The Oil prices all over the world will not come down for a time being. The prices of Oil are rising due to many factors. But one of the major factor which has been underscored by many and is no where mentioned and discussed is the FORWARD TRADING IN OIL STOCKS.
In this Trading big MNCs are investing and buying stocks at the hir eprices and there is no limit to this stock buying. The stocks are sold when the prices go up by this they square off and losses they might have incurred againt the purchasing of oil at higher prices. So once they buy oil stock (not actually storing oil) they will wait for the oil prices to go up and they fuel such an oil rise at any costs, as their stock prices will also rise and consequently they will make huge profits.
Hence they buty the stocks when the rpices are low, fuel the price rise and make profits. Many MNCs with top political links are involved in this scandle. They have nothing to loose. They do not have limited salaried income and home budget contraints. It is a speculation game, where they grab hard earned money from every earthlings all over the world.
The scenario where in this speculation game collapsing is not far away. Many economits are fearing a globle slow down. If this happens the oil prices could take a nosedive. Many MNCs could loose their fortunes. But again such loss will come on the head of normal earthlings like you and me, as you are expriencing the pinch of Sub-Prime issue. Oil prices collaps will see collapsing of major companies and economies of few countries in Middle east, potentially dangerous region in the world.
So, at the momet what we can do is just stay away from buying avaoidable goods, controlling our urge to buy goods which we can dispense with. This will help in reducing inflationary pressure at the moment, though very megre. Little slow down will put those speculative community in pressure and they will start squarring off their positions.
Another factor is OPEC. Which is a cartel created by the nations to fund their econimic growth. Nothing is right. Today Singapore suggested creation of cartel for rice. Tomorrow it will be something else by some other country. This is in retaliation to OPEC.
Plead to GOD that this does not end up in breaking out of regional wars and such wars do not end in starting a third world war.
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7 comments:
Very imaginative
Are you just referring to how things work in India?
I believe trading in oil futures in the open market at least in U.S. requires you to take delivery of oil on the delivery date if you hold on to the contract. You could sell it but then you put the oil you initially took out is back on the market and the shortage is no longer there. In that case the price should come back down. I think the speculation angle is overplayed in relation to the oil prices.
The oil prices have gone up because of the rapid depreciation in the value of U.S. Dollar, shortage of new refineries, and no new discoveries of oil fields. Another reason is China in its attempt to get rid of its U.S. dollar holdings is buying up as much oil it can for its reserves. Don't get me wrong there is speculation because the oil futures contract I beleive are traded in dark ICE pools which are not regulated, but I am not quite sure how much effect this has had on the appreciation of the price of oil.
Thank You dear friend for writing your comment......But still.....
U.S.A. is where the speculation begings for the Oil Prices. Kindly check the OPEC price ($67 a barrel) and while it is priced at somewhere $135 in the US commodity exchanges, which decides world prices.
Considering the case of China, it might be cornering up some oil stocks, but it can not afford a weak dollar, when its economy is largely dependent on the US itself.
$67? How do I see the OPEC price? I wasn't aware that there were 2 different pricing mechanisms. My point was simply that the increase in the price of oil is not solely because of speculation as the media would have everyone believe. It certainly has had an effect but there are other things that have caused the price of oil to skyrocket. Like I said in my earlier post, if you trading oil on the exchanges, (thereby creating artificial demand and resulting increase in the price) you have to take delivery on the delivery date. Most speculators cannot take delivery because they have no place to store oil. Therefore, they have to sell it back on the market. By doing that they increase the supply and the price has to come back down to the same level as when they bought it.
Dear friend Thank You very mush for taking interst in my writings....
Well, absolutely this is one of the many reasons & not the only reason for rise in oil prices, which I had mentioned at the outset in my original post.
Elaborating on the Future buying of Oil not necessarily means buying oil in the phyisacal quantity, that is the first thing,
secondly you keep your call before buying the actual quantity, for number of days, say a month. Within this month (or a period depending upon as the rule of a particular nation allows), you give a call to buy oil. Suppose you have given a call at $1oo on 1st of the month, B, looking at the economic situation and other factors, will give a call for say $105 on 6th of the month. There are so many people who are ready buy these calls. By the end of the month or say on 28th of the month the call market goes to $120/= What you will do is sell your call which you had purchased for $100, making net profit of $20 in month. Now you will invest again $120 or more and will earn profit.
Here you will always pray that the prices go on increasign always. You will and all other dealing in the call market will see that the call market does not roll back. If it does, all those who are trading in calls will loose their money.
Now the actual seller, who has the stock, will look atthe call market, and will increase his selling price as per the call prices, becasue he knows there are people in the call market are ready to buy it. Hence the difference between the call market and real market goes on diluting.
Now PEC countries are not selling oil to retail outlets, from where people like you and me buy oil. The oil from these countries are purchased inbulk by oil marketing companies. There is a big network of oil refinement and subsequent ditribution and there are so many people involved at various stages. the network is so huge that we can not imagine.
Speculators come in at any stages. They just want to make profit without doing any actual work. They might be at the stage when the oil is crude, or when once refined it is to be ditributed. Some big corporate house may have hand in glove relations with oil mafias. You might be surprised to know that President Bush is deeply involved in crude oil business, may be not directly.
Actully this speculation in oil is not new. But the way the prices of crude oil has risen, it has come into eyes of storm.
Thank you, my friend, keep reading and commenting. It was nice to have you on my blog......
Thank you for your kind words. I was really only commenting on the speculation in the futures market as the media here blames that for the rise in the price of oil.
The way I understand it is that each futures contract for oil has an expiration date. For example, a speculator buys 1 August contract, which requires him or her to purchase 42,000 gallons of oil by the expiration date. Since the speculators can purchase oil contracts there is a perception that there is a higher demand for oil and the price of oil is going to go up. Now this doesn’t mean that the speculator has to buy the oil itself, because he or she can sell the August contract to someone else before its expiration date. However, on the expiration date of the August contract if they have not sold the contract, they have to take delivery of the 42,000 gallons of oil.
If the speculator sells the August contract, then they are putting 42,000 gallons of oil back on the market, thereby increasing the supply. If this oil comes back on the market then the price of oil for the August contract has to come back down because there is more supply. Therefore, the price of the oil should go back to where it was or close to it, before the speculator got involved.
In this example I just assumed that there was 1 speculator. Imagine the effect on the price of oil if all the speculators were trying to get out of the contracts at the expiration date, as they must because they cannot take delivery of 42,000 gallons of oil. In recent months however, the price of oil for an expiring contract has not gone down. In fact it has increased. How can the price increase at the expiration date if the increase was mainly because of the speculators involved in the oil futures market? I submit that it is because there is not as much speculation as the media claims there is.
Chidambaram has proved a complete disaster for the country inspite of all hype surrounding him.
He should have been chucked out long back.
Only Indians can be fooled by such egoistical persons.
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