Friday, Nov 20, 2009
Sounds familiar !
Daily mail: Revealed: 50 oil tankers loitering off British coast as they lie in wait for fuel price hikes
More than 50 oil tankers are anchored off Britain - pieces in a game in which the only winners are market speculators.
Posted by happy mondays @ 08:31 AM (1531 views) Add Comment
33 Comments
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1. crash n burn said...
What a crock of ship. Good on them - keep the tankers out there, bring back some inflation, raise the interest rates, enhance our currency and trigger price falls in the housing market. Reality people - PLEASE!
What is it with people? Unless you live miles out in the countryside - get on a bycicle to work or a bus if you absolutely have to. The roads are clogged up with mindless idiots who seem to love sitting in queues. I say put the price of oil up 10 fold. And before you ask, I am a driver too - but only when I have to.
Let's face it, it is not speculation, it is pure arbitrage fired on by the Contango effect. If I was in the position to buy and hold oil, I'd do it too - it's a no brainer.
Bloody tabloids with their ridiculous headlines pandering to the dumb folk out there.
2. mountain goat said...
I like this comment from their webpage "Hope none of them leak".
3. cat and canary said...
maybe a giant vampire squid has wrapped its tentacles around the hull of these tankers
4. drewster said...
It's not quite a no-brainer. It's a giant game of chicken*: if you sell too soon you lose, but if you sell too late you get wiped out too.
Storing oil this way costs money to keep the ships running. Eventually the market will reach backwardation: the point where storage costs exceed the expected growth in oil prices. When this happens, all those tankers will sell their oil, pushing the price even lower. If that's not a bubble, what is?
(*Chicken = the game where you and your friends stand on a road and wait for a speeding car; whoever jumps out of the way first loses. If you wait too long, you get run over.)
5. letthemfall said...
This must be another example of the efficiency of the private sector - efficiently fleecing the consumer.
6. letthemfall said...
Apparently the reason storing oil in tankers is viable is the much reduced cost of tanker hire nowadays, owing to the global downturn. The wonder of economics.
7. d'oh said...
As I said in the forums a couple of days ago, "where are the u-boats when you need them?"
8. cyril said...
In the old days, OPEC used to limit production to rig the market, but now the distributors are in on the game. The efficient market!
9. mark wadsworth said...
"the only winners are market speculators"
Er ...and the tanker businesses, and the people who produce oil can at least sell it to middlemen/speculators rather than turning off the taps, and having a bit of spare storage (I'd be surprised if all those tankers hold more than a day or two's UK consumption) is generally good as it tends to dampen price swings.
And never forget, half of speculators lose money on the deal! Proper speculators can only speculate with each other. If anybody thinks that speculating like this is an easy way to make money is perfectly entitled to hire a tanker and have it sail to the Middle East and fill it with oil. Nope? Thought not.
It is quite different in the housing market where speculators deal with Joe Public and genuinely can fleece him.
10. charlie brooker said...
Max Keiser was reporting on this during the oil price highs of summer 2008.
The tabloids could have reported this story to their readership if they hadn't been obsessesing over Diana/Maddie/Jade Goody//Beckham/Strictly Come Dancing/X-Factor.
11. letthemfall said...
mark w
To be fair, you're probably right that the current storage is not making that much difference, and sometimes (perhaps) speculative shenanigans can have wider benefits. But it's not clear who will lose out on this deal, unless it's the general public (albeit by a modest amount). And, as you well know, one cannot go and play this game without an awful lot of capital. Money is power - and that power is rarely used for the common good.
12. 51ck-6-51x said...
The only real possible issue I see with this situation is any externalisation of storage cost onto the risk of leaks.
That is, storage may be made cheaper than it otherwise would be in a tanker by the fact that if there is a leak there is no cost over the lost oil.
I do not know whether or not this is the case - does anyone know if the companies storing the oil are held accountable if said oil leaks, or does it only cost them the oil?
Apart from that I am with MW.
If the oil companies are 'fleecing' anyone here it is mother nature and those that make their living from the waters that would become polluted in the oil leak scenario.
13. 51ck-6-51x said...
Sorry a little unclear...
* That is, storage may be made cheaper than it otherwise would be in a tanker by the fact that if there is a leak then there is no cost other than the lost oil.
14. stillthinking said...
What cyril said at 8. The distributors are attempting a mini opec, but they don't actually control supply which is where they might come unstuck. In another way you could see this as monetisation of oil, that speculators see oil as a superior form of money to cash.
Oil producers look to maximise revenue though, not just price, so probably the people holding the oil are going to end up with a smack at the end because you can't corner the oil market independently of production. Unless they corner oil tanker availability, but 50 isn't enough out of 7000 available.
15. letthemfall said...
51ck
Surely withholding supply drives up the cost and the profit to the supplier, otherwise why would they do it? And as you point out, there is an additional hidden cost in the environmental risk, a cost that is rarely borne by the originator.
16. doomwatch said...
Rich pickings for Pirates.
17. letthemfall said...
stillthinking
Presumably there are no other distributors at present who are prepared to slip in under the noses of the stockpilers , but no doubt there is a limit to how long this can go on.
18. 51ck-6-51x said...
LTF
They are taking on risk by storing their oil, and I don't see what the problem is there:
If, for example, I have a load of apples I have harvested from my orchard which I am not currently using do I have to sell them?
Can I not choose if and when to offer them for sale and pay my storage costs ( including risk of insect attack, depreciation due to the fact that they are perishable, e.t.c. ) in the mean time?
Or do you believe consumers on this isle have some inherent right to oil that has been extracted from some distant lands?
19. letthemfall said...
51ck
Or to turn the question around, do you believe powerful organisations have the right to extract more wealth from consumers through market manipulation? They take a risk, yes, but mostly they benefit; that's why they do it.
This the crux of the problem with our economy. Capital uses its power to attract more capital through questionable means such as this one, and sometimes through the downright illegal (eg cartels) when it thinks it can get away with it.
20. drewster said...
While we're on the subject of oil.......
I'm looking to replace my old banger of a car soon. Given all that we know, do we expect petrol/diesel £ prices to be higher, lower, or largely the same (relative to £ incomes) over the next 2-3 years? Fuel-efficient cars command a strong premium in the used car market - do you think the market has priced in expectations of sharply higher prices, or just current prices?
21. Dbc Reed said...
JM Keynes was not the Johnny One-Note everybody thinks.He suggested British national buffer stocks of commodities like oil prone to price swings and general price instability in the 1930's and enlarged the idea into a proposed international system of buffer stocks to stand beside the International Monetary Fund. I think Hayek was in favour( of the buffer stocks not Keynes' monetary policy but Keynes policies were all of a piece being directed against hoarding and the creation of artificial scarcities in money etc.His mistake was not to include land in his anti-hoarding measures.)
22. 51ck-6-51x said...
LTF,
Yes I believe they do have a right to maximise their profit - however I also believe they have exploited the natural reserves.
Capital investment is productive; this seems to be a mistake made time and time again by anti-capitalists.
I would go so far as to say cartels and monopolies should not be illegal - (1) A cartel cannot last, (2) If a monopoly is the most efficient state for some market then there is no issue, (3) The only reason they are illegal is so that the state can be the only entity that may have a monopolistic position.
I know many won't agree and I know the arguments against this position, and I have thought them through.
In short: I believe in freedom first and foremost.
23. letthemfall said...
51ck
I understand that capital investment is productive (and incidentally I am not anti-capitalist).
The issue is to whom the benefits of production accrue. In theory it should be according to the value of the producers; in practice it is more and more to capital. Cartels can last a long time, and since competition is supposed to be the sine qua non of efficient markets, I don't see the benefit of monopoly. (The public sector is sometimes criticised as suffering from lack of competition.)
Whether the state should be considered a monopoly is perhaps not the point as we all, in a sense, constitute the state, or at least have a say. But in practice one man's freedom is another's entrapment, and one only has to look at the extreme inequalities in S American countries or indeed the US, to see examples. If I understand you correctly, the free society/economy you envisage is almost certainly a myth.
24. mark wadsworth said...
Re what 666 says, I've crunched the numbers properly here.
25. 51ck-6-51x said...
LTF,
"in practice it is more and more to capital." - In the oil market, sure - and this was implied by my statement "however I also believe they have exploited the natural reserves.", although I was not explicit. Who has the rights to those reserves? Usually the oil company bought them from a government - and that government got the reserves for free through some act of coercian at some point in time.
"I don't see the benefit of monopoly." - Usually no, neither do I, and usually there is no economic benefit to the existence thereof, but there is an optimal number of companies in any given market, and sometimes ( although extremely rarely ) this is one. If the optimal number is greater than one it takes one's own capital to maintain a monopoly, without a state backed advantage that is - and herein lies the rub. You say a cartel can last - but not for long in a free market ( of which there are very few, if any )
"Whether the state should be considered a monopoly" - No I did not say that. The state has the power to run a monopoly in any industry. There are less in the U.K. now than there were, but the shift has been towards allowing unfair advantages - either through regulation or partnership.
"one man's freedom is another's entrapment" - This is thinking within a governed system - I am talking about maximising all individual freedom.
MW - Damn that Neil beat me to it. Right on the money - the oil companies have indeed taken their profit already. However, there are speculators involved on the other side of the forward contracts. However, again I see no issue with this activity - any voluntary transaction is an economic gain.
26. Evohep said...
I don’t think we have ever had tankers anchored off shore in such magnitude. These are strange times indeed.
Perhaps this is the start of the ‘Peak Oil’ trouble brewing.
If so, speculation over house price rises and falls may become irrelevant as getting enough food in our bellies will become the priority.
Worth checking out, an understatement.
http://www.youtube.com/watch?v=cwNgNyiXPLk
27. Steve said...
When oil runs out, sequestor the sovereign wealth funds of OPEC states pending payment for 20 years worth of damages due to anticompetitive practices of OPEC.
28. letthemfall said...
MW - So you are claiming that the oil is being stored because there is insufficient demand? Of course, demand is dependent on cost, and it seems equally valid to assume that the distributors are waiting for prices to rise, or at least to keep them stable (may or may not be a benefit in that). But they must be expecting a financial benefit.
51ck
Yes, thinking in a govt system. What experience does any of us have outside a govt system?
You probably have to go back to hunter-gatherer tribes before Greece and Egypt to find such a society, and even those would have had chiefs. Your notion of freedom - correct me if I misunderstand - is the absence of all formal govt structures, in which economic interactions between individuals and groups of individuals delivers a fair and unrestricted society, self-governing and self-correcting.
This sounds to me completely hypothetical in a world with such a large population and reliant on cooperation to such a high level. Indeed I would expect any attempt to introduce such a thing to lead to collapse, a society dominated by robber barons, rather like in counties such as Afghanistan where govt has always been weak and fragmented. Hierarchies inevitably form in societies where existing govts collapse, usually to the severe detriment of certain sections of it. I'd rather have a good democratic system with all its flaws than that kind of freedom.
29. Paul H said...
Does it not strike anyone as a tad unusual?
Having never had such a large fleet of oil tankers parked off the UK coast it makes me wonder just what is going down?
These guys are in the business and have their finger on the pulse to say the least.
Perhaps finally an acknowledgment that the ‘Peak Oil’ corner has turned.
The tankers are sat there waiting for the imminent big price rises. Clearly they think they can afford to.
Peak oil is a fact that is unavoidable. When exactly it happens is not so important but when demand outstrips supply that’s when the s##t hits the fan.
The worlds governments will endeavour to keep the status quo at all costs.
Keep the population in the dark. ‘Move along now, nothing to see here’.
If the general population come to understand what peak oil truly means to themselves as individuals and markets get a reality of the peak oil downward crest being hit they may panic beyond anything measured before.
Houses price falls or rises will be the least of our concerns as we will simply appreciate anything to shelter from the elements. Enough food will become our primary concern.
We will then likely have a ‘food price crash’ website.
I believe this really is worth a look into.
http://www.youtube.com/watch?v=cwNgNyiXPLk
30. Mark Wadsworth said...
LTF, energy expert Nick Drew explained it in a comment on my blog:
it's even simpler than that, Mark - they aren't even speculating
just now the oil forward curve is in contango (further forward periods are more expensive than near periods & spot prices) - which is what you expect when current supplies are in surplus (though over the long term it's more usually in backwardation = the other way around - otherwise why would a producer bother to produce anything today ?)
so most of these chappies aren't even speculating - they've already arbitraged the contango (mediated by storage), sold it forward and have locked in their profit
which makes sense - if you want to speculate in oil, you just buy or sell futures, there's no need to get involved with the hassle of owning physical stuff and paying tens of thousands of pounds a day to store it etc.
31. 51ck-6-51x said...
LTF
- Yes it's pretty much hypothetical ( although there are some examples, e.g. ~970 - ~1320 in Iceland ).
Your imagination is in line with most - that thieves would rule and rapists would roam, but I do not believe this is the case....
First let's get this out the way though:
The problems in Afghanistan are much more complicated than you are make out and I believe much of the reason for our government ( and it's allies ) war is to put another government in power in this valuable land ( using coercion once again; this time in the good name of democracy - which is, I agree, better than a dictatorship or a hierarchical tribal rule ).
Now:
i can understand the common reaction to an anarcho-capitalist system.
Normally when governments break down we naturally get new groups seizing power and using coercion to get what they want, however if we work down towards no government then we will still have law, which can become private. Law can work privately but if the state simply disappears overnight then there will be no law, which is very different
Of course when thinking about private law there are natural questions such as:
Wont my law be different to a thief's? How would we ever agree on a court to use since we will always chose one that applies our preference?
What about when my security company track down the thief, only to find she has her own security company protecting her?
Would I need to come to some agreement with everyone I could possibly affect by doing something prior to doing it?
Wouldn't a security company realise it is more worthwhile to use it's power to become a new government?
and so on...
Such questions have been addressed in the literature on anarcho-capitalism. The definitive Anarchy and the Law - The Political Economy of Choice by Edward P Stringham; or the lighter The Machinery of Freedom: Guide to a Radical Capitalism by David Friedman.
Or for some free reading that probably does not answer all your questions:
http://www.daviddfriedman.com/Academic/Anarchy_and_Eff_Law/Anarchy_and_Eff_Law.html
I am sure some surfing can help too. Really what the answer to all of these comes down to is that in a market law becomes economically efficient and that a side effect of this is a just system.
32. letthemfall said...
51ck, you do have the unfortunate tendency to come across as patronising on this subject - but to give you the benefit of the doubt it may just be the limitations of blogs.
Your imagination may be more insightful/original than most, although there are plenty of individuals in history who wrongly believed their insight and understanding was somehow independent of cultural and social biases.
I didn't imply Afghanistan was simple - just one of the many examples of weak govts. But, okay, you say that an evolution to a stateless system wouldn't suffer from the same problems, and perhaps you're right. I'm afraid I don't have the time (or perhaps the interest) to read the link in detail, but a brief look suggests it is a very academic discussion, and I suspect that implementing such a system (if one can use that word here) would lead to unpredictable results, quite possibly nasty ones. Still, impossible to really know. As to examples, I'm afraid I am not familiar with the politics of medieval Iceland.
Perhaps I have a more jaundiced view of human nature than you. Or perhaps I'm too benighted.
33. 51ck-6-51x said...
LTF
- Apologies, I do not wish to portray that I have some sort of immensely extended knowledge; I do not, I simply believe that government does little to help any of our ills, that they simply shift one groups problems to another. I believe that this can in theory, and occasionally is, used to produce desirable social outcomes, at least over some short time horizon - but that generally, and even with the best of intentions does not; but rather leads to more problems to solve. I think this has been observed time and time again.
I only ask of you three things: to read; to ponder; and to take a post of mine as a lecture only if the subject is mathematics or financial products, otherwise it is only an opinion in the crowd; however passionate.