Are Oil Prices Rigged? You bet, say Stanford Profs

Sovereign funds.

 

Years ago when gas went up to $1.50 and krept up around $2 people were ranting and raving and gas went down to $1.50 and people were releived. Next year gas was $2.50 and creeping towards $3.00 and people were ranting & raving about the price and it went down and settled around $2.50 and people were relieved. Next year gas was $3.5 and creeping towards $4 and people were ranting and raving about the price and it went back down to around $3.50 and people were relieved. Next year gas was in the $4.50 range and climbing to and beyond the $5.00 range and people were ranting and raving and it went down and people were relieved. NOW I ask a question; why is it that the American people have not seen this trend? Maybe the Earth really is flat!
(P.S. dollar figures may not be exact but you should get the picture)

 

I did.

That's why I bought a Prius in 2005.

 

These two "educators" never make a flat statement of fact. They guess, they suppose, they issue questions. But they never provide any factual information to support their position. And remember, Time Magazine long has been a left-leaning periodical with less-than-ideal reliance n factual reporting and accurate information. Don't sweat this one until and unless someone else provides better information.

 

How's this for better information

Report: One trader held 11 pct of Nymex contracts

 

Since when has the price of oil NOT been rigged? What has happened to make it possible to rig it now and not 5 years ago?

 

BS. The article is a little inaccurate plus the Business Week article is also inaccurate. The ratio is correct but I don't know a trading house that will take less than $100K. You'll control about $1M dollars worth of oil, but, you have to remember, you're bidding against companies representing Indian and Chinese interests. If anything, speculators keep the oil away from suppliers. And now the only thing the new bills will do is outlaw American speculators like me. Congratulations, give the market to the Russians, Chinese, etc. That was a brilliant move... WAKE UP! It's not as black and white as it seems. A lot of this speculation isn't even driven by oil, but because the dollar is tanking. You trade oil for dollars which isn't holding its value against other currencies. For crying out loud even the Loonie is worth more than our dollar. And its getting much, much worse with all those cheap loans now going belly up. People, wake up everything is connected. Blaming speculators for oil prices is like blaming a single baseball players average for the team doing bad.

 

I do have to admit. If you want to sell magazines and get web hits, nothing like sensationalism. Good points about those articles.

:hat:

 

Because people believe and do many stupid things.

 

Problem with this logic is - the big oil companies in this country have multi-year contracts with known/fixed prices for the crude. Who knows what they are actually paying, but it certainly isn't the prices on the spot/speculator market.

My in-laws have a couple of leases, and their neighbors have several - and regardless of what the current price is - they only get the contract price. The longer the contract, the lower the price. Most contracts for the companies in their area seem to be for a minimum of 5 years (sometimes 7).

 

They were distracted wondering who would win America's Idol this year. :madgrin:

 

Sad to say there is much truth in this.

 

I really do believe this though... :-(
I distinctly remember when gas started skyrocketing, that it was due to speculators worried about our invasion of Iraq, then it was worry over hurricanes, then New Orleans, bursted pipelines in Alaska, and then over Russia's high stakes oil take overs, etc... All of the lightning fast increases - speculation driven.
Then the oil companies started getting hammered with bad press, so they say it is supply and demand, plain and simple. All the while, they are taking in record profits... to the tune of billions per quarter; in profits! Not just dollars taken in, but profits... I'm going to have to agree that these trades need to be scrutinized way more. There needs to be a fundamental change in how energy is traded. Someone got smart and exploited an old, broken system. So many are making money now, they (oil) want to leave it broken.
Can the sudden, constant, and sharp rise in oil costs be really attributed solely to supply and demand? (Not rhetorical, I really am asking). Why does price go up so fast, and down so slowly? If oil is down $35 a barrel, then why is my gas still costing $3.89?

 

Just as a mental exercise...what percentage of the highest barrel price is $35? Let's say one third at current futures prices. Now, what percentage of the highest pump price in your area is $3.89? According to AAA, Idaho's record average price for regular was $4.16 in mid-July. That's about 7 percent lower. So there's some question about the 23 percent difference. And using the national averages, $4.11 all-time high vs. $3.67 today, that's an 11 percent difference.

In fact, there is no rational definitive correlation between oil future prices and today's pump price. Oil executives say it's supply and demand, and to some extent that's true, but it's not one-for-one. They also say pump prices are increased and decreased depending on the cost of new gas delivered at a station -- that's easily disproven simply by monitoring a single station for a few days. In a time of volatile prices, pump prices may change 2-3 times a day without a delivery.

Here's a theory on how to avoid pump price angst. Will never happen because of the present culture, but...

Gas stations should not post their prices on big signs. Stores don't do that with other commodities -- when have Ralph's or Kroger's posted the normal prices of milk, bread and cereal so that drivers can see them before they park? Let the driver come up to the pump and see the price; chances are the price will be more stable, people will not complain as much, and everyone will go on and find something else to complain about.

 

It may be the refiners are trying to become profitable again. One of the things the oil companies managed to do with this run-up is squeeze the few remaining independent refiners. We will probably see some of them sold to the big guys soon.

 

Maybe...., but:
Chevron posts record $18.7 billion profit
"Soaring oil prices lifted Chevron Corp.'s annual profit to $18.7 billion in 2007, the fourth consecutive year that the San Ramon company made record amounts of money."
-and-
"Other companies have made even more. Exxon Mobil, the country's largest oil company, reported on Friday that its 2007 profit hit $40.6 billion, a 3 percent increase from 2006, while sales passed $404 billion. No American business has ever scored a higher profit.
And yet, Chevron's year-end report also highlighted problems at the 128-year-old company. In an interesting twist, some of those problems are the result of the same high oil prices that have benefited Chevron overall.
The company's American gasoline refineries, for example, actually lost money in last year's third and fourth quarters after earning hefty profits in the spring. Although drivers may find it hard to believe, ample supplies of gasoline throughout the country late last year kept Chevron from raising its retail prices enough to keep up with the surge in crude oil prices."

Also: Oil company profits soar | Reuters

I'll say one word - bookkeeping. Depending on how you allocate expenses, etc., you can make one division look terrible, while as a whole, the company is profitable. Note the last sentence above - I'll still contend that the reality is that contracts and contract pricing mean the the companies DON'T dip into the speculative market much (if at all), so there is no rationale behind the current retail price vs. the actual cost, except "they can".

The only rationale for the pricing at the pump, is if there's a direct pipeline from the Middle East (or wherever) to the pump, supplying refined gas. Just because speculation about a dictator, or a "big bear" invading another country that has a pipeline, some Saudi prince pharted, etc. is the only real reason for a .15-20 cent jump overnite at the pump.

I feel for the guy who owns the station - they make virtually nothing on the gas. In fact, since many are "allied" with a particular brand, they are actually told what their cost is (regardless of the actual market). They can't shop around. Usually leaves them with .01 or less profit per gallon (sometimes even a loss).

Another issue is that there hasn't been a new refinery opened in 25-30 years. A few have expanded, somewhat, but MANY have closed. Litigation from environmentalists keeps them from opening up others (in the USA). Same as will happen with nuclear power (in the USA).

An interesting article I came across this morning:

"Wind turbines make bat lungs explode"

Wind turbines make bat lungs explode - earth - 25 August 2008 - New Scientist Environment

How long before all the promise wind turbines were supposed to make are shattered due to environmental concerns?

Sorry if I'm coming across too cynical, but that's how I see these issues. You can't win for losing, yet losing isn't an option.

 

Hmm, well, the loonie isn't higher than the US dollar, it's around US $0.94.

So the alternative is....?
You want the govt. to take over the oil companies?
You want the govt. to regulate the price of oil?

Neither of those ideas have worked elsewhere. Heck, they even tried to regulate the cost of gas in one of our maritime provinces a few years back. THAT lasted about 10 days!

If you think the oil companies are making a huge profit, INVEST in them! That's why you live in a free country!
YOU can become THEM. I did, and it's paying for my Prius. How's that for justice.