documentation of speculations impact on current oil prices from yesterday's wsj

[David Farber <dave () farber net>]

________________________________________
From: Martin Burack [marty () burack nu]
Sent: Sunday, May 25, 2008 11:24 PM
To: David Farber
Subject: Re: [IP] documentation of speculations impact on current oil prices from yesterday's wsj

Dave,

First, we don't use 33 million barrels of oil per day; the figure is less
than 21
million.  See:
http://www.nationmaster.com/graph/ene_oil_con-energy-oil-consumption

According to the head of the American Oil Institute, worldwide oil demand
is 86 million barrels a day, while production exceeds this by 2 million
barrels.  According to Department of Energy estimates, supply and demand
are in rough equilibrium, varying somewhat from quarter to quarter.  See:
http://www.eia.doe.gov/emeu/steo/pub/3atab.pdf   So, fundamentals don't
explain why oil has shot up again in the past couple of weeks, nor why it
is up so much in the past year or so.

In March, 2008, oil futures fell almost $10 in three days, in part because
of false rumors the Commodity Futures Trading Commission was on the verge
of significantly raising margin requirements for commodity
positions.
http://www.minyanville.com/articles/Bernanke-Fed-commodities-ubs-china-india/index/a/16416/from/yahoo
3/26/08

Business Week has done Pulitzer prize level reporting on the problem,
including how oil fell 35% in 2006-2007 when speculators pulled out for a
while, with no meaningful change in supply and demand fundamentals. .
http://www.businessweek.com/bwdaily/dnflash/content/jan2007/db20070116_499932.htm
and
http://www.businessweek.com/investor/content/oct2006/pi20061004_295294.htm

Michael Masters has long been regarded as one of the most respected hedge
fund managers in the industry.  According to him, there is a new breed of
speculators around now, and they have influenced prices beyond supply and
demand fundamentals.  His testimony to Congress is described in the
Business Week article quoted by Paul Fodes (below).

As long as the 400 or so commodity hedge funds and the major banks and
brokerages are allowed to trade futures contracts with margin rates at
around 5%, we'll continue to bleed.

Regards,

Marty Burack




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