WikiLeaks: Saudis often warned U.S. about oil speculators

[MR2-Sooner86]

WikiLeaks: Saudis often warned U.S. about oil speculators (http://www.mcclatchydc.com/2011/05/25/114759/wikileaks-saudis-often-warned.html#ixzz1Nrz5MIcs)


WASHINGTON — When oil prices hit a record $147 a barrel in July 2008, the Bush administration leaned on Saudi Arabia to pump more crude in hopes that a flood of new crude would drive the price down. The Saudis complied, but not before warning that oil already was plentiful and that Wall Street speculation, not a shortage of oil, was driving up prices.

Saudi Oil Minister Ali al Naimi even told U.S. Ambassador Ford Fraker that the kingdom would have difficulty finding customers for the additional crude, according to an account laid out in a confidential State Department cable dated Sept. 28, 2008,

"Saudi Arabia can't just put crude out on the market," the cable quotes Naimi as saying. Instead, Naimi suggested, "speculators bore significant responsibility for the sharp increase in oil prices in the last few years," according to the cable.

What role Wall Street investors play in the high cost of oil is a hotly debated topic in Washington. Despite weak demand, the price of a barrel of crude oil surged more than 25 percent in the past year, reaching a peak of $113 May 2 before falling back to a range of $95 to $100 a barrel.

The Obama administration, the Bush administration before it and Congress have been slow to take steps to rein in speculators. On Tuesday, the Commodity Futures Trading Commission, a U.S. regulatory agency, charged a group of financial firms with manipulating the price of oil in 2008. But the commission hasn't enacted a proposal to limit the percentage of oil contracts a financial company can hold, while Congress remains focused primarily on big oil companies, threatening in hearings last week to eliminate their tax breaks because of the $38 billion in first-quarter profits the top six U.S. companies earned.

The Saudis, however, have struck a steady theme for years that something should be done to curb the influence of banks and hedge funds that are speculating on the price of oil, according to diplomatic cables made available to McClatchy by the WikiLeaks website.

The cables show that the subject of speculation has been raised in working group meetings between U.S. and Saudi officials, in one-on-one meetings with American diplomats and at least once with President George W. Bush himself.

The Saudi concerns about speculation have a particular sheen of credibility. Saudi Arabia is the world's largest exporter of oil, serving dozens of clients in addition to the United States. As such, it carefully tracks the trends that drive oil prices, which send it billions of additional dollars with every increase.

But in the cables, Saudi officials explain that they have two primary concerns about artificially high crude prices: that they'll dampen the long-term demand for oil and that the wide price swings typical of commodity speculation make it difficult for them to plan future oil field development. After that $147 a barrel peak in 2008, for example, prices plunged to $33 a barrel as the global financial crisis rocked the world. That was a stunning change in less than half a year.

One cable recounts how Dr. Majid al Moneef, Saudi Arabia's OPEC governor, explained what he thought was the full impact of speculation to U.S. Rep. Alan Grayson, D-Fla., who in July 2009 was in Saudi Arabia for the first time.

According to the cable, Moneef said Saudi Arabia suspected that "speculation represented approximately $40 of the overall oil price when it was at its height."

Asked how to curb such speculation, Moneef suggested "improving transparency" — a reference to the fact that most oil trading is conducted outside regulated markets — and better communication among the world's commodity markets so that oil speculators can't hide the full extent of their trading positions.

Moneef also suggested that the U.S. consider "position limits" — restrictions on how much of the oil market a company can control — something the CFTC is considering. But the proposal to prevent any single trader from accumulating more than 10 percent of the oil contracts being traded hasn't received final approval, and the CFTC also has yet to define what it considers excessive speculation.

Saudi concerns also came up during a May 2008 meeting in Riyadh, the Saudi capital, between U.S. officials and Prince Abdulazziz bin Salman bin Abdulaziz al Saud, the assistant petroleum minister.

Prince Abdulazziz was "extremely worried" that high prices would destroy the demand for oil, according to the May 7, 2008, account of his meeting with embassy officials.

"Aramco is trying to sell more, but frankly there are no buyers," the cable quoted him as saying, referring to the Saudi state oil company. "We are discounting crudes."

Another confidential document from the embassy in Riyadh, dated Feb. 14, 2007, indicates that Saudi officials had concluded years ago that speculation played at least as big a role in setting oil prices as traditional issues of supply and demand did.

Recounting the presentation by Yasser Mufti, a planner for Aramco, at a conference of U.S. and Saudi officials, the cable said: "The Saudi analysis indicated a link between higher oil prices and the influx of investor funds into the oil markets."

Indeed, the cable noted, "As the oil futures markets play an increasingly large role in setting world oil prices, (Mufti) remarked his team was now obtaining better insights into prospective oil prices from banks than from those working in the real oil sector, such as refiners."

Another document, from Sept. 2, 2009, offers an eerily accurate prediction of today's high prices, made by Sadad al Husseini, Aramco's former executive vice president.

"In his view, the bearish energy analysts arguing that the oil price shocks of last summer are not likely to be repeated anytime soon are making inaccurate assumptions," the cable said, warning that the former Aramco executive saw political uncertainty and a perception of tight supplies as fuel for speculators.

The cable said that "al Husseini predicted that another oil price shock would likely hit sometime in the next year or two."

A McClatchy investigation earlier this month showed the extent to which financial institutions now influence the price of oil. Until recently, end users of oil — such as airlines, refineries and other consumer of fuel — accounted for about 70 percent of oil trading as they tried to hedge against price fluctuations.

Today, however, speculators who'll never take possession of a barrel of oil account for that 70 percent of oil futures trading, and the volume of speculative trading has grown fivefold.

That's why the Air Transport Association, in a filing March 28 to the CFTC, called for aggressive curbs on speculators. The association complained of rapidly climbing jet fuel prices, which have outpaced the rapid climb in crude prices and have reached their highest point since September 2008, right before the near-collapse of the U.S. economy.

"At the same time, according to data recently released by the commission, speculators have increased their positions in energy markets by 64 percent compared to June 2008, bringing speculation to the highest level on record," wrote David Berg, the airline group's chief lawyer.

The WikiLeaks documents also shed light on other aspects of Saudi Arabia's oil industry.

One document said that Saudi Arabia has boosted its excess capacity — the difference between the amount of oil it could produce and the amount it pumps for its clients — from 2 million barrels per day to 4 million, a margin that offers assurance that there'll be little disruption to oil supplies from political unrest in places such as Libya, where oil production has ground to a halt.

Another quotes the chief economist of Saudi investment bank Jadwa Investment as estimating in June 2008, shortly before oil prices peaked, that the kingdom earned more than $1 billion a day from oil. Another quotes Aramco's treasurer as saying the state oil company had its own Europe-based global investment fund that in April 2008 had assets worth $60 billion.

A fourth document quotes the Saudi assistant petroleum minister as expressing concern to Ambassador James Smith that Saudis could be "greened" out of the U.S. market. The minister noted in 2009 that the United States for the first time had consumed more ethanol than it did Saudi oil.

[pphilfran]

The Saudis want to remove speculation so THEY can get price control back into THEIR corner....

[JohnnyMack]

We should clearly remove barriers to regulation on Wall Street. They'll behave if we just let them police themselves.

It would also be good if we continued our relationship with the Saudis. They've been really good to us.

Sad that the ME country in most dire need of a revolution isn't likely to see one anytime soon. I guess when you feed your people **** and keep them in the dark, maintaining control is easier.

[yermom]

it's not often you hear someone say that you are paying them too much for their product.

[soonercruiser]

Energy independance IS the only good answer!

[yermom]

We should clearly remove barriers to regulation on Wall Street. They'll behave if we just let them police themselves.

It would also be good if we continued our relationship with the Saudis. They've been really good to us.

Sad that the ME country in most dire need of a revolution isn't likely to see one anytime soon. I guess when you feed your people **** and keep them in the dark, maintaining control is easier.

which country are you talking about :O

i can't quite tell where the sarcasm stops...

[diverdog]

The Saudis want to remove speculation so THEY can get price control back into THEIR corner....

There needs to be some regulation on trading in oil. A barrel of oil should not be traded dozens of times on paper so someone can make a profit. Seems to me it could create another bubble.

[yermom]

i still think it had a lot to do with the housing bubble finally busting

[AlboSooner]

The Saudis want to remove speculation so THEY can get price control back into THEIR corner....

I think controlling the source of the product pretty much gives you control of the price.

[pphilfran]

There needs to be some regulation on trading in oil. A barrel of oil should not be traded dozens of times on paper so someone can make a profit. Seems to me it could create another bubble.

How are you going to stop speculation in other countries and markets?

The root cause is not the speculation...the root cause is demand is growing faster than supply....

If supply was growing at a rate that was 50% higher than demand would prices go up or down?

[StoopTroup]

I wonder who taught everyone how to refine oil?

[pphilfran]

I wonder who taught everyone how to refine oil?

http://en.wikipedia.org/wiki/James_Young_%28Scottish_chemist%29

[NormanPride]

Damn Scots. They've ruined Scotland!

[yermom]

How are you going to stop speculation in other countries and markets?

The root cause is not the speculation...the root cause is demand is growing faster than supply....

If supply was growing at a rate that was 50% higher than demand would prices go up or down?

did you read the article?

they were getting pressured to up production with no one wanting to buy any more

it's going up because people are buying it on paper and never actually taking delivery, or filling tankers and floating them off in the oceans somewhere

[OutlandTrophy]

yermom has it. if traders were forced to take delivery of the futures they buy you would see a drastic drop in the price of oil.

[pphilfran]

Yes, I read the article...

Changing what we do in regards to futures won't do jack chit to keep worldwide prices in line...

It is all about perception....and the perception (and fact) at the time was that demand was growing at a pace that it was going to outstrip supply...so worldwide prices were driven higher...

When demand dropped due to the worldwide recession crude prices were then driven lower...

Do whatever you want but don't be surprised when there is still high volatility in the world wide crude market...

The root cause of crude volatility is not speculation...

[sappstuf]

How are you going to stop speculation in other countries and markets?

The root cause is not the speculation...the root cause is demand is growing faster than supply....

If supply was growing at a rate that was 50% higher than demand would prices go up or down?

I would think the price of natural gas tells you the answer on that one..

[pphilfran]

yermom has it. if traders were forced to take delivery of the futures they buy you would see a drastic drop in the price of oil.

How do you make that happen on a worldwide basis...how do you control Brent prices?

[OutlandTrophy]

uh, maybe the markets in which the oil is sold makes people take delivery of what they but?

[yermom]

if we can still force them to buy in dollars, i'm thinking that's not that hard to do...

i'm sure there are too many rich oil guys that own our government for this to change any time soon

[pphilfran]

uh, maybe the markets in which the oil is sold makes people take delivery of what they but?

You are trying to put a band aid on a broken arm....

[pphilfran]

if we can still force them to buy in dollars, i'm thinking that's not that hard to do...

i'm sure there are too many rich oil guys that own our government for this to change any time soon

Part of the increase in price is due to the weak dollar...

[Xunil]

How are you going to stop speculation in other countries and markets?

The root cause is not the speculation...the root cause is demand is growing faster than supply....

If supply was growing at a rate that was 50% higher than demand would prices go up or down?


Bull****.

[pphilfran]

Bull****.

So you think that if we had wells shut down due to oversupply that speculators would continue to drive prices upward?

[yermom]

wells are shutting down! oil must be worth more now! :D

[pphilfran]

It is a difficult problem....but putting patches on something that is not the root cause will do little to slow the long term increase in oil prices...

Every commodity has spikes and valleys...crude don't hold a candle to the corn market...

http://futures.tradingcharts.com/chart/CN/M

[Xunil]

So you think that if we had wells shut down due to oversupply that speculators would continue to drive prices upward?


A fair and equitable commodity market doesn't include trading daily production volume a 1,000x over.

[pphilfran]

A fair and equitable commodity market doesn't include trading daily production volume a 1,000x over.

The only way to significantly reduce volatility it is to slow demand or increase supply...anything else is a band aid...

[StoopTroup]

uh, maybe the markets in which the oil is sold makes people take delivery of what they but?

I went to the market this morning and bought myself a 6 pack...

I'm about out and headed back fo a 12

[pphilfran]

I went to the market this morning and bought myself a 6 pack...

I'm about out and headed back fo a 12

You should have known a 6 pack aint gonna be enough...

[royalfan5]

All of you that don't like speculation are pure bolsheviks.

[OutlandTrophy]

You are trying to put a band aid on a broken arm....

you are wrong.

speculators are driving the price artificially up, it's not supply and demand that causes the fluctuations in price.

When the price moves down 10% in a day are you telling me it is because Harold Hamm found an extra 10% to add to the world supply?

Are you saying if it goes up 10% in a day it's because the world used 10% more that day?

[Sooner_Tuf]

I think controlling the source of the product pretty much gives you control of the price.

You might think so but that really isn't the case with most commodities.

[Sooner_Tuf]

you are wrong.

speculators are driving the price artificially up, it's not supply and demand that causes the fluctuations in price.

When the price moves down 10% in a day are you telling me it is because Harold Hamm found an extra 10% to add to the world supply?

Are you saying if it goes up 10% in a day it's because the world used 10% more that day?

Absolutely. It goes and up and down because speculators can't make money if it stayed the same. They drive the rises and the falls. We used to prosecute people for doing that and we should again.

[pphilfran]

you are wrong.

speculators are driving the price artificially up, it's not supply and demand that causes the fluctuations in price.

When the price moves down 10% in a day are you telling me it is because Harold Hamm found an extra 10% to add to the world supply?

Are you saying if it goes up 10% in a day it's because the world used 10% more that day?

Yes they can drive the price up or down over the short term...but there is an underlying fundamental that puts the speculators into a position to make a bet on the market...

If you got rid of all speculation it will make no difference in long term crude prices...

Go ahead and focus your energy on something that won't make a bit of difference in the long run...

I would rather focus efforts on slowing both speculation and long term crude price growth...by increasing supply and slowing demand...

[OutlandTrophy]

Yes they can drive the price up or down over the short term...but there is an underlying fundamental that puts the speculators into a position to make a bet on the market...

If you got rid of all speculation it will make no difference in long term crude prices...

Go ahead and focus your energy on something that won't make a bit of difference in the long run...

I would rather focus efforts on slowing both speculation and long term crude price growth...by increasing supply and slowing demand...

well ****, phil, I wonder why nobody has thought about your plan to increase supply and decrease demand? That's a helluvan idea!!!

Next you're going to tell me that Linkedin is a great stock to purchase!

[pphilfran]

well ****, phil, I wonder why nobody has thought about your plan to increase supply and decrease demand? That's a helluvan idea!!!

Next you're going to tell me that Linkedin is a great stock to purchase!

:)

[GKeeper316]

natural resources have always been, and will always be, sold on the futures markets.

there's no other way to do it.

should the futures traders be reigned in? **** ya they should.

[royalfan5]

natural resources have always been, and will always be, sold on the futures markets.

there's no other way to do it.

should the futures traders be reigned in? **** ya they should.

There shouldn't be a damn thing done to futures traders.

[OutlandTrophy]

There shouldn't be a damn thing done to futures traders.

other than lots of BJs right?

:)

[royalfan5]

other than lots of BJs right?

:)

Well, there's that.

[StoopTroup]

Is this the Snooky thread?

[Chuck Bao]

I really do not think that the Saudi idea of making the markets more transparent would actually curb any part of the speculation. A more tightly regulated US commodities market would just move offshore or to the under-the-counter market.

But, I do agree that the massive hedge funds in the US need to be better regulated. Unlike normal mutual funds, these hedge funds are pretty free of regulation and have free rein to invest or trade in anything, anywhere in the world or just gang up and drive markets because they can.

I would like to see Wall Street's excesses curbed and a clear separation between banks and brokers re-established because they are very different animals with very different risk profiles. Their merger is really the worst of both worlds as the housing boom and bust proved. Brokers make terrible bankers and bankers make terrible brokers. What happened to the promised reforms on Wall Street?

[pphilfran]

I really do not think that the Saudi idea of making the markets more transparent would actually curb any part of the speculation. A more tightly regulated US commodities market would just move offshore or to the under-the-counter market.

But, I do agree that the massive hedge funds in the US need to be better regulated. Unlike normal mutual funds, these hedge funds are pretty free of regulation and have free rein to invest or trade in anything, anywhere in the world or just gang up and drive markets because they can.

I would like to see Wall Street's excesses curbed and a clear separation between banks and brokers re-established because they are very different animals with very different risk profiles. Their merger is really the worst of both worlds as the housing boom and bust proved. Brokers make terrible bankers and bankers make terrible brokers. What happened to the promised reforms on Wall Street?

yes

[87sooner]

It is a difficult problem....but putting patches on something that is not the root cause will do little to slow the long term increase in oil prices...

Every commodity has spikes and valleys...crude don't hold a candle to the corn market...

http://futures.tradingcharts.com/chart/CN/M

i'm a huge fan of corn speculators....

[SoCaliSooner]

Impossible. I read blogs and news feeds in 2008 that said George Bush was manipulating the market to make his oil pals rich(er)...

[GKeeper316]

a clear separation between banks and brokers re-established because they are very different animals with very different risk profiles

exactly. you can't let the commercial banks give money to the investment banks. bad juju.

[StoopTroup]

You should have known a 6 pack aint gonna be enough...

tHAT LAST 1/2 PINT OF GIN WAS THE BEST buzz i hAD all day

[BU BEAR]

Where were you complainers when speculators pushed the price down to $10-$15 per barrel?

[Position Limit]

it was tom kavisto at semgroup that got his balls squeezed to $145 as he proceeded to blow out that company. and it doesnt take much effort or thought to bring the price of the light sweet varity down. the nymex just needs to decrease position limits and increase margins. it's been done in many contracts to bring the prices down in the past. also, to those complaining about non delivery of the underlying. gold, oats, corn, gas, meat (red and white), and just about any other traded commodity doesnt get exercised into the psysical. please stop.

[OUMallen]

The Saudis want to remove speculation so THEY can get price control back into THEIR corner....

Can't be worse than what happened: record high prices with relatively low demand.

[Bourbon St Sooner]

I really do not think that the Saudi idea of making the markets more transparent would actually curb any part of the speculation. A more tightly regulated US commodities market would just move offshore or to the under-the-counter market.

But, I do agree that the massive hedge funds in the US need to be better regulated. Unlike normal mutual funds, these hedge funds are pretty free of regulation and have free rein to invest or trade in anything, anywhere in the world or just gang up and drive markets because they can.

I would like to see Wall Street's excesses curbed and a clear separation between banks and brokers re-established because they are very different animals with very different risk profiles. Their merger is really the worst of both worlds as the housing boom and bust proved. Brokers make terrible bankers and bankers make terrible brokers. What happened to the promised reforms on Wall Street?

Dodd/Frank gave us neverending bailouts codified into law. What more reform would you like?

[87sooner]

it was tom kavisto at semgroup that got his balls squeezed to $145 as he proceeded to blow out that company. and it doesnt take much effort or thought to bring the price of the light sweet varity down. the nymex just needs to decrease position limits and increase margins. it's been done in many contracts to bring the prices down in the past. also, to those complaining about non delivery of the underlying. gold, oats, corn, gas, meat (red and white), and just about any other traded commodity doesnt get exercised into the psysical. please stop.

you're right....they don't...
is there a down side to limiting those trading commodity paper to only those that actually take delivery?
is it a constitutional/God given right?

phil is right...in the LONG TERM...the markets are driven by supply/demand...
but the elephants in the short term market are the hedge funds...they move the prices far beyond reasonable...

[royalfan5]

you're right....they don't...
is there a down side to limiting those trading commodity paper to only those that actually take delivery?
is it a constitutional/God given right?

phil is right...in the LONG TERM...the markets are driven by supply/demand...
but the elephants in the short term market are the hedge funds...they move the prices far beyond reasonable...

Well limiting it delivery would make things very erratic for hedgers, specs provide the liquidity needed to make the futures market work. As far as prices being over inflated as far as ag commodities go, the positive basis in a lot of areas show that the board isn't overpriced compared to cash demand.

[Chuck Bao]

Dodd/Frank gave us neverending bailouts codified into law. What more reform would you like?

How about no bailouts? Or, if the financial institution is too big to fail, nationalize it, bail it out and then profit from privatizing it once it has recovered.

Previous shareholders should lose everything for investing unwisely in financial institutions engaging in high risk activities. There has to be accountability for the markets to function properly. Bank regulators talk about that being "moral hazard". Wikipedia has a good definition of it.


Moral hazard occurs when a party insulated from risk behaves differently than it would behave if it were fully exposed to the risk.

And, please no talk about nationalizing being the same as socialism or communism. There can always be a clear-cut exit plan.

Concerning lowering position limits and raising margins, I guess it would work to some degree. I also believe that the hedge funds doing a large part of the speculating in commodities can send huge sums of money around the world in a blink of an eye. Some of the trading would go offshore to enterprising exchanges that maintain very favorable trading terms, if supported by the big name US brokers. After all, they are trading commodities and not something uniquely American.

[Position Limit]

Concerning lowering position limits and raising margins, I guess it would work to some degree. I also believe that the hedge funds doing a large part of the speculating in commodities can send huge sums of money around the world in a blink of an eye. Some of the trading would go offshore to enterprising exchanges that maintain very favorable trading terms, if supported by the big name US brokers. After all, they are trading commodities and not something uniquely American.

"offshore" and enterprising exchanges (whatever that is) scooping up orderflow wouldnt matter much. light sweet and brent, and most commodities are non fungible across various exchanges. raising margin requirements would absolutely bring prices down. over leveraging is what causes prices to rise to bubble portions.

[The Profit]

All of you that don't like speculation are pure bolsheviks.




So???

[Chuck Bao]

"offshore" and enterprising exchanges (whatever that is) scooping up orderflow wouldnt matter much. light sweet and brent, and most commodities are non fungible across various exchanges. raising margin requirements would absolutely bring prices down. over leveraging is what causes prices to rise to bubble portions.

I am not surprised that that is the attitude of many American brokers and they certainly wouldn't want to lose even a small part of their commission income. I do agree that the order flow wouldn't matter much initially and that is why I used qualifiers "some" and "if supported by the big name US brokers".

If the London-based International Petroleum Exchange, which claims to be one of the world's largest energy futures and options exchanges, wouldn't follow suit, do you think it wouldn't matter much? Or, the London Metal Exchange?

By enterprising exchanges, I mean offshore markets that are essentially run by member brokers who are willing to engage in cut-throat tactics to bring in extra commissions for the members. And yeah, the big US brokerage houses have seats on many of these tiny, tiny offshore exchanges or commission rebate schemes in place. But, please don't quote me on that.

In case anyone is wondering about non-fungible, this is the definition from Wikipedia.


Fungibility is the property of a good or a commodity whose individual units are capable of mutual substitution. Examples of highly fungible commodities are crude oil, wheat, orange juice, precious metals, and currencies. It refers only to the equivalence of each unit of a commodity with other units of the same commodity.

[Position Limit]

[QUOTE=Chuck Bao;3248313]If the London-based International Petroleum Exchange, which claims to be one of the world's largest energy futures and options exchanges, wouldn't follow suit, do you think it wouldn't matter much? Or, the London Metal Exchange?

QUOTE]

i'm not sure i fully understand your question. could you elaborate some? are you asking if the london futures exchange didnt follow suit in raising margins it wouldnt matter much? if that's the question then i dont have an answer. london and new york trade two differnt types of oil and therefore different contracts. last i looked, brent traded at a discount to wti. i do believe that if officials at the nymex raised margins then the price of that contract would come down. it's happened pleanty of times in other contracts. and i know leveraging is major cause of price appreciation in any asset class. plus you get into pricing light sweet in us dollars and blah blah blah.

[Position Limit]

chuck, take a look a what the silver contract did earlier this month when margins were raised on the nymex. it got smoked.

[jkjsooner]

How about no bailouts?

If you could go back in time and had the power to do so, would you choose that route and face the consequences?


Or, if the financial institution is too big to fail, nationalize it, bail it out and then profit from privatizing it once it has recovered.

Geitner wanted to do just that but didn't have the authority to do so. He wanted to ensure those who caused the mess (both the shareholders and the executives) paid a price but there just wasn't a mechanism to do so.

The political will is not there to allow what you ask for. Just look at how the auto bailouts were spun. It was presented as Obama's communist plot to take over private industries.



Previous shareholders should lose everything for investing unwisely in financial institutions engaging in high risk activities.

I believe this did happen in a lot of cases. The shareholders did lose their shirts. The problem is that the shareholders have little say in today's world and it is the executives / boards of directors that have the power and they made out like bandits.



And, please no talk about nationalizing being the same as socialism or communism. There can always be a clear-cut exit plan.

Oops, I broke your rule above. I agree with your sentiment but you can't ignore the fact that that is the way it will be spun.

In summary, I agree with what you say but I'm trying to inject some political reality in the discussion.

[Chuck Bao]

i'm not sure i fully understand your question. could you elaborate some? are you asking if the london futures exchange didnt follow suit in raising margins it wouldnt matter much? if that's the question then i dont have an answer. london and new york trade two differnt types of oil and therefore different contracts. last i looked, brent traded at a discount to wti. i do believe that if officials at the nymex raised margins then the price of that contract would come down. it's happened pleanty of times in other contracts. and i know leveraging is major cause of price appreciation in any asset class. plus you get into pricing light sweet in us dollars and blah blah blah.

I honestly don't know what the hell that I am talking about. For some odd reason, Asia seems to use Brent Crude as the benchmark for crude, instead of West Texas Sweet Crude (or wti). What difference would it make if one futures contract is cheaper than the other because they do move in tandem and that should be good enough for short-term speculators.

I do not doubt that leveraging is a major factor in speculation. Exchanges can effectively employ this to limit, to some degree, market volatility. I was just speculating that "some" of the trading would go offshore and, since the contracts are in US dollars, the contracts present no currency risks for US based hedge funds, especially if they are essentially betting against the dollar.

[87sooner]

Well limiting it delivery would make things very erratic for hedgers, specs provide the liquidity needed to make the futures market work. As far as prices being over inflated as far as ag commodities go, the positive basis in a lot of areas show that the board isn't overpriced compared to cash demand.

what about oil?

[REDREX]

All of you crude experts should open accounts ----You will be rich in no time

[Position Limit]

I honestly don't know what the hell that I am talking about. For some odd reason, Asia seems to use Brent Crude as the benchmark for crude, instead of West Texas Sweet Crude (or wti). What difference would it make if one futures contract is cheaper than the other because they do move in tandem and that should be good enough for short-term speculators.

I do not doubt that leveraging is a major factor in speculation. Exchanges can effectively employ this to limit, to some degree, market volatility. I was just speculating that "some" of the trading would go offshore and, since the contracts are in US dollars, the contracts present no currency risks for US based hedge funds, especially if they are essentially betting against the dollar.

no worries you're just over thinking it. who cares about asia, london, short term speculators or brokerages or pricing energy futures. just think of the nymex as the only exchange offering a non fungible oil contract consisting of light sweet crude with a cushing, ok delivery traded in greenbacks. my opinion is that the raising of margin requirments and lowering of position limits would put downward pressure on this particular contract. history has proven several times in other commodities including silver recently (massive selloff). the wti contract also happens to have massive liquidity and is a profit center for the chicago merchantile exchange. which might be the reason they dont want drastic changes in margins. but that's a whole other argument.

[Chuck Bao]

chuck, take a look a what the silver contract did earlier this month when margins were raised on the nymex. it got smoked.

Okay, I get it. I'm wrong. Would you happen to know if the LME followed suit?

In Asia, we follow LME prices and not NYMEX and Asia is where a whole lot of new demand and hedging and huge investment from reserve surpluses are.

You also have to bear in mind that the speculators are a bunch of knee-jerk jerks. They would jump all over this and switch positions and get their multi-million dollar bonuses. This is not really about long-term demand and supply because most of them are not thinking that way, anyway. They are a bunch of jerks.

[Chuck Bao]

history has proven several times in other commodities including silver recently (massive selloff). the wti contract also happens to have massive liquidity and is a profit center for the chicago merchantile exchange. which might be the reason they dont want drastic changes in margins. but that's a whole other argument.

I am so sorry Position Limit, that was my whole argument. I didn't clearly explain my original post very clearly, the brokers don't want to do it because it will result in lost business for them and possibly some overflow to more accommodating exchanges overseas in the longer term. I guess it will all depend on who owns the Chicago Mercantile Exchange or NYMEX and who controls their board of directors and I currently don't know that little fact.

Do you happen to know if the current Obama Government can dictate their trading policies? And, I am not overlooking the fact that many brokers are pretty unethical and can arrange all sorts of discounts and loans and stuff behind the scene to keep the business.

[Oldnslo]

Wait. Massive selloff of silver? It went from mid 40's to low 30's and is now... high 30's, trending upwards.

As long as you didn't panic, you're fine sticking with silver.

[Position Limit]

Wait. Massive selloff of silver? It went from mid 40's to low 30's and is now... high 30's, trending upwards.

As long as you didn't panic, you're fine sticking with silver.

what caused the 25% drop in silver? did Jerry and the Dead stop playing for life and switch back to silver? margin increase ace. margins....

[Oldnslo]

Yes. And with margins pared back, it's still rising. What am I missing? (no sarcasm. Really, what don't I know that I should?)

[Xunil]

chuck, take a look a what the silver contract did earlier this month when margins were raised on the nymex. it got smoked.


And these were very modest changes. I would have gone higher.

[JohnnyMack]

what caused the 25% drop in silver? did Jerry and the Dead stop playing for life and switch back to silver? margin increase ace. margins....

Seems like there were too many speculators, too many paper contracts. Everyone was trying to whore in on the deal. Running off the speculators won't be a negative long term.