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Oil Tumbles As Signs Of Slowing Economy Spur Commodity Selling

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http://www.bloomberg.com/apps/news?pid=206...&refer=home

July 8 (Bloomberg) -- Crude oil fell more than $5 a barrel, the biggest decline since March, as signs that the global economy may slow prompted investors to sell commodities.

Oil in New York has dropped more than $9 since reaching a record $145.85 a barrel on July 3. Gold, silver, copper and corn also declined. The U.S. economy has sagged amid credit-market and housing slides. Contracts to buy previously owned homes fell more than forecast in May, signaling prices have yet to bottom.

``All the bad economic news is making people take a second look at commodities,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``Commodities were purchased as a hedge against inflation. A global recession is looking more likely, and it's the greatest weapon in the fight against inflation.''

Crude oil for August delivery fell $5.42, or 3.8 percent, to $135.95 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Futures are heading for the biggest drop since March 19. Prices are up 87 percent from a year ago.

``There is more concern about the U.S. economy,'' said Kyle Cooper, an analyst at IAF Advisors in Houston. ``There was a feeling that the U.S. doesn't matter because of growth elsewhere, but the country is still responsible for about 25 percent of world oil consumption.''

Will a world wide recession drop the oil price???

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http://www.bloomberg.com/apps/news?pid=206...&refer=home

Will a world wide recession drop the oil price???

This, despite Iran's threat to bomb Israel out of existence if Iran's nuclear facilities are attacked :P Normally one would have expected such statements to add half a dozen quid to the price of a barrel..I`m quite looking forward to Steve Cook's comeback on this one. IMO, plans by the G8 as well as the EU/US to curb the speculative element has spooked the market ..expect more froth to come off in coming weeks..

http://uk.reuters.com/article/oilRpt/idUKB39742220080702

http://emac.blogs.foxbusiness.com/2008/07/...il-speculators/

http://www.usatoday.com/printedition/money...ulation.art.htm

Edited by thirdwave

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This, despite Iran's threat to bomb Israel out of existence if Iran's nuclear facilities are attacked :P Normally one would have expected such statements to add half a dozen quid to the price of a barrel..I`m quite looking forward to Steve Cook's comeback on this one. IMO, plans by the G8 as well as the EU/US to curb the speculative element has spooked the market ..expect more froth to come off in coming weeks..

A temporary fall off in price on the back of falling demand has long been predicted by the guys on the oil drum. This feature is akin to the bulltrap HPCers love to talk about ;)

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Guest Steve Cook
This, despite Iran's threat to bomb Israel out of existence if Iran's nuclear facilities are attacked :P Normally one would have expected such statements to add half a dozen quid to the price of a barrel..I`m quite looking forward to Steve Cook's comeback on this one. IMO, plans by the G8 as well as the EU/US to curb the speculative element has spooked the market ..expect more froth to come off in coming weeks..

http://uk.reuters.com/article/oilRpt/idUKB39742220080702

http://emac.blogs.foxbusiness.com/2008/07/...il-speculators/

http://www.usatoday.com/printedition/money...ulation.art.htm

I have said explicitly on a large number of occassions that the price of oil is down to both inflation of the dollar and also the growing supply constraints of oil. I guess it really is too much to have expected you to have read them. I make the assumption you have not, otherwise you would not have made the comments you have in the post, above. Howver, just for your benefit, I will repeat below.

At some point the inflationary tactics of the FED will fail and there will be a violent blowoff from oil. When this happens there will be an overnight correction of probably $30 dollars or more. However, I would be extremely surprised if the price fell below £100. Though, even if it did, it would be very short lived. Indeed, I doubt very much if we will see pre $100 ever again.

Following this nominal correction, we will be left with the real price of oil, which will be still $100+. However, we will hardly benefit from the correction since we will all be that much poorer in the deflationary recession/depression that will have precipitated the correction. From then onwards, the real price goes only one way....north.

Edited by Steve Cook

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Guest Steve Cook
no but investment banks!! closing their long positions will!!

There have been a roughly equal number of longs on oil futures as shorts. You would know this if you actually knew the market.

The problem is, of course, is that all of those shorters have had their finger seriously burnt.

Edited by Steve Cook

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Guest Steve Cook

bessides, in a futures contract, any speculation is front loaded. That's the bleeding point! The whole point of futures contracts is to stabalise the price our. Before such contracts were developed, tyhe price of commodities used to swing widely about, based on dips and peaks in supply. Futures contracts, by allowing purchase in advance, served to smooth out these fluctuations.

As the contract draws towards expiry, the price comes ever closer to the actual supply/demand driven spot price, such that the final spot price at the end of the contract has little, if any speculation in it.

You may have noticed that in recent contracts, the price has been lower at the start of the contracts and then risen towards the end. This means that much of the front loaded speculation is in the form of shorting.

Edited by Steve Cook

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There have been a roughly equal number of longs on oil futures as shorts you plonker. You would know this if you actually knew the market.

The problem is, of course, is that all of those shorters have had their finger seriously burnt.

Of course there is an EXACTLY equal number of longs and shorts !!! I'm talking about financial speculator O.I. versus legitimate hedging... I know a more about the market than you think!

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bessides, in a futures contract, any speculation is front loaded. That's the bleeding point! The whole point of futures contracts is to stabalise the price our. Before such contracts were developed, tyhe price of commodities used to swing widely about, based on dips and peaks in supply. Futures contracts, by allowing purchase in advance, served to smooth out these fluctuations.

As the contract draws towards expiry, the price comes ever closer to the actual supply/demand driven spot price, such that the final spot price at the end of the contract has little, if any speculation in it.

You may have noticed that in recent contracts, the price has been lower at the start of the contracts and then risen towards the end. This means that much of the front loaded speculation is in the form of shorting.

so if I trade a long futures butterfly what am I betting on ??!

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Guest Steve Cook
Of course there is an EXACTLY equal number of longs and shorts !!! I'm talking about financial speculator O.I. versus legitimate hedging... I know a more about the market than you think!

then you would know that the point of futures markets is to diminish wild swings in prices, and also the all of the speculation on a futures cointract is front loaded by the very nature of such contracts.

Over the last several contracts, all of this front loaded speculation has been shorter than it has been long. However, as the contracts have drawn to their close, the long positions have superceded the shorts because this is what the spot market is demanding. Due to a little thing called supply constraints.

Of course, some of this rise is due to devaluation of the dollar, which will shortly be blown off the price due to a demand destroying deflationary recession.

However, this has still got nothing to do with specualtion

Edited by Steve Cook

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I suggested a few months ago that the peak might be around $140 (see Minos' sig) as the world could not afford $100 oil, let alone $140+. Oil will bring the world's economies to their knees (except OPEC) at recent price levels which suggests that the speculative bubble will, at some point in the near term, have to pop. All bubbles eventually do this.

It will be interesting to see if Gold pops soon given its speculative credentials.

Edited by Realistbear

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then you would know that the point of futures markets is to diminish wild swings in prices, and also the all of the speculation on a futures cointract is front loaded by the very nature of such contracts.

Over the last several contracts, all of this front loaded speculation has been shorter than it has been long. However, as the contracts have drawn to their close, the long positions have superceded the shorts because this is what the spot market is demanding. Due to a little thing called supply constraints.

Of course, some of this rise is due to devaluation of the dollar, which will shortly be blown off the price due to a demand destroying deflationary recession.

However, this has still got nothing to do with specualtion

nah contango / backwardation who cares.... if the price is going down ... im going short ... and that will not be a legitimate physical hedge...

Edited by jonpo

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Guest Steve Cook
I suggested a few months ago that the peak might be around $140 (see Minos' sig) as the world could not afford $100 oil, let alone $140+. Oil will bring the world's economies to their knees (except OPEC) at recent price levels which suggests that the speculative bubble will, at some point in the near term, have to pop. All bubbles eventually do this.

It will be interesting to see if Gold pops soon given its speculative credentials.

I think it will RB.

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then you would know that the point of futures markets is to diminish wild swings in prices,

You might think that, but you don't have evidence to support any notion of "purpose".

The futures markets exist because there is both supply and demand for such contracts - any implication for prices is purely coincidental.

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Guest Steve Cook
nah contango / backwardation who cares.... if the price is going down ... im going short

same here......

So, your point is....

hat's the point, though, aint it, Speculators make a buck either way don't they... ;)

Oh, and by the way, a butterfly strategy is a strategy whereby losses and profits are limited to a predetermined range. When commission were much higher, such a strategy was limited to institutional investors. However, due to the lowering of commisions, this is now a strategy that much smaller investors can use

Edited by Steve Cook

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Guest Steve Cook
You might think that, but you don't have evidence to support any notion of "purpose".

The futures markets exist because there is both supply and demand for such contracts - any implication for prices is purely coincidental.

to take wheat prices as an example. Before the use of a futures market, there would be wild swings in price as a consequence of a famine of the commodity bewtwen harvest and a feast of the cokmodity at harvest time. This was horribly inneficient and would cause the stupid situation of grain going rotten in storage at certain times of year because the price was lower than production costs. The futures market was designed to overcome this problem. To alarge extent, it has. The futures market is designed to stabalise the price. This does not mean, for the benefit of the seller, or the buyer, it just means stable. That is to say, it is designed to smooth out short term supply driven price fluctuations

In other words, the only people who benefit, or get hurt uneccessarily, are the front end speculators on contracts. By the time the contract reaches expiry, such speculation has already occured as the price slowly draws ever closer to the supply/demand driven spot

Edited by Steve Cook

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Guest Steve Cook
300px-Oil_Prices_Medium_Term.jpg

If this is stable what would an unstable oil price spike look like :)

stable has nothing to do with whether you like the price or not. Stable means based on the longer term trend of supply/demand, as opposed to short term supply/demand fluctuations.

However, as I have previously stated many times, some of that rise is due to devaluation of the dollar. This, also, has nothing to do with speculation

Edited by Steve Cook

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same here......

So, your point is....

hat's the point, though, aint it, Speculators make a buck either way don't they... ;)

Oh, and by the way, a butterfly strategy is a strategy whereby losses and profits are limited to a predetermined range. When commission were much higher, such a strategy was limited to institutional investors. However, due to the lowering of commisions, this is now a strategy that much smaller investors can use

my point is that a futures trade may occur for any of the three reasons a spot market transaction may occur! hedging speculation and arbitrage.... thats it.

your wrong about the butterfly your describing an "Options butterfly" I asked about a "futures butterfly" which is very different and has unlimited p&l characteristics. its a spread trade and involves the purchase of 1 lot of a near month a sale of 2 lots of a further out month and the purchase of an even further out month... thereby speculating on the shape of the forward curve.

if a market were pure speculation there would be a equal number of winners and loosers... this is not the case though and physical hedgers normally have a better idea of supply and demand.. however if you read behvioral finance books you might find that sometimes arbitrage situations can persist for long periods... due to the factors you have alluded to.

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to take wheat prices as an example. Before the use of a futures market, there would be wild swings in price as a consequence of a famine of the commodity bewtwen harvest and a feast of the cokmodity at harvest time. This was horribly inneficient and would cause the stupid situation of grain going rotten in storage at certain times of year because the price was lower than production costs. The futures market was designed to overcome this problem. To alarge extent, it has. The futures market is designed to stabalise the price. This does not mean, for the benefit of the seller, or the buyer, it just means stable. That is to say, it is designed to smooth out short term supply driven price fluctuations

I encourage you to think carefully about your claim. I agree that it is "horribly inefficient" to produce wheat by growing it until harvest-time, but this essential trait of agriculture is not affected by the price at which wheat sells. To suggest that these futures contracts somehow prevent grain from spoiling in storage is, I think you will agree, also baseless.

Not only do I refute that the purpose of futures markets is stable prices, but I also argue that this will rarely prove the consequence. The value proposition of futures is (in a limited way) to "fix" price levels for individuals - this is entirely distinct from the notion of price stability.

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Guest Steve Cook
I encourage you to think carefully about your claim. I agree that it is "horribly inefficient" to produce wheat by growing it until harvest-time, but this essential trait of agriculture is not affected by the price at which wheat sells. To suggest that these futures contracts somehow prevent grain from spoiling in storage is, I think you will agree, also baseless.

Not only do I refute that the purpose of futures markets is stable prices, but I also argue that this will rarely prove the consequence. The value proposition of futures is (in a limited way) to "fix" price levels for individuals - this is entirely distinct from the notion of price stability.

I will think carefully about my claim as you suggest Asteve. I'll get back to you after doing so.

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my point is that a futures trade may occur for any of the three reasons a spot market transaction may occur! hedging speculation and arbitrage.... thats it.

your wrong about the butterfly your describing an "Options butterfly" I asked about a "futures butterfly" which is very different and has unlimited p&l characteristics. its a spread trade and involves the purchase of 1 lot of a near month a sale of 2 lots of a further out month and the purchase of an even further out month... thereby speculating on the shape of the forward curve.

if a market were pure speculation there would be a equal number of winners and loosers... this is not the case though and physical hedgers normally have a better idea of supply and demand.. however if you read behvioral finance books you might find that sometimes arbitrage situations can persist for long periods... due to the factors you have alluded to.

quite. the market is not pure specualtion. It is only psecualtion prior to the spot. At which point we find out who the winners and loswers are.

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Of course there is an EXACTLY equal number of longs and shorts !!! I'm talking about financial speculator O.I. versus legitimate hedging... I know a more about the market than you think!

So if someone wants to hegde then,who provides that opportunity? The speculators?

I think you should listent to Steve Cook. You guys have plucked a low piece of emotionally laden journalistic news story, that appeals to the ignorance of the writer and the reader. I have seen countless stories like this in recent months about speculators driving up price. Also the senators are equally clueless. But they are politcians ans they do need to pass the buck at some point.

At this time we are experiencing "contango", where there is an upward slope at the near end of the curve, as opposed to "backwardation" where the slope goes down. In the case of contango, we have the futures contract enjoying a positive spread over the spot price. So it makes since to store oil now and sell it forward...the rsult is this allays fears of imminent shortages, and helps to keep prices down on the spot market. So by baring speculators, what will happen is that volatility will increase, supply shocks will cause larger price spikes, like the ones in the 1970's BEFORE THE NYMEX OR AN OIL EXCHANGE EXISTED!!!! If the slope changes to "backwardation" then inventories will used by today as their would be no point holding them.

This will result in higher medium and longterm oil prices...not less. There is a law in life, I think suggested by the French philosopher E COue, that when you start to tamper with something you dont understand, you can get the opposite result than you desired. I think the politicians should take note.

Also contracts held by passive index speculators are sold before the contract ends...as they do not want to take delivery of the oil. So who is buying the contracts. I ll tell you who is buying them. It is the "Commercials" Yes, transport companies, airlines, hedgers...as they are the ones taking delivery of the oil and who use it.

Lets not even get into the correlation between the FED monetary policy and the price of oil, or everything for that matter.

I hope the politicians do interfere...I want to stand back and watch the fruit of their actions. I assure you what they are doing will cause more problems than it solves.

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  • 399 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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