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Oil at $70 per barrel in the midst of a massive recession and demand reduction is an unmistakable sign.

If the natural gas price were in its historic relationship with the crude oil price I would agree totally.

But I suspect that a good part of the crude oil price's defiance of gravity may well be derived from financialisation of the oil market, and 'macro' scale modern market manipulation by producers propping up the market price with zero interest money borrowed from ETFs via financial oil leasing.

The copper market was manipulated in a very similar way by Sumitomo/Hamanaka for ten years with the connivance of investment banks, five years of which was after the whistle had been blown.

The glut of distillates at the moment may be a sign that a period of unstable equilibrium in the oil market is heading for a discontinuity.

On the other hand, you may be absolutely right.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun Aug 22nd, 2010 at 05:06:52 PM EST
Given the move into the commodities markets by so many investors in the last five years and the rather small total size of some of the commodities involved I think it has become prudent to always keep in mind that the market price in any given commodity might be an illusion that is the result of a manipulation. Depending on the motives for the investment the commodity involved may be priced too high or too low, depending on whether the futures money is in long or short positions.

Consider that the tin market and the copper market have rather dramatically been shown to have been manipulated and that the coffee market in Europe is showing strong signs of having been successfully cornered. Then apply the "Rule of Cockroaches". I suspect that many commodities are only realistically priced when there is a "market event".

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Aug 22nd, 2010 at 07:32:03 PM EST
[ Parent ]
the price dynamics of natural gas have been dominated in the past 2 years by the unexpected emergence of shale gas in the US - there has been a temporary, but very significant, surplus of natgas, thus leading to lower prices, and disconnecting gas prices from oil prices. There are simply not enough players able to arbitrage away the difference.

And lower natgas prices in the US are passed on partially to Europe as these past two years were supposed to see massive arrival of Qatari LNG into the US, volumes which instead went to Europe and helped depress prices there to some extent (at least in the UK, but less in Europe where prices are more dominated by oil-indexed Russian contracts).

Wind power

by Jerome a Paris (etg@eurotrib.com) on Mon Aug 23rd, 2010 at 04:16:33 AM EST
[ Parent ]
Thanks. I was aware of that, but it's useful to have verification by an expert.

But my point is that the market architecture of the natural gas market is structurally different in that it has not become financialised in the way that the oil market - which is also oversupplied, but no-one knows how much - currently is.

My thesis is that the crude oil market has been systemically manipulated by producers for some time, funded by 'free' money from ETFs.

I have seen no refutation of this, and via the FT Alphaville blog, directly and indirectly received considerable agreement.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Aug 23rd, 2010 at 07:39:03 AM EST
[ Parent ]
I fail to see why shale gas should be a temporary solution (except that it, like tar sands, will run out some time in the long run). The resource base is huge, and while the individual wells decline at an incredible pace, you can drill an incredible number of new wells. Indeed, you have to do that. That only tells me Baker Hughes will be busy in the future.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Aug 24th, 2010 at 10:43:34 AM EST
[ Parent ]
... historical relationship with oil production ... non-traditional natural gas is about 1/5 of the US EIA gas estimates.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Mon Aug 23rd, 2010 at 01:26:07 PM EST
[ Parent ]


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