Last night’s 60 Minutes had a story on Oil Speculation. Its not that they said anything that was factually wrong per se, its more that they told 10% of the story of the rise and fall of energy prices. The entire report was surprisingly thin, and avoided discussing all of the many other factors that had been impacting energy prices during the 7 year rise and subsequent collapse (60 Minutes video here).

Very often, major bull market moves begin on fundamentals, but shift towards the end of its life into a speculative frenzy. These always end in a price surge (i.e., a blowoff top), which is followed by a collapse. But note that it is in the end game where speculation dominates, not the first 7 or 8 innings. That was true as much for Housing in 2005-06 as it was for dot com stocks in 1999-2000.

Hot markets always attract hot money.

But merely claiming that the run up in Oil prices was due to unprecedented speculation misses the big picture of what actually occurred. And, it reflects a lack of understanding of how markets work, and the psychology of booms, bubbles and busts.

Here are a few factors that I believe the folks at 60 Minutes either misunderstood or overlooked completely during the run up from $20 to $100:

1. Oil is priced in US Dollars. Since 2001, the Dollar fell 40% (from 120 to 72); Oil rise nearly 5 fold over the same period. And Oil’s collapse occurred over a period when the dollar formed a short term bottom; it has certainly had its most significant rally in years (72 to 88).

2. Over the same period that Oil prices were rising, the US was fighting two major wars in the Middle East, Iraq and Afghanistan. These impact prices via psychology and risk of supply disruption — especially at a time when producers were running flat out.

3. Energy prices rose during a global economic expansion (fueled by low rates and cheap money); Oil fell during a period that marked the beginning of the US recession and the start of a global slowdown.

4. Since 2001, Commodities of all sorts rose significantly: Steel, aluminum, cement, cotton, soy, livestocks, foodstuffs, precious metals, etc. Were they all driven by speculation, or was something else going on?

5. Since the 1% Fed funds rate of 2002-03, inflation has had a dramatic impact on ALL prices — from medical costs to insurance to education to health care to transportation to housing to food and energy. That 60 Minutes failed to even mention inflation in a piece on Oil prices is a terrible oversight on their part.

6. Throughout the 1990s and 2000s, cars were increasingly replaced with SUVs and trucks in the United States. Not only did these get appreciably worse gas mileage, that fleet transition took place as the total US miles driven rose. Over the past 20 years, people have lived increasingly further away from their jobs. Hence, increased US demand for energy accompanied (and increased prices).

7. Since gas prices hit $4 a gallon and the recession began, total US miles driven fell significantly, by several billion miles. As expected,t he drop in driving was followed by a fall in prices.

8. 60 Minutes interviewed Mike Masters, a hedge fund manager who had testified before Congress that speculation was driving prices. They omitted to mention he was talking his book.  His holdings in energy sensitive stocks — with large positions, the vast majority in call options, in AMR Corp (AMR), the parent of American Airlines, Delta Air Lines (DAL), General Motors (GM), UAL Corp (UAUA) and US Airways (LCC) — were responsible for his fund losing 35% of its value before the Fall 2008 market collapse..

9.  China boomed~! More and more global manufacturing outsourcing saw factories being built throughout China. They also went through a wild process building out the nation in preparation for the 2008 Olympics held there. Oh, and China, like the US, also began filling its Strategic Petroleum Reserves. Another small country, India, was booming over this period also.

10. The rise of extremist terrorist groups like al-Quada, the hostility of Iran towards the West, supply and political disruptions in places like Nigeria, and overt hostility to the US by oil producers like Venezuela President Hugo Chavez also contributed to drive prices up.  The political factors were also omitted.

There’s a lot more, but the bottom line is this: Higher energy prices were caused many many factors over the past 8 years. Certainly, speculation played a part at the end of the run — but it always does. Oil fell more precipitously than it rose, but don’t all markets do that? Didn’t the S&P just plummet nearly 50% in a year, after a 5 year run?

Speculation is merely one aspect of what happened. 60 Minutes missed the other 59 elements . . .

>

Previously:
The Costanza Energy Policy: 25 Ways to Drive Oil to $150 (May 29th, 2008)

http://www.ritholtz.com/blog/2008/05/the-costanza-energy-policy-25-ways-to-drive-oil-to-150/

Clarifying CNBC Oil Comments (December 22nd, 200)

http://www.ritholtz.com/blog/2008/12/clarifying-cnbc-oil-comments/

Sources:
Did Speculation Fuel Oil Price Swings?
60 Minutes: Speculation Affected Oil Price Swings More Than Supply And Demand
CBS, Jan. 11, 2009

http://www.cbsnews.com/stories/2009/01/08/60minutes/main4707770.shtml

Fisking Michael Masters
NakedShorts, June 26, 2008

http://nakedshorts.typepad.com/nakedshorts/2008/06/fisking-michael-masters.html

Category: Commodities, Energy, Financial Press, Markets, Really, really bad calls, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

67 Responses to “What 60 Minutes Missed on Oil Speculation”

  1. To ponder: Maine public library offers itself as a “heat shelter” to people who can’t afford heating oil and also reports an increase in people borrowing books:

    http://kennebecjournal.mainetoday.com/news/local/5786071.html

  2. Tucker says:

    Spot on Barry. This is why millions of us read you everyday.

  3. Andy Tabbo says:

    Generally agree here Barry, but I don’t like the way you summarily dismissed Master’s claims. You’re entitled to your own ideas, but not your own facts. The fact is that pension funs and endowments plowed large sums of money into all “commodities” as a new “asset class” in 2004. This was not “hot money.” This was large money that was sold the bill of goods that they could diversify away from stocks (stung by the 2000-2002 collapse) into a “new asset class.”

    It was complete bullshit of course. The CRB indexes all saw a sharp uptick in “long only” investing of commodities in 2004 that continued on a parabolic rate in 2005, 06, 07 and 2008. The amount of money flowing into commodities was “small” compared to the equity and bond markets, but was actually a VERY large sum of money compared to the extremely tiny commodity markets.

    The fact is that this instutional flow of funds into the “new asset class” SWAMPED the relatively tiny commodity pits beginning in 2004.

    Yes, yes, yes…there was a “good story” to go with it…yada, yada, yada…China, India, etc….but you cannot dismiss the “new asset class” development starting in 2004.

    - AT

    ~~~

    BR: I don’t disagree that that commodities as an asset class found their way into many different buyers. But let’s not present this guy as an objective 3rd party. My criticism is he was an interested party based on his own HIGHLY SPECULATIVE OPTION positions — and that should have been disclosed.

  4. lg71050 says:

    As Brad DeLong likes to say, “why, oh why, can’t we have a better media?”

  5. m111ark says:

    So, speculation ALWAYS plays it’s part at the end of a run. Of anything? How the the run the US has had for the last 60 years? Since the Twig and his gang has plundered this country the last 8 years, we’ve added 5 trillion in new debt and 4 trillion in GDP. Now we’re going to be adding at LEAST a trillion a year as far as Obama can see.

    Seems like a clear example of speculation at the end… of the US.

  6. Cybernaught says:

    Yes Barry. There were and are many factors affecting the price of commodities.

    If true, the fact that 300 billion of speculative money could move the oil market and create the kind of blowoff that extracted hundreds of billions from the pockets of consumers, calls into question the “efficiency” of the present form of the “free” capitalist system. In a time of 50 billion $ ponzi schemes, and trillion $ bailouts, that kind of money is easy to assemble. If it’s so easy to game the system, the system is seriously flawed. The post-bailout world, awash with dollars awaits.

  7. EorrFU says:

    This may not be the place but I still am waiting to understand the economic theory behind the speculation bubble. As far as I can tell any speculative bubble would have driven up inventories during the bubble. Were these hidden? It wasn’t like Enron and electricity where they called control rooms and told them to shut down, nothing like that happened. What speculation would cause an oil refiner to pay sooo much more than it has to? The speculators could cause a short run-up of futures but in the end they would be killed when they HAVE to unload it before they take delivery. I am willing to accept speculation as an answer, but in any market eventually the speculators would be unable to keep up the prices because of the fundamentals. Then the market killed the speculators like it should have and everything is better.

    If it was speculation how can you change the price mechanism without hoarding????

  8. Chief Tomahawk says:

    By the way, I was watching CNBC the day oil broke last summer. CNBC cut to Sharon Epperson in the pits and said the explanation for what was going on was “the banks were selling”. So, perhaps “60 Minutes” did get that part of the story right last night.

  9. Greg0658 says:

    Cybernaught – hear hear (or is it here here)
    on the post in general I agree theres more than one cause .. but I wonder, can a % be arrived at

    11. an oil state executive in the White House
    12. persistant story that oil is drying up

  10. bcasey says:

    Barry you missed the point, 60 minutes was just showing another way that speculators have contributed to our downfall, and should have their heads mounted firmly on stakes. Speculators big and small all had their part from the little guy getting cash out of his house value like an atm, and buying an SUV with the money, to the folks living an unrealistic lifestyle in an overpopulated city that sucks off the entire GDP of this nation to sustain itself. I predict that as long as people keep missing the point that we are living byond our means, we are doomed to failure.

  11. Bob A says:

    60 minutes is a joke but it’s about as deep as most Americans are capable of handling.

    Sad but true.

  12. Greg0658 says:

    13. Katrina

  13. flipspiceland says:

    They may have missed 59 other reasons, but the number of those 59 reasons do not amount to a hill of beans.

    Speculators, and ONLY speculators caused the rapid rise in a few months. I was one of them.

  14. 1-14. Negative real interest rates in the currency with which oil was priced, i.e., it was all about the benjamins. Too many of ‘em, plain and simple. But for the excess money creation, there would not have been a commodities boom and bust, nor a housing boom and bust, nor a tech-stock boom and bust. Debasing the currency always causes booms (temporarily), which is then followed by busts.

    Just as oil is priced in dollars, dollars are priced in oil. That our stupid central bankers were incapable of seeing that is just more evidence of their feckless management of the currrency.

  15. zell says:

    The MSM starts out with two deficits much like stock shills: stupidity and shallowness. Then they add to that the maxims of the MSM which is simplify and sensationalize. Last Night Mrs. Zell was talking to a nephew, a senior producer at one of the networks, about the economy and as usual found him full of sound bites and jaw droppingly ignorant.60 minutes is especially good at what they do.

  16. constantnormal says:

    60 Minutes did a pretty good job of making their case, repeatedly making the disconnect between demand and prices.

    “Didn’t the S&P just plummet nearly 50% in a year, after a 5 year run?” — Barry, I think you’re stretching on this one, if you want to portray the plummeting of just about every asset class as any sort of “normal” behavior. The huge run-up in oil prices did not simply arise out of a “normal” bubble, any more than the run-up in the 1970′s did.

    Both moves were beneficiaries of overt market-manipulating actions, in the 1970′s it was OPEC flexing its muscles, this time around it was a variety of traders with outsized amounts of influence. In the case of heating oil, principally Morgan Stanley. What banker dealing in grain futures buys grain elevators to stockpile the grain they are “trading”?

    If even the Bush see-no-evil CFTC can finally manage to detect speculators as having a significant impact on the oil markets, that’s probably more than enough evidence that there was speculation out the wazoo that was distorting those markets, and drove prices higher than any rational supply-demand relationship could explain.

    ~~~

    BR: Look at the 1990-2000 tech stock run — the huge drop in the Nasdaq took place over 2 years.

  17. bcasey says:

    Speaking of which, I want lions, real lions. Spectator sports have become way too tame these days. Give me a couple bankers runing from a lion, and that will keep conversation going around the water cooler for way beyond the morning break period. Gladiators would be kewl too, maybe autoworker vs, hedge fund manager. But I’ll seetle for lions.

  18. ottovbvs says:

    BR: while many of the factors you mention may be relevant it doesn’t recognize the fact that over an 18 month period oil went from around 60 bucks to 147 bucks while real demand was falling for part of the period. And surely Masters book is irrelevant that’s a bit of personlization. Croft also had a guy from the Petroleum Marketers and the OFTC both of whom confirmed what happened. The juxtaposition of the Morgan guy with the email of his global strategist was classic. You’re stretching a bit here.

    Bob A Says:

    January 12th, 2009 at 9:40 am
    60 minutes is a joke but it’s about as deep as most Americans are capable of handling.

    Sad but true.

    How are they a joke. Do you disagree with the case they made over oil speculation? If you do say how, don’t just give us a personal dismissal. Relative to the sound bite nature of much of TV journalism 60 minutes does a good job of explaining most subjects it tackles and some of its personality profiles of entertainers are excellent. That’s why the program has remained popular for so long.

  19. Andy Tabbo says:

    BR@8.30.

    Agree. All disclosures should be made by EVERYONE who comes on TV. His positions should have been disclosed. That being said, it doesn’t mean his argument was incorrect.

    I know many, many oil traders who agree with Masters’ arguments. A lot of us have been screaming for years about the perversity of “Long only Commodity Funds.” Almost every commodity trader I know will tell you that commodities as an “asset class” is the most ridiculous concept ever imparted onto investors.

    Goldman did a great job sucking big money into that fiction.

  20. whitespiral says:

    Heads on stakes….wow.

    Try explaining the trillions of USD that have been sloshing around global markets courtesy of your Federal Reserve and then try blaming those on the receiving end of Easy Al’s Free Cash Party!

    Barry is right-Hot markets attract hot money. And when you have a boatload of hot money on that same pile of assets/capital goods/commodities as you did before, what do you get? Speculative frenzy, and inflation. (Not the ex-fuel, ex-food, ex-housing, ex-everything that matters kind-the REAL kind).

    Tulips, Mississippi Shares, Tech Stocks, Housing, Oil……all that money just needs an excuse of good fundamentals, and then the great rush begins.

  21. bcasey says:

    That’s “heads firmly on stakes”, can’t have them falling off the first time someone waves them around.

  22. Two points:

    1) Oil rose in price during the economic boom of 2002-2007. It then fell in price during the economic decline in the past year. The boom/decline of the economy and oil prices do not match up perfectly, but other than that, the price of oil has done what one would expect. What is the problem here?

    2) Maybe your problem is with the blow off top from last summer. When you have loose economic polices like we’ve had worldwide that leads to mass speculation via leverage (debt). Why are we then surprised that some of this new money created by leverage (debt) went into oil? If you are surprised, you must not understand how the relationship between leverage (debt) and monetary policy work. Not surprising, considering the massive amount of misinformation out there.

  23. jason says:

    Look out below?

    s&p blew through 878

  24. Andy Tabbo says:

    @jason.

    My last line in the sand for SP500 is 875, the 78.62% of the 857-944 move. To give it the benefit of the doubt, you can use 870 as the 85%, but the bottom line is the S&P500 is now breaching the two identifiable uptrend lines and now it’s pressing a must hold level and it’s not looking good.

    HOWEVER, the Euro is resting on critical support and the Yen is pressing an area that should give some serious resistance, so right now I can’t advocate a hard sell. Things are looking poor…trendlines have been broken…key support levels have given way like they didn’t even exist…so of course, we’re now due for a little bounce…give the bears something to think about. If the Eur/Yen can bounce, all assets will automatically bounce with it.

  25. jason says:

    AT – as always thanks for the insight.

  26. Bob A says:

    ottobv: you prove my point

  27. Broken says:

    Outlaw financial firms from leasing supertankers and storage tanks for the purpose of market manipulation. Some 30% of US oil storage was leased out to GS, Morgan, etc during last summers price run up.

    Likewise with grain silos, etc.

  28. DL says:

    OnlineBrokerReview @ 11:38

    Yes, the role of credit in oil prices rarely gets any mention.

    Also rarely getting mention are the producers themselves, who can withhold product from the marketplace.

    Then, of course, there are all those people in this country who are opposed to increasing oil and natural gas production.

  29. mryzenga says:

    All this talk leaves me to speculate, but anyway you see it there’s massive corruption going on and people must be held responsible.

  30. delundell says:

    Actually, the 60 Minutes report did address 3, 4, 6, 7, & 9. Given that a 15 minute report had only so much time to devote to making a convincing case for its thesis (which it did), I believe they did a nice job. Points 1 & 5 are valid. Your other points fail to explain BOTH the run up AND fall off in oil prices over that last 24 months.

  31. Moss says:

    Barry: You are right to point out those other factors, some of which had a role in the price movement. But the bottom line is that institutionalized price manipulation was in full force and was the main reason for the spike and subsequent decline. It is just another example of the incredible corruption that has permeated the so called free market system. The culprits and the enables are the usual suspects.

  32. Robert says:

    Thank you for nailing this Barry. I watched this hit piece on their website this morning and was spitting nails.

  33. MorticiaA says:

    DL: Thanks for the link. Pertinent data and good insight.

  34. DL says:

    Moss @ 1:09

    “It is just another example of the incredible corruption that has permeated the so-called free market system.

    I think it would be helpful to provide a few examples of how corruption caused oil prices to rise in the first half of 2008, and how corruption caused oil prices to subsequently fall in the second half.
    (I’m looking at this more in terms of supply and demand than corruption).

  35. wavey says:

    Don’t know if anyone saw the Leslie Stahl piece in December on Saudi Arabia and its philosophy of oil production and marketing. It was a) shallow and b) stupid. The shallowness was the total America-centric view of the issue of supply and demand of petroleum, no mention of climate disruption, and the issues of peak oil (or not.) The complete innumeracy was quite amazing to see. Wife doesn’t like it when I shout at the screen. Speaking of innumeracy, DL gets a demerit for thinking US production of petroleum can have much effect on world prices. You might make an argument for natural gas, given the relatively insular nature of the North American market.

  36. DL says:

    wavey @ 2:01

    I never said that drilling in the U.S. would have a big effect on world oil prices. But from a PURELY ECONOMIC point of view, I fail to see how wind and solar energy is going to be so much better than drilling for oil and nat gas here in the U.S.

    And for those who support the Pickens plan (it sounds reasonable to me), I have yet to hear Nancy Pelosi go in front of the television cameras and say that she wants more drilling for nat gas.

  37. GloomBoom says:

    60 minutes is a shallow entertainment program and they were looking for a scapegoat. Gotta have a brain to be a skeptic.

  38. DL says:

    GloomBoom @ 3:32

    Yes, well it seems that there are a lot of MSM journalists who fashion themselves as “shallow entertainers”.

  39. patfla says:

    Barry – those are all macro factors. There were a number of technical factors that were also necessary. Sine qua nons? (don’t know).

    The Commodity Futures Modernization Act of 2000 – under Clinton. One of whose sponsors was Enron.

    Then later the ICE exchange in London. Where, for the first time, US-based traders were able to trade WTI (as opposed to Brent), and outside the purview of the CFTC. Although the head of the CFTC, during that period of time, was a Bush appointee.

    ICE stands for IntercontinentalExchange – a company in Atlanta, GA. I’m sure they were making money hand-over-fist at that time. I’ve meant to look them up further. Who are their officers; what are their backgrounds? What political connections the firm has? Although, at a minimum, I’ll definitely recognize their name if-and-when it reappears.

    Congress finally got hipped to the (non-) relationship between the ICE exchange and the CFTC and there was legislation closing the no-CFTC-oversight-of-the-London-ICE-exchange passed about the same time that oil peaked.

    I knew all the macro factors that you mention, but when the legislation I referred to immediately above was passed, then I knew it was time to take position in DTO. Which I did, and rode for quite some time.

  40. Steve Barry says:

    When oil was trading at 150, I surmised the price was composed of roughly:

    $70 supply and demand
    $30 due to the weak dollar
    $30 War/Terror premium
    $20 Speculation

    While I agree that the 60 Minutes report was lacking (didn’t mention the dollar at all), it did make me re-think the effect speculators had….Maybe now I would say $150 was:

    $40 supply and demand
    $30 weak dollar
    $10 terror
    $70 speculators

    Today, $40 oil is probably:

    $20 supply and demand
    $5 weak dollar (it has rallied hard)
    $10 terror
    $5 specs

  41. cy says:

    I used to trade on the floor of the nymex and now trade energy futures for a living on both the nymex and the ICE. I can guarantee you that anyone claiming that the spike was the conscious, intended work of “speculators” has never traded a contract in his life. Was some of the move due to investors treating oil as an asset class? Absolutely, however most of them probably got their heads taken off. Also, if a person decides he wants to “invest” in crude oil, guess what, this is america–he’s allowed to.

    It’s amazing to me how many people want to blame speculators when there is ZERO evidence of price manipulation. The 60 minutes piece threw it in there at the end that there is no evidence of any wrong doing by morgan stanley or goldman whatsoever. Please answer this–if there was a speculator or a group of speculators who could move the market for their own gain, why are they not still doing it? Why don’t they do it again? Why aren’t they doing it right now in another market?

    Lastly, I’m shocked that there’s not more gratitude out there for the price spike. Think about it. The price moving to the high $140′s has gotten more people thinking about conservation, fuel-efficiency, and alternative energy than any politician or regulation possibly could have. Sure, it was painful for awhile, but now society gets to enjoy the fruits of all the capital that got poured into increasing fossil-fuel and alternative production. CHEAP OIL IS NOT YOUR BIRTHRIGHT. It is going to take massive investment (and hence massive risk-transfer…you should be thanking the speculator!) to keep the oil flowing. Attacking speculators may deliver some psychological satisfaction in having someone to blame, but ultimately it is only going to reduce your quality of life.

  42. patfla says:

    Cy,

    > Please answer this–if there was a speculator or a group of speculators who could move
    > the market for their own gain, why are they not still doing it?

    Because Congress began to require CFTC oversight of the ICE exchange.

    > Why don’t they do it again? Why aren’t they doing it right now in another market?

    1) liquidity isn’t what it used to be 3) morgan stanley and goldman as the gateways to these trades and _as investment banks_ no longer exist since they’re now bank holding companies. Oversight has increased there as well.

    And 3) such speculative opportunities are rare. It’s my opini0n that what happened last summer had to piggyback itself on a perception of extremely tight supply vs. demand. That no longer exists.

    > Also, if a person decides he wants to “invest” in crude oil, guess what, this is america–he’s allowed to.

    Well actually it’s part of the CFTC’s original mandate to keep a close watch on trading in certain fundamental necessities such as oil.

    > Lastly, I’m shocked that there’s not more gratitude out there for the price spike.

    Yes. And then prices fell precipitously cutting the legs out from under a great many ventures and confirming the business community’s wariness of the extreme volatility of energy markets. Even something like shale oil has taken a hit. Shale oil would make the US independent in natural gas (although natural gas is much less of a problem than oil).

    http://tonto.eia.doe.gov/energy_in_brief/natural_gas_production.cfm

    For a time and with shale oil, natural gas effective reserves were growing faster than use. Natural gas is cleaner by half than oil (4 hydrogen bonds to one carbon vs. 2-to-1).

    If people will remember, the natural gas bubble (as it were) burst before oil. And wasn’t as large in the first place. Still the two are (of course) closely linked.

  43. willid3 says:

    some things that make you think that 60 minutes left out for lack of time. that might prove that speculators were more involved than even what 60 minutes had to say.

    http://www.star-telegram.com/ed_wallace/story/651928.html
    http://www.star-telegram.com/ed_wallace/story/659081.html

  44. Steve Barry says:

    CY:

    Since oil made its highs, the US Dollar index has risen about 15%…that would take oil from 150 to 125 lets say. The terror/war premium is about the same. Demand has dropped due to the economy, but we all still need gas to drive and oil to heat our homes. There is no way demand dropped so fast to drop oil another $85 a barrell. It had to be speculators. That is the only way it could have collapsed so fast.

  45. DL says:

    SB @ 9:51

    Yes, but WHICH speculators?

    The futures traders (I doubt it)…?

    The oil producers themselves?

    If the oil producers themselves believed that oil had topped out, they might have made the decision to dump as much as they could on the market.

    I don’t think that the futures traders (who are not “commercial hedgers”) could send the SPOT PRICE down so fast on their own.

  46. bcasey says:

    @CY
    Show me the heads.

    Didn’t the French revolution happen because of a financial crisis after an extended period of war activity?

  47. dead hobo says:

    To so many here … thanks for finally noticing about the price rise via oil speculation. I recall a time only a few months ago when anyone who even suggested such a thing was regarded as a kook. I didn’t watch 60 minutes, but I suspect that a good reason for the rise was because a lot of people followed each other in a well formed line, in nose to butt formation one after the other. Hot money chased hot money.

    The run up in price began in the middle of 2007, but didn’t catch fire until early 2008. Frankly, I missed out on a lot of it because I don’t invest in things I don’t understand. Oil prices circa early 2008 were incomprehensible. But a lot of stupid, but well presented money, fell for it. I may not have profited hugely, but I didn’t lose a dime on the collapse.

    Let’s not forget the monumentally stupid economists and central bankers who fell for ‘supply and demand’ as the explanation. Their credibility helped hype the market as much as the GS memos, maybe more.

  48. dead hobo says:

    I said:

    Let’s not forget the monumentally stupid economists and central bankers who fell for ’supply and demand’ as the explanation.

    addendum:
    ————–
    These same morons, halfwits, phonies, and empty suits are largely in charge of the financial recovery program. Some are deciding where to best place the cash while others are going to put it to use, probably using the same good common sense as when they were betting on oil.

  49. Greg0658 says:

    Cy posts “now trade energy futures for a living on both the nymex and the ICE” … “amazing to me how many people want to blame speculators” … “shocked that there’s not more gratitude out there”

    you may be goose’g me .. I’ll jump anyway … gratitude for forcing green energy initiatives – ok .. I thank you .. as long as you thank us for providing your yearly nut

    further if you do your utmost best to keep our money circulating in our system and not exporting it … such as going on foreign vacations and buying foreign cars or worst of all illegal drugs .. I guess I owe you another thank you

  50. cy says:

    I posted a lengthy reply to everyone this morning, but either it was too long or the technical problems the site was having lost it somehow, or something else happened, but it never got posted. Foolishly, I didn’t copy it before hitting ‘submit.’ I don’t have the energy to reproduce the post, but I’ll try to summarize.

    1.) Another poster wanted to blame a gang of speculators using the ICE since the ICE was not regulated by the CFTC. If that is the case, why did we see nearly identical commodity spikes in many other commodities that are traded exclusively on US markets that were entirely regulated by the CFTC? Did the conspiracy spread to these markets too? Do you really think that had the ice not been invented things would have been any different? (This is exactly like blaming short sellers for the dramatic drops in ibank shares we saw this year. Given all we now know about their balance sheets, do you still think it was short sellers? I bet you did then.)

    2.) Here are some of the charts for commodities I’m talking about. BR mentioned this in his fourth point. Notice the gradual build ups and then dramatic drops this past june.

    copper
    http://futuresource.quote.com/charts/charts.jsp?s=HG&o=&a=W&z=610×300&d=medium&b=bar&st=

    cotton
    http://futuresource.quote.com/charts/charts.jsp?s=CT&o=&a=W&z=610×300&d=medium&b=bar&st=

    corn
    http://futuresource.quote.com/charts/charts.jsp?s=C&o=&a=W&z=610×300&d=medium&b=bar&st=

    platinum
    http://futuresource.quote.com/charts/charts.jsp?s=PL&o=&a=W&z=610×300&d=medium&b=bar&st=

    soybean
    http://futuresource.quote.com/charts/charts.jsp?s=S&o=&a=W&z=610×300&d=medium&b=bar&st=

    wheat
    http://futuresource.quote.com/charts/charts.jsp?s=W&o=&a=W&z=610×300&d=medium&b=bar&st=

    3.) I think all of this is most easily explained by actual supply demand imbalances combined with large capital flows towards commodities. However, there’s a big difference between “speculators” (as you incorrectly use the term) and capital flows. Using the term “speculators” makes it seem as if there was cartel of people who consciously and deliberately moved the market for their personal gain. If so, they had to initiate a position, somehow drive the market in the preferred direction, and then liquidate. Anyone who has ever traded will tell you that this a ridiculous notion. Again, if this is so easy, why isn’t it happening right now? Also, if it’s so easy, I suggest you guys get together and try it somewhere. Let me know how quickly you lose all your money.

    4.) Regarding the capital flows. Perhaps this where you guys should direct your anger. Fortunately (for your sense of righteous indignation), these “return chasers” got crushed. Look up the 2008 numbers on commodity funds–they’re ugly. (Note- commodity funds are different than CTA’s, who had an excellent year). Again, if people want to “invest” in commodity futures (or a pass through ETF like USO) this is still allegedly a free-market–that’s their prerogative. Unfortunately for them, commodities have a negative real rate of return, so unless they time things perfectly (unlikely), they will end up poorer for it.

    5.) So what’s the aftermath? We now have much more production capacity (both online and ready to go on the sidelines), more awareness about conservation and fuel efficiency (no one is rushing to the SUV lot right now, despite $35 crude, because they all remember the $150 fill ups), and we now have some smart guys thinking about alternatives. OK, so who paid? Well, consumers certainly paid a piece, but I’d argue that the most wasteful consumers paid the dearest (those who had giant SUV’s, those who drove great distances, etc) while those who were the most cautious paid the least. (Seems fair to me.) Also, the people who “invested” got cleaned out. They essentially subsidized a ton of new production capacity for everyone else. (Once again, you should probably be thanking them.)

    6.) Greg0658- It does not surprise me that someone who needs a lecture about the benefits of speculators and liquidity providers, also needs one about the benefits of free trade.

  51. cy says:

    I posted a lengthy reply to everyone this morning, but either it was too long or the technical problems the site was having lost it somehow, or something else happened, but it never got posted. Foolishly, I didn’t copy it before hitting ‘submit.’ I don’t have the energy to reproduce the post, but I’ll try to summarize.

    1.) Another poster wanted to blame a gang of speculators using the ICE since the ICE was not regulated by the CFTC. If that is the case, why did we see nearly identical commodity spikes in many other commodities that are traded exclusively on US markets that were regulated by the CFTC? Did the conspiracy spread to these markets too? Do you really think that had the ice not been invented things would have been any different? (This is exactly like blaming short sellers for the dramatic drops in ibank shares we saw this year. Given all we now know about their balance sheets, do you still think it was short sellers? I bet you did then.)

    2.) Go to futuresource and look up some three-year charts for commodities I’m talking about. Copper, cotton, corn, platinum, soybeans, wheat. BR mentioned this in his fourth point. Notice the gradual build ups and then dramatic drops this past june.

    3.) I think all of this is most easily explained by actual supply demand imbalances combined with large capital flows towards commodities. However, there’s a big difference between “speculators” (as you incorrectly use the term) and capital flows. Using the term “speculators” makes it seem as if there was cartel of people who consciously and deliberately moved the market for their personal gain. If so, they had to initiate a position, somehow drive the market in the preferred direction, and then liquidate. Anyone who has ever traded will tell you that this a ridiculous notion. Again, if this is so easy, why isn’t it happening right now? Also, if it’s so easy, I suggest you guys get together and try it somewhere. Let me know how quickly you lose all your money.

    4.) Regarding the capital flows. Perhaps this where you guys should direct your anger. Fortunately (for your sense of righteous indignation), these “return chasers” got crushed. Look up the 2008 numbers on commodity funds–they’re ugly. (Note- commodity funds are different than CTA’s, who had an excellent year). Again, if people want to “invest” in commodity futures (or a pass through ETF like USO) this is allegedly a free-market–that’s their prerogative. Unfortunately for them, commodities have a negative real rate of return, so unless they time things perfectly (unlikely), they will end up poorer for it.

    5.) So what’s the aftermath? We now have much more production capacity (both online and ready to go on the sidelines), more awareness about conservation and fuel efficiency (no one is rushing to the SUV lot right now, despite $35 crude, because they all remember the $150 fill ups), and we now have some smart guys thinking about alternatives. OK, so who paid? Well, consumers certainly paid a piece, but I’d argue that the most wasteful consumers paid the dearest (those who had giant SUV’s, those who drove great distances, etc) while those who were most cautious paid the least. (Seems fair to me.) Also, the people who “invested” got cleaned out. They essentially subsidized a ton of new production capacity for everyone else. (Once again, you should probably be thanking them.)

    6.) Greg0658- It does not surprise me that someone who needs a lecture about the benefits of speculators and liquidity providers, also needs one about the benefits of free trade.

  52. patfla says:

    Cy,

    OK last time I responded to several things you said point-by-point. It’s late and for the moment (until tmw) I’ll address only an item or two.

    You give us a couple of graphs. Here’s your one for copper:

    http://futuresource.quote.com/charts/charts.jsp?s=HG&o=&a=W&z=610×300&d=medium&b=bar&st=

    It stays elevated for about 2 yrs at a ratio of less than 2-1 (the 2 being 400 and the 1 200).

    You didn’t provide the same graph for oil. First I found Brent but that’s not what I wanted. Then I found ‘Light Crude Oil’ – yes that must be it. WTI is ‘lighter’ and ‘sweeter’ than Brent and thus (usually) commands a higher price. Since being lighter and sweeter makes it less costly to refine.

    http://futuresource.quote.com/charts/charts.jsp?s=CL&o=&a=W&z=610×300&d=medium&b=bar&st=

    Well gee, this graph looks considerably different to me. A spike over a much shorter period of time and at a higher multiple.

    So, I’ll think out loud a bit here. ‘market participants’ had bid up copper because the world was in the middle of a huge boom and demand for copper (particularly from China) was high. In futures markets there are course two kinds of participants – those who will actually consume the commodity in question and want to guarantee themselves against future price swings. And then those who go along for the ride hoping to make price gains. The latter, I imagine, are always on the lookup for herd behavior in the former.

    I’d say the 2-yr elevated plateau in copper represents the latter riding the backs of the former. As I said before you can’t have a speculative boom from out of nowhere – it needs to bootstrapped into place by a sharp rise in ‘real’ demand. And that’s why the commodity spikes have now disappeared. Economic activity is dropping around the world. There may, presently, be a speculative boom in Treasuries – but that’s another story (although I’m thinking about buying some uncovered puts on 10 yr treasuries).

    Now as for the eye-popping price spike in the WTI graph, well ICE was only permitted (by authorities in London) to start trading WTI on the London exhange in January of 2006.

    So it took some time to work out ‘the system’. One thing was: by routing the trades through GS and MS the real clients remained anonymous. I mean someone like CalPERS doesn’t want to be identifiable as capitalism eating itself. Although, some time ago, there _was_ an article I read where CalPERS admitted to having opened positions in the oil futures market. “it’s just $2 bln and can’t really have any material effect.” (is something I remember the CalPERS representative ‘explaining’).

    These ‘speculators’. Well, as the boom was drawing to a close, returns for most asset classes were drying up if not turning negative. Large institutional pensions funds around the world, most of whom are underfunded, needed return and needed it badly. And their financial advisers presented something new and creative: speculate, er, invest in commodities.

    And I’m sure once savvy retail investors recognized the trend they hopped aboard the bandwagon as well.

    Of course, as regards say food, once you start having riots across much of the developing world and for that matter to some extent in the developed world well the political heat just becomes too intense and maybe you’d better back off. If you’re a big and visible name that is.

  53. the social scientist says:

    Would Cy or Barry address the issue raised by EorrFu? If speculators were not taking delivery, who were they selling those futures to when they came close to expiration? Refiners? I see that until July, inventories of oil were well below average levels for that time of the year; so I guess that’s why the refiners were paying those high spot prices.

    It’s even more interesting now. Who is (and why are they) buying March oil futures at prices of $4 to $6 higher than the February futures, when inventories are high, and probably higher than reported, because those who have bought the cheap oil for February delivery can store it, and unload it in March or April for a healthy profit. This makes no sense, and it suggests that oil prices will decline further until that incentive to hoard oil is removed. USO, which rolls over short-term contracts for later contracts at a higher price must get burned badly. Again, who is buying these further out futures, and why?

  54. Greg0658 says:

    hum – 1st on copper – if electric green takes off vs. oil then why was/is copper going down? I’m not going to bother to speculate – I don’t want or need to

    if you marketeers try and corner the copper market with what I said then I remind you of the invention called the bicycle and a region of America called the south

    and one of these would be cool too:
    a link to “The EDAR – short for Everyone Deserves a Roof”
    http://www.latimes.com/news/local/inland/lat-edar_kazb8ync20081209211405,0,626520.photo

  55. MnZ says:

    There is a huge problem with the speculation theory of the commodities bubble. Namely, commodities such as steel and iron ore do not trade on a commodities market of any size. For example, in the case of iron ore, the price is usually set by long term contracts between the miner and the steel mill. Therefore, there is virtually no opportunity for investment banks, commodity speculators, hedge funds, and commodities index funds to participate in these markets. Nevertheless, the price of these non-traded commodities also surged. Whatever was driving up the prices of these non-traded commodities would have probably affected the traded commodities as well.

  56. Greg0658 says:

    the social scientist asks: “why are they buying March oil futures at prices of $4 to $6 higher than the February futures”

    imo its a term call contango short for “containerships full of cargo” sitting waiting for price to return by locking up transport … and it’ll work

    lucky for capitalism I didn’t run for ruler of the world and win … cause this commander in chief would become a lite pirate

  57. cy says:

    Good morning patfla,

    Honestly, I don’t think we’re that far from seeing eye to eye on all of this. My original contention was/is that there was no small group of people who sat in a conference room somewhere and decided to engineer (and profit from) a commodity boom. This is what I mean by calling it a “conscious, deliberate” act. You seem to have backed off your opposition to this idea.

    I agree that copper is not the best chart. The run up in copper does take place in the spring of ’06, but the price drop takes place at the same time. But take a look at the charts of soy, platinum, and corn (links to which can be found in my 9:03 post…i was having more posting problems last night). These charts look remarkably similar to the WTI (light, sweet) chart you posted. From peak to trough, crude fell approximately 71% (over 140 to under 40). The other commodities I mentioned fell an average of around 61% using similar calculations. So while crude’s fall was more violent, it was only 13% or so more violent than the other commodities, not a multiplicative factor more violent, which you seem to imply.

    So this brings us back to the discussion of “capital flows” vs. “speculators.” I think it’d be helpful to define what a “speculator” actually does. Before we get to that, yes, you are correct that in futures markets there are hedgers (who are looking to offset the economic they encounter in their businesses) and speculators (who are looking to take on risk…so long as they are compensated for doing so) Most professional speculators (in the accurate sense of the term) are trend-followers. What does a trend-follower do? He buys after prices have gone up some, and hopes that the trend continues higher, and then sells when it’s over. So imagine that you own an oil field (or a wheat farm or a cattle ranch…this example extends to any commodity). At present, it doesn’t make economic sense for you to take the oil out of the ground–your costs of operation would not be recouped by what you would get when you sold your oil. Now imagine that prices creep higher. At these new, higher prices, it makes sense for you run your well. However, if prices were to drop again, you’d be in trouble because you have to sign employees to yearly contracts, purchase equipment, build a derrick, pay the electric bill, etc. etc. So you go to the futures market. Since the price has gone a little higher, trend-followers are in the market looking to buy. You happily sell, because now, regardless of what happens to the price of oil, you can run your well, pay the bills, and make a profit. For the speculator, one of two things can happen. 1.) The price can go down, and he loses money. 2.) The price continues to go higher, and he makes money. Question- What do you think happens more often? Well, the majority of the time, prices go lower, and he loses money. Yes, that’s right, professional speculators lose money on the majority of their trades. Now, the good news is that the times when the speculator does make money, he makes enough money on his winning trades to offset all the small losses and earn a profit. So, the professional speculator, by riding out many small losses in the hope a few big gains, provides an incredibly valuable service to the rest of the economy by assuming the risk that business people do not want to take. He must get paid in the long run to take this risk, or else he wouldn’t assume any in the first place.

    So that is the speculator’s side of the story. And yes, speculators (as I have defined them) did have a good year in 2008. However, there is a big difference between passively benefiting from something and causing something for your own benefit.

    Now let’s look at the “other” speculator (whom I would call the “amateur” speculator). This is the return-chasing money that simply pours into whatever’s hot . Amateur speculation is when a pension fund blindly buys futures, or your local “savvy retail investor” starts loading up on USO, or your neighbor tells you he just bought 10 condo’s in miami. This type of speculation is based on the assumption that the future is knowable, and that what has happened in the recent past will definitely continue to happen. This type of speculation almost always does not include a pre-set plan of where he’s going to get out if the market goes against him or for him. This type of speculator is a captive of his own emotions, and (this is the important part) in the long run THIS TYPE OF SPECULATOR ALWAYS LOSES.

    OK, so now we have an interesting paradox. Professional speculators benefited from, but didn’t cause, the commodity bubble, while amateur speculators certainly helped to cause, but didn’t benefit from, the same commodity bubble. Pat, I remember reading the same article about the calpers guy putting futures in their portfolio as “investment.” Again, this is unwise because commodities have a negative real rate of return. I can nearly guarantee you that that position did not work out well for calpers, nor did it for long-only commodity funds or retail investors who think they know what they’re doing.

    Hopefully by now I’ve made this clear–if there is anyone to “blame” for the commodity bubble, don’t worry about it. These people already got cleaned out in the market. These people no longer have the capital to try again, or if they still have some capital, hopefully they now have the wisdom not to “invest” in asset classes that do no provide real returns. So, who lost? These guys. Who won? Producers who hedged, and, ultimately, the consumer.

  58. the social scientist says:

    grego658

    The logic still doesn’t satisfy me. The tankers storing oil tie up transport of oil – so the refiners buy futures further out to ensure the delivery of that oil at the required time, even though the oil is already sitting in tankers (or storage tanks) and has been bought for future delivery. So when the futures expire, the refiners have already ensured delivery by having bought further out futures, and so the futures held by speculators should drop in price as they approach expiration, because there’s no one left to buy them. But then, refiners should see this, and choose not to buy further out futures, but wait for the near term futures to decline in price, and thus end the contango.

  59. cy says:

    Social scientist-

    First, regarding contango…

    According to my screen, the market for feb march wti is 683-684, meaning that right now you could buy feb and sell march and collect $6.83 per barrel. Since each contract is 1000 barrels, this works out to $6,830 per contract. Now let’s assume you’re our friendly oil abritraguer. You sense a profit opportunity here, so you put this trade on 1000 times. You stand to collect $6,830,000 if you can pull this off. Not bad for a month’s work.

    So what happens next. Well, unfortunately, someone is going to deliver 1,000,000 barrels of WTI to you. Not only that, you have to buy it from them. Assuming you don’t have the money lying around the house, that means you’re going to have to borrow $36,000,000 from somone to buy all this. Also unfortunately, you’re going to have to pay interest on this $36mm loan, so that would start to eat into your potential profit immediately.

    OK, borrowing $36mm (at let’s say 5%apr) for a month isn’t so bad…only about 100k. You’re still clearing $6.7mm. Good stuff. But now there’s another problem– you need somewhere to put 1,000,000 barrels (that’s 42,000,000 gallons) of crude oil. Unfortunately, oil storage is very expensive. No one wants a storage tank in the back yard, so they’re probably not building as many we need. Also, a small amount of oil evaporates while in storage, so you’re losing oil as you store. Also, even if you can find storage, you need to insure the oil so in case there’s some sort of diaster, you’re not on the hook for $40,ooo,ooo. Once you line all these things up, you’re not making very much money anymore.

    So, the spread between the first and second month should more or less reflect the cost of storing the oil, borrowing the money needed to buy the oil outright, and insurnace costs. It stands to reason that when there is an oversupply of oil (like there is now) there would not be much free storage available, and the cost of using storage would be high. This is consistent with the current wide spread.

    Grego658 hypothesizes that people are holding oil in ships, waiting for the price to rebound. Maybe, but that would be an extremely risky strategy, since holding oil is prohibitively expensive (for reasons mentioned) and you’d be foregoing the rents that could be collected using the ship for transport, not merely for storage. (Believe it or not, giant oil tankers are not free ) Anyone who has oil on ships wants to get rid of it as soon as possible.

    Second, regarding “who is purchasing futures from the speculators”…

    Only a very small percentage of futures actually result in future delivery. It’s clear that speculators certainly don’t want to have to deal with delivery, but it should be understood that producers and users (hedgers) don’t want to deal with delivery either. Hedgers want to insulate themselves from price risk, but don’t want to have to jump through all the hoops associated with going through an exchange’s delivery process (you have to deliver in cushing, oklahoma, a specific amount, a specific grade, etc.) If you’re pulling oil from the gulf, you don’t want to have to move that oil to cushing if you don’t have to. So you hedge in the futures market, but then you close your position (or roll it) at the end of the month. You’ve pulled your oil, and you’ve profited or lost on your futures, but hopefully that will be offset by the oil you sell in the real market.

    Third, regarding USO…

    It’s a common misperception that due to contango, the USO takes a hit everytime they have to roll their book. This is 100% false. USO does not roll the same amount of futures each month, it rolls the same amount of DOLLARS. So, (hypothetically) if they’re holding 100 futures at the end of the month, and the next month is twice as expensive (this would be a wicked contango), they’ll only buy half as many futures. Dollar for dollar, the fund is worth the same. Note- Although this means that you don’t get penalized for holding USO while oil’s in contango (or get rewarded if crude is backwardized), I’ve made my thoughts pretty clear about “investing” in commodity futures. This is not wise. Do so at your own peril.

  60. patfla says:

    Hello Cy,

    Something that occurred to me this morning, before I’d ventured over to the BP for the day. Going back to the original title of this topic: the topic is about speculation in oil – not other commodities. Discussing speculation in commodities in general, imo, is interesting and fair game. But I believe I started my posts in this topic speaking only as regards oil.

    So again I’m busy (as we all are) and I’ll respond to just one thing:

    > My original contention was/is that there was no small group of people who sat in
    > a conference room somewhere and decided to engineer (and profit from) a commodity boom.

    I’d call this collusion – not speculation (and I think the law would do so as well). And I wasn’t arguing for collusion. Although to the extent that GS and MS provided a very narrow bottleneck onto the ICE exchange and that they worked out how ‘a mechanism’ might function, it’s conceivable that they colluded in ‘constructing the mechanism’ whereby favored clients could speculate.

    Speculation is of course more amorphous. Lots of investors try to follow price trends. So where does speculation start? It’s not on-or-off but a question of degree. If anyone has (but hasn’t always exercised) a working definition based on long experience it would be the CFTC. And according to the CFTC, each day, trades over a certain size have to be reported and outstanding interest as well.

    So the CFTC too would have it too that speculation is a quantitative and qualitative distinction.

    Although, like pornography, while we can’t define it, we can sure recognize it. And when you have increasing numbers of investors, with growing sizes of bets, hopping onto the oil futures bandwagon back in the summer of 2008 and doing damage to the whole of the world economy, I recognize that as pornography. Er rather speculation.

  61. patfla says:

    So the CFTC would have it too that speculation is a quantitative and not qualitative distinction.

    But you knew that already.

  62. cy says:

    Patfla-

    1.) I brought up other commodities because of your contention that something shady happening on the non-US regulated ICE was responsible for the oil boom. I said that’s impossible, because similar booms were going on in commodities that were entirely regulated by the US. MnZ accurately points out that this boom was even taking place in commodities that do not have active futures markets (steel, iron ore, edible beans, some livestock, etc.). Therefore, whether the ICE was regulated or not is completely irrelevant.

    2.) Speculation has nothing to do with degrees or gradients. It is black and white. If you are taking risk in a commodities market, and you have no commercial interest whatsoever in the physical commodity, you are speculating. Whether it’s 1 contract or a 100,000 makes no difference.

    3.) You’re still operating in the mindset that speculators (as you use the term) profited obscenely at the expense of suffering consumers. I can guarantee you that this is not the case. The speculators (again, as you use the term) got burned badly. Consumers, while they felt some pain for a few months, will be the big winners out of all of this.

    4.) “doing damage to the whole of the world economy.” See #3. I suppose if you refuse to believe this bubble has helped consumers in the long run we can agree to disagree. However, history is certainly on my side. See further… http://www.wired.com/wired/archive/14.02/bubbles.html.

  63. patfla says:

    Hello Cy,

    > I brought up other commodities because of your contention that something shady happening
    > on the non-US regulated ICE was responsible for the oil boom. I said that’s impossible, because
    > similar booms were going on in commodities that were entirely regulated by the US. MnZ
    > accurately points out that this boom was even taking place in commodities that do not have
    > active futures markets (steel, iron ore, edible beans, some livestock, etc.). Therefore, whether
    > the ICE was regulated or not is completely irrelevant.

    This is an instance of a ‘fallacy of composition’. You assume from a part (non-speculation in non-oil commodity markets – or so you and others claim) must apply to the whole (all commodity markets) and hence oil. Which is faulty reasoning.

    But anyway this ceased being edifying for me for some time ago.

    You win. I quit.

  64. coops says:

    3.) You’re still operating in the mindset that speculators (as you use the term) profited obscenely at the expense of suffering consumers. I can guarantee you that this is not the case. The speculators (again, as you use the term) got burned badly. Consumers, while they felt some pain for a few months, will be the big winners out of all of this.

    Look you don’t have to be an oil expert to know that crooks were playing and have been for years now. This started long before this summer, and saying things like while consumers felt pain for a few months is laughable. You might want to go talk to someone from the shipping industry that lost his job and had to file bankruptcy; or the owner operator that could no longer afford the gas and put food on the table. Only the privileged would post such fallacies. The bottom line is everyone has to buy fuel and food. These once small markets worked just fine for decades without the need for the supposed liquidity guise all the crooks throw out as free markets. Give me a break please, when for every 1 barrel that is taken delivery upon 27 are traded, you got major problems. Someone is making money on the backs of the poor and it’s just wrong. You probably are more then happy sitting in your ivory tower, but it’s why this country is despised and hopefully is about to change.