Link here.
Note that a bank (Barclays) is bidding on 200,000 bbls; JPMorgan is bidding on 1.5 million. Since I don't recognize either as traditional oil companies, perhaps Barclays and JPMorgan are two of those "speculators" everyone complains about:
The bids total 30.64 million barrels of oil, with the average bid of
$107.20 per barrel.
COMPANY VOLUME (barrels) BID ($/barrel) Valero Energy Corp 6.90 mln 105.62-109.76 Vitol Inc 4.00 mln 108.05 Shell Trading USA 3.65 mln 105.70-108.88 ConocoPhillips 2.10 mln 106.29-107.88 Plains Marketing 2.08 mln 106.78-107.78 Hess Corp 2.00 mln 105.01-107.54 Marathon 2.00 mln 105.80-107.80 ExxonMobil Corp 1.51 mln 107.34-108.94 JPMorgan 1.50 mln 105.33 Sunoco 1.40 mln 106.78 Tesoro 1.20 mln 107.08 Trafigura 1.10 mln 105.20-107.20 Murphy Oil 500,000 106.73 BP PLC 500,000 105.04 Barclays 200,000 104.98
I assume the oil companies are bidding on this oil for their refineries, which if true, a) they expect to pay more than $107/bbl in the future; and/or, b) they know they will be short that amount of light oil in the near future.
If they thought they would be paying more than $107/bbl in the future, I would assume they would be bidding for more, unless storage costs were a limiting factor. Thus, my hunch is that refinery managers anticipate a light oil shortfall in the near future. I'm curious how others read this.
Call me old-fashioned but I just don't see folks willing to pay $107 for a barrel of oil, and then storing it in off-shore tankers until used, if they thought oil was going to be selling for $96 in a month. But then, maybe I'm missing something.
From their website, Trafigura:
Established in 1993 as a private company, Trafigura is the world’s third largest independent oil trader and the second largest independent trader in the non-ferrous concentrates market. It has access to approximately US$24 billion in credit facilities, with investments in industrial assets around the world of more than US$1.9 billion.Some might call Trafigura a "speculator" but their bid is actually at the low end of those on the list. Hmmm.
Trafigura handles every element involved in the sourcing and trading of crude oil, petroleum products, renewable energies, metals, metal ores, coal and concentrates for industrial consumers.
To me, when it comes to commodities, a speculator would be any person or entity that does not possess the capability to either deliver (short positions) or take delivery (long positions). Futures trading by real producers and consumers in my view is valid hedging either production or consumption.
ReplyDeleteI must say, the bidding seems bizarre to me if one assumes functional markets. Why for example would a refiner go long on spr crude when presumably the same commodity could be contracted on the futures xcg for 10$ bbl less? Maybe the "Industry" wanted to make sure that the spr release didn't lower the price and took losses to ensure that result. If so, then if I were the us and the Iea, I would release MORE. And I would get the shoe clerks out of the oil market with whatever "regulation" was necessary.
And how is it that entities (investment banks) even qualify to bid with less storage capacity than I have in one of my bathrooms? This is just another clue that the "markert" is seriously dysfunctional and headed in an unpredictable direction.
I am truly flummoxed by the whole thing.
ReplyDeleteI just typed a stand-alone posting on "to speculate" but saved it and was questioning whether to post it.
Your timing is impeccable. I literally had just "saved" that post (for perhaps later posting) when I checked the mail and saw your comment.
You appear to define "to speculate" by who engages in the activity, rather than the activity itself. The generally accepted definition of "to speculate" does not make that distinction (of who engages in the activity).
I am reading the biography of Peter Roget (the "Thesaurus") and I think he would agree that "to speculate" does not make distinctions about who engages in the activity under question.
I find it interesting that folks single out banks, for example, as entities that should not engage in buying oil futures, but have no problem with banks underwriting home loans. I honestly don't see the difference.
When I go to the generally accepted definition of "to speculate," I don't see bidding on oil for $107 when it is selling for $97 as speculative.
I'll publish the post on "to speculate" later.
My comment on speculation was fo used on commodities futures and not "speculation" in general.
ReplyDeleteBanks who are in the construction business have as their BUSINESS PLAN to loan money to developers and home owners. I go to my banks lobby all the time and they have a poster showing their home loan rates.
I may be so dense to have missed it but I dont recall ever seeing wti futures or spot oil quotes at my bank. The whole oil futures market is a train wreck in the making.
If you bank is publicly traded, ask for a prospectus and annual report to see what they invest in.
ReplyDeleteAgain, you are defining "to speculate" by who does it, rather than defining the activity itself.
I assume banks have in their business plans many different ways to make money. The housing bubble was one train wreck; you may be correct about another train wreck.
Every investment no matter how conservative has an element of speculation.
ReplyDeleteI guess the question is the level of govt regulation. If you want to loan your brother in law a few bucks, then that is between you and your family. If you want to sell financial instruments to the public, then there should be regulations.
I would be curious to know where you were and what you were doing when the treas sec and the chairman of fed came on the tee vee and informed us that unless we (taxpayer) bought a bunch of worthless paper called cdo and derivatives that the world economy was gone. Chairman Greenspan later asserted that there was a "flaw" in his thinking. The "flaw" was that he believed
that the "market" would never reach such a rediculus state but, it did.
That the highest bank official in the us could/would make such a statement , to me is absoulutly mind boggling.
The main weakness I see in oil as a market is that so much is controlled by nations and not free market forces. Largely unregulated trading in futures based on the underlying such as exists to me is highly speculative.
"Every investment no matter how conservative has an element of speculation." That does not fit the definition of "speculation" as commonly defined.
ReplyDelete"If you want to sell financial instruments to the public, then there should be regulations." Why?
"Curious to know where you were...." I was probably at home blogging.
"... absolutely mind boggling." At least he was honest. (Perhaps)
"Oil...controlled by nations and not free market forces." The first part of that statement is correct; the latter part, to some extent accurate. But it certainly seems free market affecting price of oil more than folks seem to want to admit. True, OPEC could embargo oil, but for some reason they are not. I assume it has to do with market forces.
The price of $107 is below the current spot price of Brent (about $113) so it doesn't seem out of line to me. WTI Cushing is cheaper at about $97 but the problem, of course, is getting the oil out of Cushing!
ReplyDeleteGreat points.
ReplyDeleteGoldman Sachs feels the US will target light oil from the SPR:
http://www.scribd.com/doc/58569392/Goldman-Brent-Cut
Brent is light crude, but not as light as WTI.
http://en.wikipedia.org/wiki/Brent_Crude
I honestly don't know whether to compare SPR release with the price of Brent or WTI. Someone has probably answered that question but I missed it.
When it comes to buying anything whether it is a cd, real estate (hello) there is no such thing as a guaranteed return. If the last few years taught us anything, this was it. With regard to Brent price. The point of delivery is presumably the spr in se US. If you want to compare pricing you need to factor in transportation costs of the alternatives. Many of the refineries are nowhere near a source of Brent. The banks may have London branches so I guess they can store their spr in their lobby's after shipping across the pond.
ReplyDeleteFolks are missing the point due to fact folks misunderstand the definition of "to speculate."
ReplyDeleteWhat folks should be saying is that all investments have some degree of risk.
Folks are confusing "speculation" with "risk."
I will post my thoughts as a stand-alone post, perhaps tomorrow.
It Is the same speculators who have priced natural gas at less then $2.00 per MCFT. The lowest price in a decade.
DeleteIf oil was percieved as plentiful as NG, then WTI would be $20.00.
You cannot credibly say speculators only move PRICES up.