Oil Prices Drop on al-Zarqawi's Death

That's interesting. Imagine oil prices if this Islam thing is defeated.

As noted by a poster over at Belmont Club, Light Sweet Crude futures dropped by $1.07. Apparently, that's what Z-Man's life was worth. LOL!!!

Osama would bring it down by another dollar. Ahmedinajaad another dollar. House of Saud - 50 cents...

Oh poo, it's all a Mossad/Zionist/Jewish /US/ infidel conspiracy. Prices will jack back up the minute bullets start flying again. Can't keep those good ol' jihadis down.

sarc/ON

Seriously, this is an interesting happenstance. Who woulda thunk the price of crude would go down?

hey if the oil goes down in price for just killing one monster. can you imagine killing a whole bunch of them Iran can do for the price of oil> l just say bombs away!

Tax oil. Tax gasoline. Do not let the price go down. Make sure that nuclear, solar and wind energy will be invested in, and no invester public or private need fear that the price of oil will go down. Put a tax, however small, on right now, to make sure the Saudi government and others understand that, at long last, the American government understands. Do it.

Agree with Hugh. However, Iran won't let us - nor the oil prices - down.

Good News comes in spades today!

Spikes and drops in the oil price are simply the machinations of speculators in the stock market. They do not reflect anything on the ground. All they reflect is what one speculator thinks another speculator is thinking of doing. If the weather channel says a hurricane is brewing, those same speculators will pump the price up $1.07 just as fast.

Iran doesn't set the price of oil, and neither do speculators. The international oil market is way too big for that. However, if properly done, a country like Iran can manipulate the market enough to profit.

Hurricane season has little to do with it, either. Sure, a good storm down here on the Gulf Coast can hamper production, but that's a real problem and not just a speculative play. Almost 20 percent of Gulf of Mexico production is still off line due to the hurricanes of last year. The storms were HUGE. One big Chevron platform, costing 250 million dollars (50% owned by BHP Billiton of Australia) was turned upside down and blown sixty miles until it stuck in the mud. (I was unfortunate enough to be a stockholder in BOTH companies, dammit) This wreck was one of many. Oil service companies are still working overtime to bring some platforms and drilling rigs back into production.

Oil prices are still high, but who's looking at natural gas? It has fallen more than 50 percent since last October.

Iran has threatened to interrupt oil supplies if it can't get its way with uranium enrichment. This is a hollow threat, meant only to scare the US body politic. Iran wants to avoid UN sanctions, because that will cut off imports to Iran, and, believe it or not, Iran has to import 40 percent of its gasoline and diesel fuel. It has a shortage of refining capacity. Iran also highly subsidizes its domestic gasoline prices, so motorists pay only pennies per gallon, less than bottled water. This costs the gov't lots of cash, and would cost more to keep up in the event of sanctions.

Hugh's idea of taxing gasoline, oil, etc., is a rational way to limit consumption. Higher prices always lead to self-imposed conservation and allocation of the scarce resource. This applies to artificially induced high prices (as through taxes) as well as to natural price increases. Of course, the tax does nothing to increase the incentive to find more oil and gas. It simply cuts the profit margin of the producer (or refiner, such as Valero Corp., who may not have any production at all).

The fact is that the USA has a population of (almost) 300 million and consumes about 25 percent of every barrel of oil produced every day of every week, everywhere in the world.

China has a population of 1.3 billion and India has a population of 1.1 (eight times the population of the USA) and their economies are growing at double-digit rates. Their demand for petroleum products is going up FAST.

On the supply side, Venezuela, Bolivia, Equador, and some of the "stans" are screwing around with nationalization, socialization, kleptocracy, and other assorted schemes that will mess up production. Nigeria (the eighth largest exporter) has lost 25 percent of its production to rebels (read: muslim kidnappers), and Russia, a huge producer, is probably already in decline due to corruption, mismanagement, and theft.

Dammit, I had to sell out my interest in two wells some friends and I drilled back in 1983 and 1984. The wells didn't produce much, but they were profitable at the $35 and $40 prices we were getting when drilled. But prices declined along with the economy and we began to lose money. We bailed out when oil was selling at under twenty bucks. It went to about 10 dollars.

So, how can Iran profit from manipulation of the oil market? Well, I think I'd rather not say for now. I have seen politicians manipulate other markets, and I have been hurt in pharmaceutical stocks (by one person in particular who is in office right now). I know how it is done. But I think I'll keep silent until I see something in the papers that tells me the tricks are already being played.

And the war goes on.

Texan, speculators don't set the price of oil, they influence it like speculators influence every commodity that is traded. That is why every bit of news from the mid east either causes the pump price to go up or down. They react to news, just as they reacted to the news of Zarqawi's death. So when the price at the pump goes up 20 cents overnight, or down 10 cents, it is speculators buying up, or selling off, oil futures. So even if there is no hurricane damage, just the threat of a hurricane, is enough to cause speculators in invest in oil futures, thereby causing the pump price to rise.

Somethingaboutislam, you are correct. Speculators can and do "influence" the price of commodities.

In studying prices and price movements, (IMHO) it is instructive to contemplate that for every buyer there is a seller (or, more accurately perhaps, for every purchase there is a sale).
This seems trite, but helps to protect me from the misconception that speculators only speculate on price rises by buying. Most professional speculators play the short side, selling first in the expectation of buying back at a lower price later. In this way, speculators contribute to market MOVEMENT, whether up or down, and furnish the market with needed liquidity, so that commercial users can hedge their needs or their inventories efficiently.

Actually, there are some respected academic studies that show that speculation in markets (such as futures) will generally moderate price movements rather than increase them. The theory is that speculators assume a risk that another market participant does not want, and thereby removes a portion of the risk premum inherent in a given commodity at a given time. And, the added liquidity narrows the difference between the bid and asked prices, easing the transaction costs of both buyer and seller.

One interesting speculation in the oil futures market is "putting on the crack" refering to the refinery process of cracking the crude oil into its products through fractional distillation. A trader buys crude oil futures and simultaneously sells futures in gasoline and heating oil. It takes more than a few contracts to get the ratio right, but it is an interesting way to play a decrease in the refining margin regardless of the direction of the overall prices. This play is not the sole province of speculators, as such, because a refinery might "put on the crack" to protect itself from an expected decline in the margin. A speculator in this transaction would contribute to a rise in oil prices and a decline in products prices. When he unwinds the trade, his influence is in the opposite directions.

Then there is the "reverse crack" where the speculator sells the oil and buys the products. A refiner or producer might enter into a spread like this, too, for commercial rather than speculative purposes. And, as you suggest, both of these spreads can be affected by the weather as one moves into and out of the heating oil season. I never had the courage to try this stuff, by the way, but have seen it done.

A refinery might buy futures to protect itself against an expected rise in prices of its feedstock, or sell futures to protect the value of its inventory.

These transactions would dwarf those of speculators like myself (I don't do oil by the way), because the volumes can be huge. Most refineries around here do several hundred thousand barrels of crude PER DAY, so a refinery hedging its needs a month at a time could buy or sell ten million barrels per month.

I appreciate your posts. Thanks for the opportunity to think about this oil thing. It's really ironic that so much of the world's wealth is underneath really cesspool countries, with such an absurd and dangerous morality. If they weren't so dedicated to killing us, and put all their energy into bettering their lives, there's no telling what they could achieve.

The manipulation of the oil market by speculators is obviously a complex subject. But the simple fact is that the world is awash in hydrocarbons, and a priori there is no good reason why we should be dependent upon murderous and corrupt regimes for our fuel supplies. Nazi Germany used coal converted into petroleum to fuel its war machine; this technology - now improved - becomes profitable at $35 per barrel of crude; the price of crude, of course, has been over $50 for the past year and shows no sign of retreating. We have vast reserves of coal, as well as untapped crude offshore and elsewhere. According to John Stossel, the tar sands of Alberta alone have enough petroleum to supply the entire world for a hundred years or more. Extraction of tar sands petroleum is already under way, spurred by high oil prices. Our government should be taking aggressive action to ensure that we shift our purchase and production of oil away from those who wish us ill and who profit from our dependency, to our detriment. That the oil companies continue to invest astronomical sums in places like Nigeria, versus Canada, is outrageous, given the options that are available. Yes, I understand that the crude from the Middle East and elsewhere is of a higher grade and more easily extractible than, say, Alberta, but all things considered, so what?