Oil Trades Near 28-Month High as Egypt Riots Add ‘Risk Premium’

[Joanne98]

Source: Bloomberg

Oil traded near its highest price in more than two years as concern that protests in Egypt may endanger Middle Eastern exports countered signs of rising supplies in the U.S., the largest crude consumer.

Futures swung between a loss of 0.4 percent and gains of 0.6 percent today after the American Petroleum Institute said yesterday that U.S. stockpiles increased for a fourth week. The Energy Department may also say today supplies climbed. Unrest in Egypt sent Brent crude above $100 a barrel earlier this week.

“The chief reason for oil’s rally through $100 is the return of the geopolitical risk premium,” said Christopher Bellew, senior broker at Bache Commodities Ltd. in London. “There has been a fresh inflow of speculative positions, though with stocks and spare production capacity ample, conditions don’t suggest a surge to new records.”

Crude for March delivery on the New York Mercantile Exchange was trading at $90.70 a barrel, down 8 cents, at 12:56 a.m. London time. Prices settled at $92.19 on Jan. 31, the highest since Oct. 3, 2008. Brent oil for March settlement traded at $101.60 a barrel, down 14 cents on the ICE Futures Europe exchange in London. It gained 0.7 percent to $101.74 yesterday, the highest settlement since Sept. 26, 2008.



Read more: http://www.bloomberg.com/news/2011-02-02/oil-trades-near-28-month-high-as-egypt-riots-add-risk-premium-to-price.html

[social_critic]

1. The ship are panicking

This purely speculative movements. Do note the large spread between Brent and NY. European supplies are more dependent on the Suez Canal. But maybe they are also factoring in unrest potential in Saudi Arabia? I bought into a commodities fund last year, it has done well, and I think it'll continue to do well, but this is just a small oscillation. I definitely wouldn't buy commodities right now - they are priced too high.

[Gman]

2. And someone argued with me here on DU the other day

claiming naively that oil prices are just simple supply and demand. The crisis in Egypt is a boon to oil traders. They can ride this one for a while as their bank accounts go cha-ching! If it wouldn't be this, it would be something else they'd blame. Lacking any other notable world event, there's always China to blame for running up prices.

[Terry in Austin]

3. So your sophisticated claim is?

>> claiming naively that oil prices are just simple supply and demand.

What, then? Complex supply and demand?

At the bottom of all the speculation, trading, and fat-cat shennannigans, supply and demand have to figure in -- otherewise, there's no game.

What is NOT true is that there's plenty of oil. That's the central fact here, and everything else is just the noise that inevitably comes with permanent decline in the world's oil supply.

[reggie the dog]

4. supply and demand is bullshit

lots of demand, little supply and we rip you off by raising the price, uh oh a crisis, we rip you off again. funny, weed sellers never seem to up the price if supply is scarce and demand is high.... in fact weed prices are bout the same now as when i started smoking in 1993

[Terry in Austin]

5. Okay, like, whatever...

Thanks for the, ah, blunt analysis...

:smoke:

[NickB79]

6. Even weed is subject to the laws of supply and demand

http://www.tokeofthetown.com/2010/06/israels_stoners_bummed_out_as_marijuana_prices_soa.php

"Israel is suffering through the worst marijuana drought in memory. Not even the most seasoned pot smokers can recall a dry spell like this one, reports Saar Gamzo at Haaretz.com.

Reasons for the current weed shortage include recent drug busts by the police and border guard; cooperation between Egyptian cartels trying to boost profits by limiting the supply; and unusually low rainfall this year.

Conspiracy theorists are even claiming a secret Israeli government program to "combat apathy" and "stir up the nation's fighting spirit."

But whatever the cause, cannabis costs more than ever before in Israel."

[reggie the dog]

7. wow

i still have never ever heard of such a thing in the chicago metro area or here in france, there was a hash shortage in the cities but the prices were still similar, then the fall weed harvest kicked in and it was easy to score again.... but the prices are steady 4 to 6 euros a gram for good hash and have been for the past 8 years.... in chicago an ounce of schwag in the city was 60 dollars, in the suburbs 100, mids was pretty much always between 80 and 100 an ounce in the city and 125 to 150 in the burbs, bsters 125 to 150 in the city and 150 to 200 in the burbs, and "dank" was usually 300 an ounce or so everywhere. if anything prices have gone down for schwag, mids and bsters in the suburbs and some dank goes for 400 but there has been really no short or long term price change in chicago that i have seen since 1993.

[Psephos]

10. Weed and coke markets? All smoke and mirrors.

Just a thought, but you might get better traction on your argument with a different example commodity. ;)

[reggie the dog]

12. that's a good one

i was just pointing out how the black market seemed to have less price gouging than the legal markets

[Psephos]

17. just teasin'

:) Your observations were quite interesting.

[Gman]

8. "Dope will get you through times of no money

better than money gets you through times of no dope" -- Furry Freak Brothers

[reggie the dog]

13. true dat

[Gman]

9. You seriously believe the illusion of potential (well, it could happen)

shortages that justify running up prices? Fact: The first time oil went above $100 a barrel, a trader caused it by making a big buy, waited for the price to go up then sold. (He later bragged about it claiming the infamy of being the first person to drive oil prices above $100.) Everyone else bought thinking he knew something they didn't know. It's all a game that has nothing to do with real supply and demand. Again, if it's a slow news day, blame China. You ever heard of something called arbitrage?

[Terry in Austin]

11. As long as you're sure about it

>> It's all a game that has nothing to do with real supply and demand.

So what about this REAL supply and demand? Long term. These short term runups -- and crashes -- are the close-up view.

As oil production stops growing and starts to decline, there's inevitably going to be price volatility. The trader types are making it even more volatile, of course, but they can't cook that business up out of thin air.

Yes, shortages could indeed happen. In fact, it'll settle down to one shortage, permanently. We're just looking at the first few hiccups. Arbitrage and all the rest of it are symptoms, not causes.

We're never going to be able to give the greed heads what they deserve in any event -- yeah, we can vent, but we shouldn't let them distract us from what the real problem is: we're hooked on oil and our stash is getting scarce.

[sofa king]

14. That's like saying flying a 747 is all about lift and gravity.

In this case, it's a sham that goes back to at least the 1973 Yom Kippur War, when there was plenty of oil and your free market was manipulating the supply of that shitload of oil. The market manipulation works independently of supply (except that there has to be a supply to manipulate).

The "risk premium" is applied instantly and is relaxed only slowly and far after the crisis has passed, allowing oil producers and refiners to reap a windfall and totally illegal profit off the backs of everyone.

Then, while public outrage is at a high point, a Congressional investigation will be started, will take at least a year, and then they will sit on their findings until they can be dumped in the middle of a busy news cycle when fuel prices are lower.

Don't tell me I'm full of shit until you're prepared to explain away the imaginary oil crises of 1973, 1979, and 1991, when there was no lack of supply.

[Terry in Austin]

15. Provocative observation. More to it, though.

>> there was plenty of oil and your free market was manipulating the supply

Not my free market, pal -- preaching to the choir there.

So far, this thread is talking short-term blips among the wheeler-dealers, and I share your contempt for them.

I'm talking longer term -- the peak and decline of world oil production, with the former having occurred five years ago and the latter under way as we speak. As oil gets scarcer and scarcer, one thing it's not going to do is get cheaper, no?

As the system makes this transition toward cratering, it's no surprise that it's going to go through a lot of thrashing around, including a lot of price volatility.

True, in 1973, 1979, and 1991 there was no lack of supply. Interesting history, but basically irrelevant to the present.

[sofa king]

18. Then we largely concur, I think.

Frankly, I expected the nosedive a little sooner. Production has been at full tilt for the past decade and has never exceeded demand by more than one percent. So we've been on the razor's edge a long time.

I agree that that inevitable spike will cut to the very roots of economic theory.

And I'm sorry about being snippy. There's no place for that sort of behavior on an Internet message forum.

[Terry in Austin]

19. On the razor's edge, or, don't look down!

>> So we've been on the razor's edge a long time.

Production has gotten propped up over the last several years with a lot of "near oil" -- liquids, tar sands, etc. We're having a true "coyote moment" before the props give way and down we go. That light blue wedge in the graph is probably good to about 2015.

And yes, everybody behaves right proper on this here forum!

:toast:

[sofa king]

20. And then there's Fischer-Tropsch.

According to Stephen Ambrose, WWII Germany sacrificed its entire crop of beets and potatoes to produce synthetic fuels, and it was actually their good fortune that they lost when they did in 1945, as the nation was only saved from widespread famine by food imports from the Allies.

Would Americans divert its food exports around the world back into its own gas tanks? Do I even have to ask that?

[katnapped]

16. Did you see the latest?

Some of them are betting on a barrel running up to $250 by December.