Oil Tumbles as Signs of Slowing Economy Spur Commodity Selling

**britmaveric** · 19-07-2008, 07:20 PM

$16 a barrel in 3days. Rumor has it once the Olympics starts - oil will tumble. Chinese were buying more oil recently, wanted to make sure no supply concerns to mess with transportation during the olympics.

- I'd go short on oil, seems Zoros, and Buffet are thinking the same.

**Butterfly** · 19-07-2008, 07:24 PM

^ damn, didn't they get the memo ? China and India is buying all the oil

**Spin** · 19-07-2008, 08:34 PM

Oil at 130 a barrel is inflationary but more importantly, a symptom of inflation. There is more to this that just supply and demand.
Loose monetary policy in the US has created this catch22 situation.

**Begbie** · 19-07-2008, 09:13 PM

The Chinese have a history of manipulating oil supplies. I wouldn't be surprise if they halted oil imports for a few weeks after the olympics to push the price down.

**britmaveric** · 19-07-2008, 09:18 PM

Sounds logical that Chinese were hording due to supply concerns during the Olympics. Oh well guess we will see.

**Butterfly** · 19-07-2008, 10:40 PM

Originally Posted by Spin

Oil at 130 a barrel is inflationary but more importantly, a symptom of inflation.

what a strange comment, could you be more specific ? how is a commodity supply shock a symptom of inflation ?

bkkandrew · 20-07-2008, 10:50 AM

Originally Posted by Butterfly

Originally Posted by bkkandrew

/out! (for today!)

run along, run along boy

Envious that others have a social life now? Oh dear. Hope the wank was nice.

bkkandrew · 20-07-2008, 11:08 AM

Right, as Butterfly is unable or unwilling to look at the supply side, I will assist:

Global Oil Production: (MBPD)

1990 - 66,425.64
1991 - 66,399.10
1992 - 66,563.94
1993 - 67,091.32
1994 - 68,588.09
1995 - 70,271.87
1996 - 71,916.75
1997 - 74,157.59
1998 - 75,654.07
1999 - 74,839.56
2000 - 77,762.11
2001 - 77,684.02
2002 - 76,994.98
2003 - 79,615.43
2004 - 83,124.28
2005 - 84,631.48
2006 - 84,597.11
2007 - 84,600.64

Now, as you can easily see, production rose steadily (once you account for economic conditions) from 1990 to 2004. There was a slight rise to 2005, but thereafter production has dropped. Despite this, demand has grown sigificantly, not least from China and India, which is why I drew earlier reference to the increase in cars in China from 1990 to 2007, from 1 million to 56 million cars.

Why anyone should not expect prices to rise significantly during the period 2005 to date, given lower actual production (supply) and higher use (demand) is beyond me, but seemingly not clear to Butterfly.

Butterfly's simpleton guide:

When supply is lower and demand is higher, prices rise.

Data extracted from:

http://www.eia.doe.gov/emeu/internat...relsperDay.xls

**Butterfly** · 20-07-2008, 02:56 PM

^ ok somewhere in this thread or another related thread, someone provided those numbers already and also worldwide consumption numbers, and I had answered already. The 2% shortfall doesn't justify a rise of 200%, not in a real Demand and Supply model.

of course you choose to ignore arguments that question your biased opinion, and keep pointing the finger like a 10yr old to those that "seem" to support your silly assumptions,

yeah 20 years in the business, wonder what you were doing really

**darksider** · 20-07-2008, 03:33 PM

Energy has massive price elasticity from the very low prices it has previously been at.

In the UK, we have always had very expensive petroleum products and have not been subject to the tripling of pump prices that the rest of the world has suffered from.

China and, I think, India are still subsidising the price at the pump so the 2 markets with the greatest increase in demand have been to some extent out of the supply demand loop, they cannot continue to sell at the pump at a loss for much longer and when they pass the rises on to the populous the demand will ease and we will get some elasticity back into the demand side.

**Spin** · 20-07-2008, 03:33 PM

Originally Posted by Butterfly

the current speculation of oil price has nothing to do with the REAL demand of oil

Originally Posted by Butterfly

how is a commodity supply shock a symptom of inflation ?

I'm confused here, one one hand you claim its speculation and the other its supply shock.
You seem to be shouting down everybody elses ideas without having a clear stance on the situation yourself.
No point discussing it if thats the case.

**Spin** · 20-07-2008, 03:38 PM

India and Malaysia did recently cut fuel subsidies....linky

**Butterfly** · 20-07-2008, 03:52 PM

Originally Posted by Spin

I'm confused here, one one hand you claim its speculation and the other its supply shock.

Ah, ok I see where your confusion is coming from, typical mistake. Future Oil price are speculative by nature and used as an excuse by oil companies to jack up the price at the pump. The term supply shock might be misleading because you are thinking oil supply, but I am referring to Aggregate Supply, the sum of production by all companies, the Short Term AS if you will, that is in other words the curve that determines real GDP. When production costs increase, with everything else equals, companies will see lower margin, and will slow production, shutdown production line, layoff workers etc... overall, we produce less. But because we produce less, and Aggregate Demand is still the same (at least for now), the price level goes up. Eventually AD will also shift, lowering the price level, but not as much as it went up.

Originally Posted by Spin

You seem to be shouting down everybody elses ideas without having a clear stance on the situation yourself.

It's very clear. See above. Like most people, you assume too many things, or oversimplify the pass through effect of costs. A mistake done by most who do not understand how demand and supply works. I understand that most members here don't have a degree in economics, which is fine, but hurling false statements and claiming to know better because they read some blogs or some financial news is ridiculous.

Originally Posted by Spin

No point discussing it if thats the case.

Then stick to day trading, as my explanation might be lost into you. I note you still didn't answer my question, which let me think that you don't really know what you meant. I would be interested to know how you came to that conclusion about that comment. Maybe you meant something else.

**Butterfly** · 20-07-2008, 04:09 PM

to illustrate the effect of AS shock, see this:

BBC NEWS | Africa | Zimbabwe introduces Z$100bn note

the reason their inflation is going crazy, is not because they have too much demand, or printing too much money (which they do afterwards), is because everyone is leaving, GDP is tumbling, nobody is producing anything, and with a constant demand in the beginning, the price level goes to the roof. They need to print notes to adjust to that reality, and stimulating demand by increasing wages is feeding even more the inflation, which force them to produce more new notes etc...

the problem can't be solved, as the violence and the running inflation disrupt production, and the AS curve keep moving to the left, forcing the price level to greater jump in prices

today inflation is 2,200,000%

it's a perfect academic case of a supply shock combined with stimulating demand,

**Spin** · 20-07-2008, 04:49 PM

Predictably, Butterfly has redded me already. We all know hes a bit childish like that but there you go. Thats his way of debating a topic.

Originally Posted by Butterfly

how is a commodity supply shock a symptom of inflation ?

There are many factors determining the current price levels of oil and it is unwise just to point at one single factor. High oil is inflationary and also a symptom of inflation itself as a result of the debasement of the US dollar due to wild fiscal policies and interest rate reduction. Uncertainty in the middle East, the threat of war, attacks by pirates on offshore facilities in the Niger delta, they all play their part.

Originally Posted by Butterfly

The term supply shock might be misleading because you are thinking oil supply, but I am referring to Aggregate Supply

Be better if you had made that clear at the time.

Originally Posted by Butterfly

hurling false statements and claiming to know better

Not sure where I claimed to know better, maybe you can point this out for me.

Originally Posted by Butterfly

Then stick to day trading

Ah yes, this old chestnut and the tag line of the red I recieved, you know, down the years I've seen you roll out this line as your chosen put down quite a few times. The arrogance of people who make comments like this astounds me. Its like the ultimate phrase used by narrow minded people who believe somehow that they have a greater right or ability than those who choose to use the bourses to make their money in a different way. Total nonsense.

**lannarebirth** · 20-07-2008, 05:19 PM

The price of oil is high, not due to supply/demand issues for the oil, but due to supply demand issues centering on oil's pricing mechanism, ie: oil futures. The public seems to think that commodities are a new investment class (which it's not) and allocate investment resources every month to buy the futures at the ask. there's been a constant bid under these commodities devoid of the underlying supply/demand dynamic. Consequently many "commodities funds" have built larger positions than is allowed by law. That's all going to get unwound at some point.

I'm not saying oil and other commodities will fall through the floor, or that in the future it might not go still higher based on real supplier/customer hedging activity. I'm only saying that isn't extant now and it's gonna get undone.

**Butterfly** · 20-07-2008, 05:37 PM

Originally Posted by Spin

Predictably, Butterfly has redded me already. We all know hes a bit childish like that but there you go. Thats his way of debating a topic.

I redded you for being lazy and avoiding the question

Originally Posted by Spin

Not sure where I claimed to know better, maybe you can point this out for me.

that comment wasn't for you,

Originally Posted by Spin

There are many factors determining the current price levels of oil and it is unwise just to point at one single factor. High oil is inflationary and also a symptom of inflation itself as a result of the debasement of the US dollar due to wild fiscal policies and interest rate reduction. Uncertainty in the middle East, the threat of war, attacks by pirates on offshore facilities in the Niger delta, they all play their part.

Ok, completely non-sense. That's what I thought when I was reading that comment. You are referring to financial markets and try to link those "speculative" non-sense in real economic terms. You are making a circular argument. High oil price is not an inflationary symptom. It's the other way around. High oil price fuels inflation (no pun). The lower USD is a symptom of a lose monetary policy, which has nothing to do with oil, and happened before oil was the new bubble. The two happening now is "coincidental". Some speculators have been trying to link the two. They do relate in the short term only because everyone is following that self-proclaiming prophecy. Eventually with no long term merit of such a strategy, speculators will look for a new link and abandon their speculative move between the oil price and the USD. Things will be back to normal.

Originally Posted by Spin

Be better if you had made that clear at the time.

Yes, my bad. I was assuming that everyone knew about "supply shock", in economic terms, aggregate supply in the AS/AD framework is often referred as "supply", and since we are talking inflation and GDP, I was referring to the AS/AD supply shock, actually the only one referred as the "Supply Shock" in Macro-Economics.

bkkandrew · 20-07-2008, 05:53 PM

Originally Posted by Butterfly

^ ok somewhere in this thread or another related thread, someone provided those numbers already and also worldwide consumption numbers, and I had answered already. The 2% shortfall doesn't justify a rise of 200%, not in a real Demand and Supply model.

Taking the average increase in production to 2004, the 2007 figure respresents a 4.3% shortfall, not 2%. Maths not your strong point I guess. As pointed out, given massive price elasticity (obvious to most, but of course, not you), this can quite easliy produce price rises of 1000's of percent. A good example of this would be Zimbabwe and food. Oh yes, you cited them, but didn't think to consider how you were undoing your case. Unsurprising for someone unable to compute a simple percentage, I suppose.

Originally Posted by Butterfly

of course you choose to ignore arguments that question your biased opinion, and keep pointing the finger like a 10yr old to those that "seem" to support your silly assumptions,

No, you're the child, as pointed out by both Spin and I now, by firing off reds just because you are intellectually impared and thus doomed to lose an argument.

bkkandrew · 20-07-2008, 05:56 PM

Originally Posted by Spin

Ah yes, this old chestnut and the tag line of the red I recieved, you know, down the years I've seen you roll out this line as your chosen put down quite a few times. The arrogance of people who make comments like this astounds me. Its like the ultimate phrase used by narrow minded people who believe somehow that they have a greater right or ability than those who choose to use the bourses to make their money in a different way. Total nonsense.

Indeed, its so pathetic having a discussion with him, as he is dim, insulting and childish. I have never had anyone on 'ignore' before, however I am beginning to see why people use the function...

bkkandrew · 20-07-2008, 06:00 PM

Originally Posted by Spin

You seem to be shouting down everybody elses ideas without having a clear stance on the situation yourself.
No point discussing it if thats the case.

Quite agree. He still is yet to point out which of my figures showing increased demand and stagnating, shrinking supply are wrong. Instead he rants, rages, throws reds around like the dummy out of the pram and tries to change the subject.

**Butterfly** · 20-07-2008, 06:03 PM

^ yeah, you can put me on ignore, you are obviously losing the argument and this is your only exit at this stage

bkkandrew · 20-07-2008, 06:06 PM

^No, your ignore status can wait. Currently everyone can see that you have been provided data which convincing shows you to be wrong, but, given your attitude, I want to hammer your muppetry home so that all will point and stare at you as you make your every move.

**Spin** · 20-07-2008, 06:18 PM

Originally Posted by Butterfly

The lower USD is a symptom of a lose monetary policy, which has nothing to do with oil

Oil is priced in dollars, weak dollar means higher oil price. Are you saying that isnt the case?

**Butterfly** · 20-07-2008, 06:22 PM

Originally Posted by bkkandrew

Taking the average increase in production to 2004, the 2007 figure respresents a 4.3% shortfall, not 2%. Maths not your strong point I guess.

ok let's assume it's 4%, not 2%, it's still not enough to justify a 200% increase

Originally Posted by bkkandrew

given massive price elasticity (obvious to most, but of course, not you), this can quite easliy produce price rises of 1000's of percent.

ah, finally showing your ignorance here. First, demand for oil is price elastic in the long term, not in the short term, as it takes time to adjust oil consumption habits. Ok let's skip that argument for a second and get back to the price elasticity of oil demand. If price are elastic, it means that any increase in price, no matter small, will result in the decrease in quantity demanded. Since the Demand curve is sloping downward (remember econ 101), that small increase in price will result in a large decrease in the quantity demanded (definition of Demand price elasticity). As we could see, price wasn't elastic in the short term as consumption was still strong despite the rising oil price. Not now however, consumers have started to adjust their habits, companies reduce their output, demand for oil decrease.

Now this contradicts completely your argument that the massive elasticity was the reason behind the increase in price. This is not logically possible and show your complete ignorance on the subject and how you do not understand basic economic principles. I suggest you google price elastic of demand and see by yourself if you don't believe me. Of course if you were mentioning price elasticity of supply, then your argument would be even more wrong. A massive price elasticity of supply would mean that only demand determines output and price, and since it would be very elastic (it's supply remember, not demand) it would have no effect on price, or only a very marginal effect on price. A very small increase in price, would bring a massive increase in output (definition of price elasticity of supply).

again you are confusing terms and principles, which explain why you are making all those false assumptions and unfounded opinions

**Butterfly** · 20-07-2008, 06:27 PM

Originally Posted by Spin

Oil is priced in dollars, weak dollar means higher oil price. Are you saying that isnt the case?

where does it say that ? in your day trader newsletter ? if you are refering to the Hottelling principle, the mechanics behind that correlation are different. Petro USD is one thing, not the whole story behind the decline of the USD. It could contribute to the lower USD only if OPEC was cutting production, but this is not the case today.

The current symmetry you are seeing with those speculative moves is only a temporary situation. Jesus, you have been in the market for 18 months and you already think that you are a 20 year market veteran,

Thread: Oil Tumbles as Signs of Slowing Economy Spur Commodity Selling

Thread Tools

Display

Thread Information

Users Browsing this Thread

Posting Permissions