‘Sup with that?

May 8, 2011

Last Thursday, I put $20 worth of gas in my Jeep — Union-76 at $4.45 a gallon for regular, and about the norm for this particular region of northern California.
One wonders when last week’s oil-price nosedive will be reflected at the pump.
From liveoilprices: Brent crude oil futures for June 2011 delivery ended the week’s trading session at $110.12 a barrel on the ICE Futures Exchange yesterday evening, $15. 83 lower than last week’s closing price of $125.95 a barrel.
And WTI also cratered: US Light crude oil futures for June 2011 delivery ended the week’s trading session at $98.12 a barrel on the NYMEX, a massive $15.81 a barrel lower than last week’s closing price of $113.93.

Oil is getting funny, and not ha-ha funny, either.

The quickness of the drop has even caused US AG Eric Holder to flash-out a memo for federal agencies on Friday, warning to be on the watch for any fraud or manipulation that could prevent consumers from enjoying lower gas prices at the pump as the price of crude oil declines.
Of course, big oil has already killed: The five largest oil companies—BP, Chevron, ConocoPhillips, Exxon Mobil, and Shell—last week announced first-quarter profits of $32 billion, up 30 percent from the first quarter of 2010. Exxon Mobil Corp. alone reported quarterly earnings of $11 billion, nearly 70 percent higher than a year ago.
And those guys don’t pay taxes, and some get rebates.

Apparently, oil wasn’t the only substance tanking this week with other commodities — basic resources such as crude oil, coal, salt, sugar, coffee beans, etc. — with silver prices down 28 percent,  sugar down 13 percent, natural gas down 10 percent, even corn, at $7.70 last month, had dropped to about $7 a bushel by Friday.
This is the wild-card people.

Speculation is like the word ‘assume’ — to assume something can sometimes make an ass out of you and me — but with a twist.
The whole operation is conducted in a vapor, nothing is for real, all is geared toward tomorrow.
From the late Bruce Babcock, reportedly an internationally recognized expert on commodity futures trading systems:

The process of trading commodities is also known as futures trading.
Unlike other kinds of investments, such as stocks and bonds, when you trade futures, you do not actually buy anything or own anything.
You are speculating on the future direction of the price in the commodity you are trading.
This is like a bet on future price direction.
The terms “buy” and “sell” merely indicate the direction you expect future prices will take.

In other words, a bullshit game.
The oil nosedive was a speculation, a bet that went awry in a big way.
Wall Street gambling allows tons of money to be thrown around like bits of shredded paper, blowing this way and that, and finally landing on the burden backs of consumers, who don’t have the resources to continue another day.
From MarketWatch on Friday:

“I think the whole world has been short dollars for a couple of years now and long everything else, then once silver started to crash it was time to get out of everything else,” he said (Michael Turner, strategist at RBC Capital Markets).
Independent oil trader and author Dan Dicker agreed, saying crude’s reaction to the drop was “great proof of just how much speculative money there was in the oil market.”
Noting that much of the drop included a large volume of margin selling, he added that the fall also showed “just how much stupid money there is in the oil game.”

How many of us bottom-dwellers have “stupid money?”

Right now, US peoples are spending about $1.5 billion a day at the pump, up from the recent norm of about a billion, and since January, gas prices have jumped about 30 percent, or about 90 cents a gallon.
A situation of tight money at the bottom: On average, Americans are now spending nearly 9 percent of their income on gas, double what they paid two years ago.
And despite some bullshit talk, oil is expected to rebound.

Last month, Washington Post columnist Ezra Klein looked at the-then high oil prices, saying speculation is not the real problem, but the actual can-of-worms here are really, really scary.
Money nut:

“The key question you should be asking is the following,” says Hamilton (James Hamilton, an energy economist at UC San Diego).
“Is the current price too high in the sense that the physical quantity being produced is greater than the physical quantity being consumed?
If yes, then where is the difference going, and what mechanism accounts for that?”
Left unsaid is the “if no.”
But if no, then who is supposed to start using less oil in the coming years, and if the answer is no one, then how, absent recurrent recessions, are we supposed to make what oil we have go around at a price the global economy can handle?
On some level, speculation is an easy problem to handle. It’s a problem you can crack down on. The same can’t be said for China, Saudi Arabia or the world’s dependence on oil.

A lot of bullshit thrown around in a tempest, which once quiet, will land again on the backs of hard-pressed US peoples.
And from Four Non Blondes:

So I cry somethimes when I’m lying in bed
To get it all out what’s in my head
Then I start feeling a little peculiar
So I wake in the morning and I step
Outside I take deep breath
I get real high
Then I scream from the top of my lungs
What’s goin’ on!

And the answer….?

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