Is there no end to the criminal ingenuity of Wall Street. It’s not enough that they destroy the mortgage market or sell all our jobs over seas, they just have to squeeze every dollar out of their grandmother’s social security check.
Investment banks hoarding oil
Fifty million barrels of oil are just sitting around on supertankers. They’re not getting unloaded because investors are waiting for the price of oil to go up. Mitchell Hartman explains.
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Bob Moon: Now here are some millions that haven’t raised the ire of Congress — 50 million… Barrels of oil. They’re sloshing around on huge supertankers right now. They’re not going into port, not getting unloaded. They’re just waiting, for the price of oil to go up. It’s a financial play known as “contango.” A lot of investors are getting into the act. Marketplace’s Mitchell Hartman explains.
Mitchell Hartman: “Contango” refers to a market condition in which the future price of a commodity is higher than the cost of buying it today. Right now, investors can lock in oil futures contracts to get paid $46 a barrel in March. They can fill a supertanker right now for just $41 and change. It’s pretty cheap to keep the tanker floating around in the ocean. When it unloads in the spring, the investors make a tidy profit: more than $3 a barrel.Daniel Yergin is author of the Pulitzer-winning book, “The Prize.” He says there’s a glut of oil right now, caused by the global recession. But futures prices are going higher, because OPEC has promised to cut production. And, says Yergin, oil traders are reading something else in the economic tea leaves.>Daniel Yergin: There’s a bet here that all of the stimulus, new economic programs, are going to work, and that by the second half of the year, we’re going to move out of recession, back into economic recovery, and that demand will start rising for oil again.
For more please go to the PBS site and listen to the report. For a different point of view:
Oil Price Fundamentals: Don’t believe the hype
January 13th, 2009 · by Bob Zieger ·
Last week, Marketplace had an interesting report on the growing trend of “contango” in the oil industry. For those of you who are not familiar with the practice, contango occurs when investors sit on a commodity because the future price is higher than the spot price. In this case, that results in full oil tankers sitting offshore, waiting for the price to rise before they unload their 50 million barrels onto the market. So a quick buck is made by those holding the inventory on the high seas, but what happens when those barrels eventually reach a port ? We’ve got a glut of material again, which forces prices down. This type of profit-taking merely adds to the volatility of the market, but has little influence on macroeconomic fundamentals.
Frankly, it seems as though the oil/energy sector has the most interesting bag of tricks when it comes to speculation, rhetoric, and other market manipulation. But all the headline grabbing stories aside, oil is just like other commodities in that pricing is governed by supply and demand. While contango, Somali pirates, and accounting tricks can be a source of market volatility, these games don’t have a long term impact on pricing.
The POINT for us is that they are “messing around” like mice worrying at a hole. Practicing. If someone doesn’t hit them with a broom, sooner or later they will succeed.
For more on Cantango and other disgusting practices:
Please note Goldman Sachs says oil will hit 102$$ per barrel by the end of the year and I have said that oil will hit 130$$ a barrel by next summer. I wonder whose right?