but because I've done so much good for Apple and all of its Ipod buyers.
They were lucky to have me to facilitate the sale and delivery of that product.
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"In those cases the speculator just made prices go up one day earlier. Had the following events not happened the price would not have been sustained."
My point there was that a whole lot of trading seems to occur immediately prior to a major event ..... almost like the "speculators" knew it was coming.
"Yes some people make millions and some people lose millions in these markets. They're not making millions off you. They're making their money off the guy that bought high and sold low. So if you're not one of the players this really doesn't impact you."
Well, that is certainly the theory. However, that theory assumes that none of the "speculators" are colluding with eachother. That "speculators" aren't bidding prices higher and higher artificially, which DOES impact me every time I fill my gas tank.
When I watch oil go from $75 to $100 for absolutely no reason, I start getting suspicious.
"If anyone wants oil and food and such get out there and work for it, and figure out how to be more productive and make more $."
Another great theory. But the reality is that no individual farmer can compete with an agriculture conglomerate, and no wildcat oil driller can compete with the big oil producers.
A wildcatter basically runs around sticking straws in the ground, hoping to hit a gusher. The big boys use technology out the wazoo to find the gushers before they drill.
Plus, even if a lucky individual in west Texas strikes oil, he might get 500 barrels per day. Over in Saudi Arabia, a good strike produces 10,000 b.p.d. The Arabs have all the prime real estate, and they won't sell it to me. So I can work myself into an early grave, but I'll never be able to compete with them.
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An Ipod is a product that is small, easy to ship, and consumer ready. A commodity is not always easy to ship requiring special safety or packaging, and is not consumer ready. Oil needs special containers, and can not be used by you as it is pulled from the ground. OPEC is not in the business per se of refining oil except for their own local needs. It needs to be sold and shipped to a refiner. Therefore OPEC is interested in selling tanker-amounts of oil to a refiner, not 15 gal to a car owner. A tanker-full is their package size, and that is the minimum they deal in. OPEC does not sell gasoline; refiners sell gasoline from the tankers of oil they purchased. It is the traders who determine by who bids the highest where the gasoline goes.
Remember after Katrina, the damage done to the refineries. You and I would have had very little gasoline for a while if it weren't for traders representing our interests, who bought gasoline made in other countries. They did this by outbidding someone else. By betting that American citizens were willing to pay a little more for gasoline, they were able to get gasoline into this country.
The global system is very logical, in that he who is willing to pay the most gets what's available. And if you're willing to pay a lot that is motivation for producing-countries to keep producing oil and refining oil.
But if you still insist on this OPEC Exchange, please explain how this would work. How would I the consumer or the individual gas-station purchase from OPEC? You haven't addressed that.
Are you kidding? I would take it in a heartbeat! And I would find such a futures system useful for gasoline budgeting.
But no gas station anywhere near me would be foolish enough to offer a futures contract at $3.50/gal. $4.50, maybe. And at $4.50, I think I would just try my luck on the "spot market" when the time comes.
2014 Mini Cooper (stick shift of course), 2016 Camry hybrid, 2009 Outback Sport 5-spd (keeping the stick alive)
Very clever! Apple to oranges. I forgot to mention that after I make my fortune in Ipod futures, my neighbors on the Caribbean island turn out to be commodities traders, too. Winthorp and Billy Ray cornered the frozen concentrated orange juice market back in the 80s.
Anyway, you're correct that a finished product like an Ipod doesn't directly compare to a raw commodity like oil. But the hypothetical market structure applies to both.
"How would I the consumer or the individual gas-station purchase from OPEC?"
You wouldn't. The refiners would, just as they do now. Every deal/contract would remain the same, only they would go directly between producer and consumer on the not-for-profit exchange.
OPEC already retains price controls on the oil market by limiting production. No need to add gremlins to the process.
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Oil has dropped $13 dollars in the last couple weeks. This is despite the interest rate cut, which should further devalue the dollar and put upward pressure on the price of oil. Do you get suspicious when you see these price declines? Maybe you're like most people. Price declines are driven by market conditions. Price increases are driven by manipulation.
If these traders really were able to control the price of oil they never would have let it get down to $10/barrel in the late 90's.
I saw that the stock market had a little rally today. Probably driven by speculators.
Some do. I read about this back in the 90s, when it was no big deal. People can purchase contracts for specific amounts of gasoline at specific prices, I believe from refiners.
The catch is that you can only take delivery -- that is, fill your tank -- at a specific location. It's usually a commercial fuel depot in an industrial area. So every time you need gas, you have to drive across town to get it. And, of course, road trips mean you're on your own.
Still, it'd be worth it (now) to be working off your 2,000 gallon gasoline contract at $1.25/gal. But back when gas was that cheap, who would've been goofy enough to shell out $2,500 just to buy gas on the other side of town?
Hindsight is always 20/20.
However, another post mentioned the airlines and how they use fuel contracts to fix their costs, which is true. In particular, Southwest Airlines (LUV) has enjoyed great success with it.
Seems that someone there figured out years ago that jet fuel wouldn't always sell for 1990s prices, so they bought huge contracts at 1990s prices that extended well into this decade.
Big up-front expense, but it turned out to be a genius move. While other airlines went bankrupt in 2004/2005, Southwest kept filling their planes with cheap fuel, and the company weathered that storm perfectly.
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Going from 75 to 100 then to 87 is not a decline. It's a fluctuation in an upward trend. We haven't seen a decline in six years. Look at the 10-year chart here:
http://futures.tradingcharts.com/chart/CO/M
BTW, I'm not the only guy who cried foul on the this latest runup to $100. Everyone from T. Boone Pickens on down said flat out that $100 oil has no basis in reality.
"If these traders really were able to control the price of oil they never would have let it get down to $10/barrel in the late 90's."
They didn't "let it" do that. Saddam Hussein was piping so much black market oil into Syria that it flooded the market, and kept the price at rock bottom.
"I saw that the stock market had a little rally today. Probably driven by speculators."
Well, it had a little collapse, first -- DOW down 300 points. Then mid-day it bounced big and finished up 300. So, if dropping from 14,000 to 12,000 in a month, then bouncing to 12,300 is a "rally," then okay.
But if yesterday's lackluster response and today's 300 point bounce are all that the stock market can produce in the face of a 3/4 point "emergency" Fed rate cut, and the promise of another rate cut next week ..... then I wouldn't go long on anything.
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2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D
The villagers seeing that there were many monkeys around, went out to the forest, and started catching them.
The man bought thousands at $10 and as supply started to diminish, the villagers stopped their effort. He further announced that he would now buy at $20. This renewed the efforts of the villagers and they started catching monkeys again.
Soon the supply diminished even further and people started going back to their farms. The offer increased to $25 each and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!
The man now announced that he would buy monkeys at $50 ! However, since he had to go to the city on some business, his assistant would now buy on behalf of him.
In the absence of the man, the assistant told the villagers. "Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $35 and when the man returns from the city, you can sell them to him for $50 each."
The villagers rounded up with all their savings and bought all the monkeys.
Then they never saw the man nor his assistant, only monkeys everywhere!
Now you have a better understanding of how the stock market works.
For one thing you are now citing a market conditions for the price of oil, which is a deviation from your earlier position that speculators control the price of oil. Also back then almost all of these OPEC producers had extra capacity and almost all of them cheated on their quotas, creating a glut. It's not like these OPEC countries have learned better discipine in regards to adhering to their quotas. With the possible exception of Saudi Arabia these quotas now reflect the maximum amount that the OPEC members are capable of producing. They couldn't cheat if they wanted to.
If that was the case, how did OPEC convince all 28 members to reduce their output at the last meeting. I think that there is room for a lot more production if they wanted to do it.
http://www.opec.org/home/PowerPoint/Reserves/OPEC%20share.htm
Based upon your story most people would assume that you stay away from the stock market. It's possible that I'm mistaking you for someone else but I seem to remember posts where you referenced stocks that you owned. Maybe you've recently seen the light and completely divested yourself from the market. My guess would be no.
I stand by my claim. Outside Saudi Arabia the other OPEC countries are producing at capacity. And I personally believe that Saudi Arabia is producing at much closer to capacity than what they state.
Our economy seems like it is heading for a train wreck yet oil prices have only dropped to $87/barrel, much higher than last Memorial day. Once the US economy starts coming back to life the sky's the limit in terms of oil prices.
Seems like a good reason to keep a strong presence there. More so than say Kosovo or Korea or Germany.
What I've been saying all along is that the oil market today is much different than the oil market seven years ago. If you doubt that, just look at the chart I linked earlier.
Yes, market forces did work back in the 90s. As you noted, many countries cheated on production. But you're mistaken that OPEC members haven't "learned better discipine in regards to adhering to their quotas."
They have, because the members in the middle east are angry that the U.S. troops are on their turf. Also, Venezuela now has a rabid anti-U.S. dictator in charge. He's right in line with limited production.
Most important, when oil was $20, countries had a strong incentive to cheat because their exports brought in very little money. Today, with oil at $90, the incentive is gone, because all exporters are making a fortune.
Again, the market today differs greatly from the market of the 90s. That said, I maintain my position that corruption dominates the oil futures market today.
I paid real close attention to it from 2003 to 2006, and I saw the prices spike over and over on rumors, then never come down when the rumors proved false. I saw prices spike after Katrina, then never come down, then spike again every time a tropical storm cropped up in the east atlantic.
And this latest spike to $100 is so blatantly fake that even the traders admit it. There are no shortages, no new violence in the m.e. or Nigeria, no hurricanes .... nothing.
You're free to disagree with me, but you'll never convince me that I'm wrong.
"Maybe you've recently seen the light and completely divested yourself from the market."
I wish! I thought I saw the light a year-and-a-half ago, so I divested myself. Then I watched the stock market keep climbing, while I sat on cash.
I missed a nice profit, now I'm missing a nasty loss (or give-back). I think it'll work out.
I'm not as down on the economy as most people, particularly the armchair analysts on TV. The way they talk, we're in for 1929 all over again. If we do hit a recession -- two straight quarters of economic decline -- then I don't think it'll be bad.
My main problem is that my money market account that was paying 4.5% has been cut down to 2.5% the past few months. But I know it's too early to buy back into the market. So I'm stuck with money in the mattress.
Also, before you cry hypocrite because I criticize the oil market while I invest in the stock market ..... YES, I'll be the first to admit that corruption exists in the stock market.
However, with cash paying 3%, bonds paying 5% and inflation at 6%, I feel forced into stocks because I can't spend the next 30 years watching the gov't money printers erode the value of my savings.
What else can I do?
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The oil market is global. It really doesn't matter what part of the world the oil we use comes from. It's like saying that you're only going to take water out of the shallow end of the swimming pool.
So you speculated when you bought those gold coins. How much are they now worth? The answer to that is they're worth what someone will pay you for them. If the end user is willing to pay $100 for a barrel of oil why isn't it worth that much? The fact that this oil might have only cost Saudi Arabia $5 to suck out of the ground is irrelevent.
Let's say you bought a home in 2000 for $300,000. You're now ready to sell in 2005 and ask $500,000 because that seems to be the going price. A potential buyer approaches you and says the home can't be worth $500,000 because he knows you only paid $300,000 five years ago. So he offers you $375,000. What are you going to tell him?
Home prices started rising, which attracted speculators, which pushed prices up further. If that really is happening in the oil market there will be the inevitable "bubble". Meaning if these prices aren't supported by fundamentals you can look forward to a future collapse.
I've been driving fuel-efficient cars since the mid-60s, so I can't really improve on "what I drive" - other than not drive at all! I was driving cars that got over 30MPG when gas cost 30 cents a gallon, and when it wasn't "cool" to do so.
Supply and demand certainly has an effect, but what's different today compared to 40 years ago, or even 10 to 20 years ago, is China and India. These two countries are having an enormous impact on the demand.
Of course, those who tend to manipulate the market, and make millions on speculation, don't help matters either. Where is is written that the Stock Market, Commodities Market, and those who control and manipulate these markets should control the economic health of nations? Perhaps it's time for a revolution against these establishments, and actually let the free market system work as designed.
In a sense yes. Though gold has for 1000s of years had intrinsic value that stock will never have. The stock is only as good as the physical value it represents, buildings, products etc. Home speculation can be much riskier than gold. Though I would not advise anyone to buy gold at the current price. I thought it was too high at $300 an ounce. Just as I consider oil too expensive at $100 or even $50 per barrel.
When the price gets to where the average person cannot afford to fill the tank the price will come down. Oil producers would rather make $30 per barrel than not have any income. We have proven they will sell oil at $9 per barrel about 10 years ago. I would not expect it to ever be that cheap again. I can see it going as low as $25-$30 if this recession expands around the world.
If it comes down to killing geese for survival, that will be a sad statement about the greatest mammal every to walk Earf.
I believe this is what happened to the housing market. The average person could no longer afford to buy a house at outrageously inflated prices.
Because we have no choice whether to buy oil. Or, I should say, our choice is either buy oil or reduce our standard of living to the late 1800s. Our entire economy is tied to oil.
If you believe that it's fine to pay whatever price the market will bear for oil, then you must also believe this:
Immediately after Hurricane Katrina in New Orleans, drinking water was scarce. So I and some friends should have loaded a truck full of bottled water, drove it to N.O., and sold each bottle to the highest bidder.
After all, it's the free market at work. Whoever's thirstiest will pay me the most for water -- $10 ... $15 ... do I hear $20? And the fact that each bottle cost me $1 is irrelevant.
Of course, it's okay to collude with my friends, too, to restrict any other trucks full of water from entering "our" market, right? We can block the roads, crash other trucks, or whatever. We're the Water Cartel, and we're just selling our commodity.
If the people don't like it, they don't have to buy it. They can come up with alternative sources of water. No one is forcing them to buy ours.
That's the situation we face with oil. And, yes, we should have developed alternatives 35 years ago, during the last oil crisis. But our "representatives" didn't quite live up to their title. So here we stand today, paying $3/gal., and fully expecting the price to continue upward.
Of course, we don't HAVE TO drive to work. We can always walk. If we live 15 miles from the office, that's our problem.
We don't HAVE TO use diesel trucks to transport food to local stores. The old horse-and-wagon will work fine. And while we're at it, let's quit packaging food and juice in petroleum-based plastics. Glass and wood containers will do.
I could go on, but you get the point -- the American standard of living depends on oil. I'm just angry that a conglomerate of producers and the financial scammers they employ are now extorting money from me just to maintain that standard.
What do you think has caused the current 6.3% rate of inflation?
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I disagree, slightly. When the avg. guy can't afford gas, the price will stop rising, but it will remain right where it is. That is, until Mr. Avg. decides that he'll sacrifice other expenses in life to pay more for gas, food, household good, etc. Then the price will go up again.
"I believe this is what happened to the housing market. The average person could no longer afford to buy a house at outrageously inflated prices."
You're correct there, because the prices were largely based on fraud, AND because the housing market has much more elasticity than the oil market. Elasticity is the economic term that describes a potential buyer's flexibility in whether to buy a product.
While everyone needs shelter, no one has to buy a house. They can stay in their current house or apt., live with their parents, etc. Oil, on the other hand, is used by everyone, every day, whether they drive or not. On an interesting note, the fraud that permeated the housing market has parallels to what occurs in the oil market.
We're finding out now that, in many cases, realtors, appraisers and lenders worked in collusion with eachother to inflate the price of houses. Appraisers offered a fraudulent number, but the lender agreed it would loan that much, usually in the form of a "stated income loan" or "no doc" loan. The industry calls these "liar loans," for obvious reasons.
The realtors collected their commissions, the appraisers took their kickbacks, and the lenders sold off the mortgages before the borrowers defaulted.
In some cases, even the home buyers were in on the scam. They'd take a kickback for paying the inflated price, and then let the house go to foreclosure.
This happened in my hometown. Some long-time owners put their house on the market for $700,000. It languished for months, but never moved.
Then a realtor called the owners one day and promised that he could get them $700,000 quickly, if they agreed to give him anything ABOVE the full price. If the house sold for $750,000, the realtor would get the extra $50K. If it sold for $800,000, he'd get $100K.
Lo and behold, the house sold for $1,400,000!
Amazing, but it had to be legit, because the licensed appraiser swore it was worth that much. The federally-regulated lender agreed to loan that much. And, of course, the new buyer qualified, no problem.
When the buyer quickly defaulted, the finance company started asking questions, and the whole mess wound up as a criminal prosecution of everyone involved. Unfortunately, it was unsuccessful -- they all got off.
But it just goes to show how easy it is to pass off a blatant fraud, despite all kinds of laws and agencies that supposedly prevent all that.
So apply that theory to the oil market, take a look at this 10-year chart
http://futures.tradingcharts.com/chart/CO/M
then decide whether we're all being defrauded.
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And what would have happened if they did that? The word would quickly get out that you can make a lot of money selling water in New Orleans. Within a very short period New Orleans would have more water than it needed and prices would return to where they should be. On the other hand if you imposed price controls it would take much longer for an adequate supply of water to be restored. This happened in the 70's when the government imposed a price freeze on gas.
In terms of oil a lot of people claim the market was adequately supplied at $50 and they just don't understand today's prices. Well if the market was adequately supplied at $50 the higher price should have resulted in a greater supply. So you should now have more oil for sale than the consumers need, i.e. glut. You can't sustain high prices in this type of market. Especially if you think the speculators are controlling the price. A speculator has no personal use for this oil so he has to sell his contract before it expires. So in a climate of more than adequate supply you have more speculators trying to sell than there are buyers. This has to drive prices down. Since this isn't happening I can only conclude that the difference between supply and demand is pretty tight.
For the sake of argument let's say these speculators have inflated oil prices. That's not necessarily a bad thing. Oil companies are now exploring for new fields in places that would not be profitable at $50/barrel oil. There was some big discovery by Chevron last year that was a couple hundred miles off the coast in the Gulf of Mexico. It required them to drill something like 25,000 feet, which was unprecedented at the time. If these fields pan out the oil from them will not be hitting the market for several years. Now let's say these speculators had not driven up the price and instead we waited until actual demand forced prices up to these levels. That means in addition to the high prices there would also be shortages. And it would only be now that oil companies started exploring for new fields in these more remote areas, which take years to develop. IMO, this represents a worse situation.
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I suspect that if I could find a chart for global oil consumption during this period it would look very similar with the exception of the oil embargo spikes.
I don't recall suggesting anyone go out and buy a smaller vehicle. If you can afford the gas prices then drive whatever you want. Keep it running even while it's parked for all I care. I only use about 400 gallons of gas a year. Prices going up or down a buck or two won't have much of an impact on me. Actually I like to see the higher prices because I think they stimulate R&D into alternatives.
Coal gasification can be used also- not a new process, it was invented in Germany in the 1920's and used by the Germans in WW II- best use would be for jetfuel, since aircraft are big fuel burners- but again, they want government subsidies and the greenhouse gas increase from the coal gasification process would be pretty high. But becoming self sufficient in aircraft fuel would reduce our need for imported oil.