What really triggered oil's greatest rout

[RandomGuy]

You can read the whole thing (http://news.yahoo.com/s/nm/20110509/bs_nm/us_financial_oil_rout)but it basically boils down to automated trading.


NEW YORK (Reuters) – When oil prices fell below $120 a barrel in early New York trade last Thursday, a few big companies that are major oil consumers started buying around $117.

It looked like a bargain. Brent crude had been trading above $120 for a month. But the buying proved ill-timed. Crude kept on falling.

"They were down millions by the end of the day, trying to catch a falling piano," an executive at a major New York investment bank said.

Never before had crude oil plummeted so deeply during the course of a day. At one point, prices were off by nearly $13 a barrel, dipping below $110 a barrel for the first time since March.

Oil's descent followed the biggest one-day price drop in silver since 1980 on Wednesday, after hedge fund titan George Soros was reported to be selling. Exchange operators raised silver's margin requirements, making it more costly to trade the metal and sending investors out of the market. Silver plunged by 20 percent, more by week's end. The rout unnerved some commodity investors.

Oil just doesn't fall by 10 percent in the course of a normal day, though. In commodities markets, oil is king, and its daily contract turnover, typically around $200 billion, is usually able to absorb even large inflows or outflows of investment.

The rare moves of $10 a barrel usually are set off by dramatic events -- the outbreak of the first Gulf War in 1991, or the collapse in 2008 of Lehman Bros bank, which both led to recessions.

Of course, there was major news last week. But the daring Pakistan raid that killed Osama Bin Laden had done little to shift the balance of oil markets on Monday.

In interviews with more than two dozen fund managers, bankers and traders, no clear cause emerged for the plunge in price. Market players were unable to identify any single bank or fund orchestrating a massive sale to liquidate positions, not even an errant trade that triggered panic selling, as seen in the equities flash crash last May.

Rather, the picture pieced together from interviews on Thursday and Friday is one of a richly priced commodities market -- raw goods have been on a five-month winning tear over all other major investment classes -- hit by a flurry of negative factors that individually could be absorbed but cumulatively triggered a maelstrom.

Computerized trading kicked in when key price levels were reached, accelerating the fall.

"It was a domino effect," said Dominic Cagliotti, a New York-based oil options broker.

... *rest of article at above link*

Leading me to wonder at the price of other commodities, like food and precious metals.

[boutons_deux]

I assume the $10Bs Wall St has to gamble in the secretive commodities markets means they influence the prices and win a lot more than they lose. It ain't "luck" or "hard work", it''s market gaming and corruption.

By the the way, the USDA-regulated derivatives/futures markets (was USDA originally to help farmers hedge against bad years) is closed, secretive, and restricted to the handful of Wall St houses who refuse any more members. Farmers get hit with "fees" and charges and have no idea why, what, when.

[Drachen]

You can read the whole thing (http://news.yahoo.com/s/nm/20110509/bs_nm/us_financial_oil_rout)but it basically boils down to automated trading.



Leading me to wonder at the price of other commodities, like food and precious metals.

Why does it lead you to wonder?? The part of the article that you posted said this:


raw goods have been on a five-month winning tear over all other major investment classes

It seems they already addressed your question.

[Wild Cobra]

You can read the whole thing (http://news.yahoo.com/s/nm/20110509/bs_nm/us_financial_oil_rout)but it basically boils down to automated trading.

The the conspiracy experts say it's the speculators.

We have seen this before, automated trading doing such things because so many people use the same software and triggers. I have always though that this automated trading should not be allowed. There should be a human lag in the process.

Boils down to supply and demand. everyone demanding at nearly the same time!

[RandomGuy]

On a related note:

Could there be another Flash Crash? (http://marketplace.publicradio.org/display/web/2011/05/06/mm-could-there-be-another-flash-crash/)

(short answer: yes)

[RandomGuy]

Why does it lead you to wonder?? The part of the article that you posted said this:



It seems they already addressed your question.

Perhaps I should have been a bit more clear:

I wonder how much volatility and run-up we will see in these things.

This is eerily similar to the Flash Crash, to me.

In the past there has not been a whole lot of "investment money" in these things, and it seems that investment money has been flowing into commodities, just as surely as it flows out.

The difference being, of course, that people actually end up eating food produced with these things. Drive up the price of grains, and people starve.

You can't say that with shares of say, 3M.

It may be time to put some common sense rules on commodity trading.

[boutons_deux]

"I wonder how much volatility and run-up we will see"

the peaks and troughs is how Wall St makes its money. Bid up/inflate a bubble, take profits, and let it pop. Unregulated capitalism is inherently unstable.

[jman3000]

I really don't see a problem with stop limits. I use them to lock in a certain percentage gain. They can be used to both lock in profits and stop losses from getting out of hand. I never own a stock without having one in place since it keeps me from ever losing more than 5% on an investment/trade.

[DMX7]

I didn't read it but automatic trading is highly dangerous.

[Wild Cobra]

"I wonder how much volatility and run-up we will see"

the peaks and troughs is how Wall St makes its money. Bid up/inflate a bubble, take profits, and let it pop. Unregulated capitalism is inherently unstable.
You're a fucking idiot.

Wall street doesn't need to create the bubbles. They happen when people are following the leader.

[RandomGuy]

You're a fucking idiot.

Wall street doesn't need to create the bubbles. They happen when people are following the leader.

The unrestrained free-market at work. :p:

[boutons_deux]

You're a fucking idiot.

Wall street doesn't need to create the bubbles. They happen when people are following the leader.

You're a fucking idiot, rendered naive and stupid by your "free market" fantasies.

Wall St has effective $Ts, on margin and low reserves, to pump up their own peaks, sell and dump. Combined with high-speed trading that makes them wining "leaders" over and ahead of tricked "followers", they can't lose. They run the casino and their "house" always wins overall.

You're a fucking idiot.

[boutons_deux]

opps, fucking idiot WC bitch-slapped again, by EXXON CEO. :lol

Exxon CEO Admits that Oil Should Be $60-70 Dollars a Barrel Based on Supply and Demand

Under probing questioning by Senator Cantwell, Exxon Mobil CEO Rex W. Tillerson admitted that oil should be $60-70 dollars a barrel based on supply and demand:

Some of the increase in price above this “supply and demand” level price is due to companies using futures contracts to lock in oil prices to ensure certainty (which is a valid business purpose).

Some of it is due to speculation. Indeed, using high frequency trading, it is relatively easy to manipulate the price of oil.

http://www.nakedcapitalism.com/2011/05/guest-post-exxon-ceo-admits-that-oil-should-be-60-70-dollars-a-barrel-based-on-supply-and-demand.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capi talism%29

[Wild Cobra]

opps, fucking idiot WC bitch-slapped again, by EXXON CEO. :lol

Exxon CEO Admits that Oil Should Be $60-70 Dollars a Barrel Based on Supply and Demand

Under probing questioning by Senator Cantwell, Exxon Mobil CEO Rex W. Tillerson admitted that oil should be $60-70 dollars a barrel based on supply and demand:

Some of the increase in price above this “supply and demand” level price is due to companies using futures contracts to lock in oil prices to ensure certainty (which is a valid business purpose).

Some of it is due to speculation. Indeed, using high frequency trading, it is relatively easy to manipulate the price of oil.

http://www.nakedcapitalism.com/2011/05/guest-post-exxon-ceo-admits-that-oil-should-be-60-70-dollars-a-barrel-based-on-supply-and-demand.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capi talism%29
That's right, ignore everything else he said that was more relevant on focus on one point.

[boutons_deux]

"focus on one point."

... the point that negates your bullshit that oil price is driven by supply+demand while the Exxon CEO says 30%+ is easily manipulated by traders.

[Wild Cobra]

"focus on one point."

... the point that negates your bullshit that oil price is driven by supply+demand while the Exxon CEO says 30%+ is easily manipulated by traders.
You are flat out wring. It was only one factor he talked about, and he never implied it supersedes the others.

Fantasize much?

[boutons_deux]

So, FACTORS like TRADERS, etc affect price of oil, what happened your supply/demand "factor" determining oil price?

[Wild Cobra]

So, FACTORS like TRADERS, etc affect price of oil, what happened your supply/demand "factor" determining oil price?
I never said traders don't effect the price. I am only saying you give them too much credit, that there are greater effects.

Stop putting words in my mouth I never said. I wonder what your problem is. Are you too stupid yo understand my words, or are you blinded by your hatred?

Maybe you are too stupid to realize that more than one factor can effect something at the same time?

[boutons_deux]

Oil and Finance

— By Kevin Drum
| Sat May. 14, 2011 2:07 PM PDT

Why are oil prices so high and volatile? McClatchy's Kevin Hall and Robert Rankin take a look at the evidence and say that neither supply problems, demand levels, nor Middle East turmoil really seem to explain it. The answer, rather, is a huge growth in Wall Street speculation:

Some 70 percent of contracts for future oil delivery are now bought by financial speculators — largely big investment banks and hedge funds — who never take control of the oil. They just flip the contract for a quick profit.

....Exxon Mobil Chief Executive Rex Tillerson noted Thursday in testimony before the Senate Finance Committee that this year's oil prices don't make any economic sense, though that's not quite how he put it. He said that current fundamentals and production costs would dictate oil in the range of $60 to $70 a barrel. That's at least $43 cheaper than this year's highs of $113 a barrel reached on April 29 and May 2.

....Prior to the 1990s, speculators made up about 30 percent of the futures market. In the latest reporting period, the ratio on May 3 stood at 68 percent speculators to 32 percent users of oil. Meanwhile, the volume of total reported trades has grown five-fold since 1995, underscoring the impact of speculation on futures markets.

"It tells me that there are more speculative positions than there has ever been in history, particularly in the energy sector, I don't mean only crude oil," said Bart Chilton, a CFTC commissioner who thinks excessive speculation is at least part of the cause of soaring oil prices. "In all of the energy sector, we've seen a 64 percent increase in speculative positions since the (oil price) high of 2008."

This explanation for high and gyrating oil prices is — well, still speculative, I guess. There's no smoking gun. But cheap money has to flow somewhere, and with housing in the dumps and the real economy still sluggish, there are a limited number of markets big enough to absorb huge quantities of short-term speculative investment. Oil is one of them, so it's an obvious place to look.

http://motherjones.com/kevin-drum/20...il-and-finance

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WC's reading: "There's no smoking gun" and ignores the rest of the evidence. :lol