I agree with your analysis that the market is veering between what one might call a structural "Buyer's Market" and a structural "Seller's Market".
Also I agree with your analysis in relation to the growth in demand, with an additional comment in relation to the interesting feedback mechanism whereby - even without subsidies - the financial success of producing nations creates its own energy demand.
I suspect that demand destruction could - in extremis - kick in pretty rapidly in developed nations, and I would also add that we haven't seen strategic stocks used to manage market excesses, which I think they possibly could be. A sort of Central Energy Banking function.
I do believe that market volatility has got entirely out of hand, however.
The key point is that the "free float" of tradable oil which actually sets the market price is not that great.
Maybe 70 times 600,000 bbl cargoes of BFOE crude oil coming out of the North Sea each month is "only" worth about $5bn. This is chicken feed in global market terms when there is a couple of hundred billion dollars of funding - mainly leveraged, I suspect - swilling around the market.
As I said at the recent UK Parliament Treasury Select Committee hearing, futures contracts are not the problem.
The problem is that no-one knows anything about who has what positions in BFOE and other forward and OTC contracts or in the structured finance deals that may be hedged with these contracts.
The only thing worse than bad news for intermediaries is no news. The middlemen run this market, and have an interest in market volatility. For the hedge funds dabbling, it's a less than zero sum game: since:
(a) they get creamed for prime brokerage commissions and spreads; and
(b) they get routinely traded against and "front run" by the Investment Banks' proprietary trading desks who have privileged access to information as to where their speculative positions, stop loss orders and so on actually are.
"Chinese Walls"? A bad joke: "full of chinks", as they say...
The "bams" you mention are IMHO evidence of the fact that the market is febrile, and the mechanism no longer fit for purpose.
The volatility is caused for the most part by a toxic cocktail of gearing, speculation, and plain old "micro" (ie intra day) market manipulation.
Personally I would not rule out the possibility of some kind of "macro" speculative bubble, but I wouldn't go much beyond HiD's estimation of a possibility of $25.00 per bbl financial froth (which he made before the market came off about $20.00).
European Tribune - Comments - Countdown to $200 oil (10) - oil at $120!!
We have to reduce our demand. Let's do it in an organized way rather than a panicked, haphazard, inconsistent way. And that's where government can help, by providing longer term pespective, informing citizens, pushing infrastructure in the relevant direction, and bringing up standards that apply to all equally and guide individual behavior in the right (Energy Smart) direction.
All of this I agree with, but with the caveat that this should be within the context of a global energy market structure where end users (consumers and producers making common cause) wrest control from the intermediaries now applying a "super rent" to the market. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
wrest control from the intermediaries now applying a "super rent" to the market.
You've yet to support your allegation that the intermediaries make anything from a high market that stays high. Volatility pays the specs. The absolute level change accrues to the owners of the crude = OPEC, Russia, Mexico, Norway + oil producing companies.
there is no reason the rest of the markets price off of WTI or Brent other than history and the chicken shit nature of most of the players that refuse to accept responsibility for doing their business fixed price. You'd do more good by advocating that pricing off of Platts/Argus/OPIS/EFP's be banned.
You've yet to support your allegation that the intermediaries make anything from a high market that stays high.
Straw man, HiD.
As you say, it's producers who make money from high markets that stay high, and I have never said anything else.
Market price moves and volatility are a different issue. Intermediaries make and lose money from these in different ways depending on what their role as intermediaries actually is.
HiD:
here is no reason the rest of the markets price off of WTI or Brent other than history and the chicken shit nature of most of the players that refuse to accept responsibility for doing their business fixed price.
An interesting behavioural perspective on why the market is structured the way it is, probably good for a Diary.
You'd do more good by advocating that pricing off of Platts/Argus/OPIS/EFP's be banned.
Interesting idea: get rid of market benchmarks altogether?
As you are a former trader I think you are well qualified to write a Diary setting out how the market actually should be structured.
I'd be particularly interested in your proposals in respect of market regulation
"Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
