Traders having made their bundle, oil drops 9% in 4 days, dollar rebounds a little

[mattkime]

pretty filmsy concept. its entirely based on the rate of growth (numbers and not on any transaction pattern. a bubble isn't truly a bubble until it pops - otherwise its simply a sharp increase in the value of a particular good.

i think its a good idea to compare it to the housing bubble. speculation certainly fueled the housing bubble but those very same speculators (which includes many joe-average americans) ultimately lost big time.

housing prices are now cheaper than they were before the bubble. should we expect the same once the gas bubble bursts?

[Seacrest]

'price' and 'value' are not the same thing.

[lafinfil]

mattkime wrote:
i'd still like one person to explain how speculation drives up prices.

Interesting discussion on yesterdays Here & Now with Bloomberg Business's Ed Wallace on exactly this

link to interview with Ed Wallace

Blame High Oil Prices on Speculators and Bernanke http://www.businessweek.com/investor/con...786652.htm

[Mac1337]

mattkime wrote:
pretty filmsy concept

Remember, speculation goes on going up as well as coming down. Besides, when you buy AAPL aren't you "speculating" that it will go up? What is "flimsy" about that?

[Grace62]

mattkime wrote:
pretty filmsy concept. its entirely based on the rate of growth (numbers and not on any transaction pattern. a bubble isn't truly a bubble until it pops - otherwise its simply a sharp increase in the value of a particular good.

i think its a good idea to compare it to the housing bubble. speculation certainly fueled the housing bubble but those very same speculators (which includes many joe-average americans) ultimately lost big time.

housing prices are now cheaper than they were before the bubble. should we expect the same once the gas bubble bursts?

One "bubble" did burst this week, and oil prices are dramatically lower.
There's a pattern of these bubbles in the oil market going back at least a decade. I don't know if I'd call in "flimsy," massive amounts of money are made on this speculation. Who it's not so good for is average consumers, who have to ride the roller coaster with our budgets.

[Mac1337]

Grace, speculators drive the price down too. You gotta take the good with the bad. THe alternative is for the Energy Department to announce the price of the oil on Mondays at 8am. You won't have anything to worry about. Complete security.

[mattkime]

lafinfil wrote:
[quote=mattkime]
i'd still like one person to explain how speculation drives up prices.

Interesting discussion on yesterdays Here & Now with Bloomberg Business's Ed Wallace on exactly this

link to interview with Ed Wallace

Blame High Oil Prices on Speculators and Bernanke http://www.businessweek.com/investor/con...786652.htm
Those articles say that its happening partially because the dollar is weak and partially because large institutions (mainly banks) are shoving their money into commodities.

They'll eventually decide to unwind that position and when they do, it'll be ugly for them. If its a bubble.

[Grace62]

Crude has not always been financialized the way it is now.

Think mortgages. The terms of speculation have changed. We need someone who knows what contango and backwardation mean to explain all of this...I can't. I just know I hate it when it's costing $70 to fill the tank - dang!
So when we say "speculators are driving prices up" it's not that anyone is doing anything intentionally or that any person or institution is to blame, it's what they are allowed to do now on Wall Street.
We've seen this play before and the ending wasn't good. Not all creative investment vehicles are good for the economy.

[GGD]

Has Donald Trump taken credit for this yet, it's so simple, he just needed to threaten to tell OPEC that their prices are too high.

[wave rider]

mattkime wrote:
i'd still like one person to explain how speculation drives up prices.

I heard a guy on a radio show talk about it, can't remember exactly which one: dang it.

The gist I remember is that there is too much credit/money out there. Typical citizens are buying less and paying down credit, so they don't need any of the excess credit/money supply. The banks aren't lending it to small business, banks and investors are looking to make money on commodities. The extra money above and beyond the usual commodities investors drives the price up, whatever the commodity might be. (I can't even explain what hedges do to prices since they can "bet" against markets too)

He said his sources tell him that there is excess oil on the market right now. In spite of increased demand from India and China, US demand is down significantly. He said the Saudis were willing to up their output by 800,000 barrels per day, no one was buying.

His conclusion was that when prices move counter to supply, speculation is the likely culprit. A lot of folks got sold on scarcity due to middle east conflict while there has been no shortage...

He felt that the Fed was keeping a high money supply to let the banks make some profits somewhere, there is a large amount of the housing market still waiting to be foreclosed upon and the banks have never really taken their lumps in the market collapse. Something like 13% of the houses in the US sit empty... I may have misheard but was stunned by the double digit percentage.

Wish I could remember the show, his explanation was quite eloquent.

In California, we usually have a spring refinery fire which tends to lower gasoline supply.

=wr=