Refinery oil premiums cast doubt on speculators

[GliderGuider]

Refinery oil premiums cast doubt on speculators

Refiners are paying record premiums for the high-quality crude oil they use to produce diesel and petrol, a sign of strong demand in the physical oil market that calls into question claims that soaring oil prices are being driven by speculators.

Refiners are paying up to $5-$6 a barrel on top of current record prices to secure high-grade oil, traders said, double the level of a year ago. The mark-ups are four times higher than the 2000-2008 average. The movement in prices paid for physical barrels of oil has gone largely undetected outside the refinery industry because financial markets pay almost exclusive attention to the price of oil futures traded in London and New York.

The fact that refiners are willing to pay a higher price for physical supplies than the futures benchmark lends weight to the argument that speculators are not the cause of record oil prices. At the same time, though, refiners are obtaining unusually large discounts for low-quality crude oil, traditionally refined into fuel oil. Traders said supplies of low-grade oil, typically produced in the Middle East, are relatively plentiful.

I have always maintained that speculators and the influence of "Big Oil" are playing a very minor role in the current run-up of oil prices. IMO the price is almost entirely due to market fundamentals. At the same time, it appears that the global oil supply is increasingly composed of heavier oils. That's not an encouraging sign, and it's one that is concealed by looking at the oil supply as a fungible 85 million barrels per day.

[ret5hd]

1. This guy thinks it is not current speculators, but past "shorts"...

now having to cover their bad bets. What is funny about this scenario to me is the amount of wailing here about "long" speculators purposely causing the run-up in prices so they can profit, when it may actually be "short" speculators (who would LOVE for the price to decline) that are causing the problems.

http://news.silverseek.com/TedButler/1213126384.php

[GliderGuider]

3. The oil market has its shorts in a knot?

From your link:

In terms of equivalent days of world production, the comparisons are off the charts. In crude oil, the 8 largest short traders represent 2 days of world oil production (174 million barrels held short vs. 85 million barrels daily production). In gold, the 8 traders hold short 103 days of world mine production (22.8 million ounces vs. 220,000 daily world mine production). In silver, the 8 largest traders hold short 183 days of world mine production (330 million ounces vs. 1.8 million ounces daily mine production). Under this comparison, gold has a concentrated short position more than 50 times the concentration in oil, while silver is 90 times more concentrated than oil. This is simply astounding.

He may be right that the shorts have more responsibility than the longs for driving up oil prices, but I can't see how two days' supply would give them enough leverage to drive a 100% price increase over a single year. Not all by themselves, anyway. The price is climbing because of fundamentals, and they're being forced to cover -- that adds some volatility, but it's just froth on top of the ocean of underlying forces.

[Speck Tater]

5. And still people cling to the fantasy that it's all speculation...

and that Washington can pass laws to bring gas prices back to "normal".

Eventually they will begin to realize that the new "normal" is high, higher, and outrageously high prices, followed by actual shortages, followed by economic meltdown.

[GliderGuider]

6. Even if people come around to that realization

The sheeple will always find someone to blame. I'm constantly amazed at the resilience of the blame reflex in human nature. It's a consequence of our culture's core belief that humans are all-powerful and actually rule the planet -- so if something is going wrong it must be somebody's fault. That core belief is quite resistant to change, so I don't expect to see any real shift until well after things have actually begun to fall apart.

[phantom power]

7. It also fulfills the need to believe there's a solution.

Or, more specifically, an easy solution. Just apply your jawbone to the right people, and everything will go back to normal.

Isn't the scapegoat some kind of Jungian archetype?

[GliderGuider]

8. A round of 100 mpg carburetors for the house, barkeep!

The scapegoat is indeed a Jungian archetype: http://www.csulb.edu/~csnider/jungian.outline.html

[Speck Tater]

9. You can tell somebody's politics by who they blame.

Folks on the right blame "liberals" and "environmentalists".
Folks on the left blame "greedy corporations" and "wealthy speculators".

Both extremes miss the point that this is a deeply complex problem that cannot be solved by the usual scapegoating of "the evil bastards on the other side".

[Speck Tater]

2. Look at the latest from the International Energy Agency (IEA)

--quote--
A good place to start looking at the current situation is with the latest International Energy Agency (IEA) and Energy Information Administration (EIA) monthly reports which were released earlier this week. As could be expected, high prices have led to a drop in demand now projected to be 280,000 barrels a day (b/d) in the U.S. and other OECD countries during 2008. This drop however is easily offset by a 1.2 million b/d increase in demand by other countries such as China, India and the Middle East.

Growth in worldwide oil supply is not doing well. Non-OPEC production is sagging and is expected to increase by only 310,000 b/d this year and OPEC currently is close to producing flat-out out with new projects slipping. OPEC’s production is now expected to grow by only 500,000 b/d during 2008, half of the amount anticipated earlier this year. The bottom line is that supply is not keeping up with demand.

The most troublesome aspect of the IEA report is that OECD crude stocks fell by 8.1 million barrels in April – a time of the year when they typically increase by 30 million barrels. Preliminary numbers suggest that the drop is continuing in May and June. The world is living off its stockpiles, a situation that will not long endure. If it turns out that supply only grows by about 500,000 b/d while demand increases by 800,000 b/d, it should be obvious that prices are going up until the demand falls.

more at: Peak Oil Crisis - The Summer Ahead

[GliderGuider]

4. Whipple knows his stuff.

Over the longer run, the only alternatives are much higher prices or massive emergency conservation measures, likely including rationing, much economic hardship and undreamed of changes to our lifestyles.

I tend to agree...