Patterico's Pontifications

7/23/2008

Remember Last Week When I Commented On How the Price of Oil in the Futures Market fell After the Lifting of the Exectuive Ban on Off-Shore Drilling?

Filed under: General — WLS @ 6:47 pm



Posted by WLS:

If you have forgotten you can read it again here.

Funny thing happened after the price fell two days in a row, totaling a 7% decline — it continued to fall all the way to today.

Recall that subject of my post last week was the closing price of $134.60, which was a drop of over $10 in just two trading sessions from the closing high of $145.18 the day before the President ended the off-shore ban.

Today’s closing price for delivery of a barrel of oil in 90 days was $124.23.

That’s a one week total decline of nearly $20, which is a 14% decline.  One article Drudge has linked right now predicts $3.50 gas by Labor Day.

Maybe $3 by election day?

Just so you know — oil prices passed the $120 mark on May 5, 2008.

So it took about 70 days for oil to go from $120 to $145, but only 7 days to go most of the way back to $120.

Update:  On the drive home I heard a radio commentator attributed to Marketwatch.Com suggest that we could see a drop in gasoline prices by as much as .30 a gallon over the next three weeks as wholesalers and retailers battle to lure back drivers who have backed down their driving habits.  Some retailers have their seen their gross volume sales decline by 15% over the last few months as prices climbed over $4 a gallon.  Market forces may lead them to try and lure back those customers by underpricing their rivals, thereby creating a mini-price war, as they sacrafice a few cents a gallon in order to increase their sales volume.

41 Responses to “Remember Last Week When I Commented On How the Price of Oil in the Futures Market fell After the Lifting of the Exectuive Ban on Off-Shore Drilling?”

  1. At least one 7-Eleven store in Oklahoma City is vending the 87-octane stuff for a mere $3.439 even now; a dozen other C-stores are under the $3.50 mark.

    I expect less-enlightened parts of the country to follow suit eventually.

    CGHill (e5ab54)

  2. I think I’ll go with the WSJ:

    Nymex crude-oil futures fell as a larger-than-expected buildup in U.S. gasoline inventories amplified market fears of demand erosion.

    steve (045775)

  3. Good. Now I’ll go out and buy my SUV.

    ManlyDad (75cbfe)

  4. I don’t know how fast the futures market assimilates information, but the fact that the price is still declining a week later suggests it is dropping for reasons other than the Executive ban reversal.

    I still think the possibility of increased drilling years in the future has little to do with short term deliverable contracts. If it affects the psychology of the market, I honestly don’t understand how that is a rational response to news that is indisputably good news for the oil companies long term. I accept it may well be in fact an influential data point for futures traders, but I haven’t figured out why that would be. If oil were something durable like gold, I could see an announcement of the opening of a huge new gold mine would cause short term gold prices to decline, because we predict years from now that there will be plenty of gold and thus the current investment in gold would be depressed. But oil is a consumable like wheat; if someone announces a patent on a new strain of wheat that will grow almost everywhere in a matter of weeks with little water and no fertilizer, I don’t see how that would impact the prices on this season’s wheat futures before a single stalk is plant, because the bread will be eaten just as the gas will be burnt either way.

    My guess is the recent decline in demand accounts for the decline in futures prices. Refineries and wholesalers are probably cutting back orders a bit to keep their inventories from increasing, driving down deliverable prices.

    Aplomb (b6fba6)

  5. Well, you can look at future prices across the board, and not just the 90 day contracts. They are all down — meaning that there is a belief that there is a likelihood of a sufficient quantity of oil available in the future to meet demand, and that buyers in the marketplace will not have to make ever-increasing bids to secure that which they need.

    I suspect this is a three-part answer — 1) more supply; 2) decreased demand at the current price levels; and 3) likelihood of alternatives to oil at this price point.

    The longer oil stays at these elevated prices the more cost effective it is to research and develop alternatives to oil. It made little sense to spend on that development when oil was $40 a barrel.

    WLS (26b1e5)

  6. One odd thing I noted is that somehow, the fact that the price fell in part on sentiment based on things which will take years to actually produce oil, was seen as proof that the futures markets are acting improperly, by Dick Morris, of all people. (He’s not someone who generally writes about economic issues as such, and he certainly leans Republican.)

    Morris: “If there is any doubt that it is speculation, not the supply and demand for oil, that is driving up the price, look at this week’s history of oil prices. After Bush announced that he was… permitting off shore drilling and after OPEC announced a weakening of oil demand, the futures market price dropped $15 per barrel. No new oil gushed through the system. The speculators just switched their bets from up to down. ….

    There is nothing wrong with letting the free market in oil determine the price of the product. And there is a lot right with letting it do so. But it is insane to let gamblers magnify the effect of anticipated changes in supply and demand, that may not materialize, by buying and selling oil futures. Oil is just too important strategically and economically to allow that kind of speculation.”

    DWPittelli (7c499f)

  7. Obama said a few weeks ago that he loved the fact that oil prices were going through the roof, but he claimed to have hoped that wouldn’t rise so fast.

    The obvious question he should be asked now is if he is happy with the fall of the price of oil and if so, how fast does he want it to fall?

    I realize that Obama went to Harvard but I suspect that he is borderline retarded and no evidence will be found that he actually did any study to earn his degree. Find some papers he wrote to prove me wrong. His handlers have last names that are also names of schools on the Harvard campus and also huge donors to Harvard. Kennedy and bin Laden would be a couple of those names.

    j curtis (c84b9e)

  8. I still think the possibility of increased drilling years in the future has little to do with short term deliverable contracts.

    Drilling in ANWR could show significant return in one year. The market may see that ANWR is on the table. Futures contracts are about the future. If consumption is down, and it is because of prices, and supply could be up in a year, the long term becomes not so long term.

    Mike K (2cf494)

  9. House Republicans are taking this serious — The American Energy Act (HR 6566):

    a comprehensive energy bill that takes an “all of the above” strategy to end our dependence on costly foreign oil and reduce gas prices in America. At a Capitol Hill news conference this afternoon, the Members of Congress will also demand Democrat House Speaker Nancy Pelosi end her opposition to American-made energy and allow a vote on the bill.

    With $4 gas prices this can gain massive support if they can get the media to stop their Obamadrooling for three minutes or so!
    David

    LifeTrek (d258cb)

  10. I’m sure the price fell because Obama went overseas and received a rock star welcome, blah, blah, blah. If he can heal the sick and make the oceans recede, what’s a little stock price manipulation?
    Wave your magic wand, froggie.

    Patricia (f56a97)

  11. WLS – An excellent follow-up to an excellent post. Predictably, the Leftists will attribute any good news to anything and everything except President Bush, or the actual factors that had been driving the upwards push. I cannot wait to hear how the value of the dollar is driving the prices down.

    JD (e60f78)

  12. This just proves that the run-up in oil futures was artificial and a version of greedy hoarding with knowledge that the public was over a barrel (literally). Also like 2 years ago, the oil investment establishment knows it most lower oil profiteering in order to keep conservatives in power. This run-down in prices is just in time for th election season and also, the establishment knew it got too greedy for it’s britches and people were really hurting.

    Of course, even 4 bucks a gallon is pretty cheap for most industrialized nations. Euros still drive even with 9 bucks a gallon equivalent in prices but we got too wasteful.

    datadave (7420e3)

  13. For those of you that have not had the pleasure, datadave has the ability to make Levi and Peter seem rational.

    JD (e60f78)

  14. What in the hell is “the oil investment establishment”?

    Hazy (c36902)

  15. “For those of you that have not had the pleasure, datadave has the ability to make Levi and Peter seem rational.”

    I’ll grant you that dd is a flaming idiot; but not even the great Obamessiah (TM) has that power JD.

    Lord Nazh (899dce)

  16. Look to the Congress to strike quickly to ensure gas stations do not lower the price to much.

    davod (5bdbd3)

  17. Oil Investment Establishment = Buuuussccchhhhh

    And the Joos. But mostly Buuusssccchhhh.

    Bel Aire (cc1676)

  18. JD, silliness like #12 almost convinces one that you are right.

    SPQR (26be8b)

  19. With a tip of the cap to JD:
    Falling oil prices are racist!

    Another Drew (8018ee)

  20. The key thing about the entire “This is speculators!” thread is:

    The most damaging thing you can do to the people betting that the price is going way, way, up is to make the price plummet.

    If just announcing “We won’t ban offshore drilling!” causes a drop, what if we were running around screaming about nukes, more nukes, offshore + onshore + wind + a pony.

    This would crush the very people Democrats assume are the jerks causing this. So use that as a piece of the argument.

    Al (5ffb6a)

  21. All we need is a LATimes article saying that Women, Homosexuals, the Poor, and undocumented immigrants hurt by Bush’s revoking the Executive Order against off shore drilling.

    PCD (5c49b0)

  22. Racists.

    JD (75f5c3)

  23. 22, cracker!

    PCD (5c49b0)

  24. This post conveniently omits the fact that the amount of U.S. drivers on the road has also gone down dramatically. Less Cars…… less gas being used. Supply and Demand.

    Oiram (983921)

  25. More domestic production = more supply and even LOWER prices.

    Using one side of the equation = good.
    Using both sides = better.

    Think HARD.

    Drumwaster (5ccf59)

  26. The ‘total transportation decrease’ is a lot less than the ‘leisure travel decrease’.

    Pay attention to the caveats.

    Al (5ffb6a)

  27. #24 not to be too pedantic. FEWER cars and less gas is the proper English usage. Chrissie Matthews likes Urkel is hung, but imho he deserves to be figuratively hanged from a light post along with his fawning, sexually aroused media enablers.

    madmax333 (0c6cfc)

  28. The amount of driving done was going down while the price was still going *up*, though.

    Correlation isn’t causation, but this *did* start after Bush actually signed.

    Foxfier (15ac79)

  29. #25 Think Harder Drum.

    If you read the above post, and then read my comment, you would know that I was trying to inform you that lifting a ban on oil drilling may not be the only factor in lowering gas prices.

    Your side has chosen to make it’s argument by telling us that gas prices are going down because of Bush lifting the ban.

    I used the supply and demand reference to illustrate to you and yours because that’s what you pay attention to “Supply and Demand”.

    The demand for gas goes down when less people drive. That started in January 2008.

    Bush lifted the ban last week.

    Think Harder.

    Oiram (983921)

  30. The demand for gas goes down when less people drive. That started in January 2008.

    Bush lifted the ban last week.

    And when did the price drop start? LAST WEEK.

    Gee, it’s almost like one thing caused the other…

    Drumwaster (5ccf59)

  31. Oiram — and if you looked back at my first post from last week you would have seen that I commented on the fact that the price drop also coincided with the announcement that gasoline inventories had not dropped as much as expected, which was attributed to fewer miles being driven.

    But, so much for Baracky’s claim that drilling would at most reduce the price by .03-.05 per barrel.

    WLS (26b1e5)

  32. Correct me if I’m wrong, but lower prices depends on the actual oil being pulled out of the ground right?

    Bush lifting the band doesn’t put oil in our pockets. Not until all has been approved.

    Therefore lower prices reflects a speculative market.

    “.03 – .05 cents” is still on the table as far as I’m concerned.

    Lower gas prices now is not a permanent thing.

    Could be and I hope it is though.

    Oiram (983921)

  33. Oiram –
    Nice, a twofer: rude AND ignorant.

    There is other evidence towards the ban being lifted being the cause for prices to drop; that’s lacking in the idea that less driving six months ago caused a large drop now.

    Foxfier (15ac79)

  34. Correct me if I’m wrong, but lower prices depends on the actual oil being pulled out of the ground right?

    Only if the price is determined only by raw demand, without speculation– which isn’t going to happen.

    Even if you make it illegal to speculate on oil futures in the stock market, the refining companies would have to guess how much gas the stations will order, and the stations have to guess how much gas their customers will want.

    I also hope the price goes down– we’ve been pouring insane amounts of money into alternative fuels for my entire life, and get a bunch of white elephants. Clearly, we need more time– and making it so oil sucks the funding out of everything won’t help.

    Foxfier (15ac79)

  35. Today’s closing price for delivery of a barrel of oil in 90 days was $124.23.

    You actually believe that oil that would maybe go on line in 10-20 years would affect 90-day oil futures? What an idiot.

    Recall that subject of my post last week was the closing price of $134.60, which was a drop of over $10 in just two trading sessions from the closing high of $145.18 the day before the President ended the off-shore ban.

    You serious? Recall, also, that crude oil averaged $64/barrel in 2007 and shot up in 2008. Amazing.

    I also hope the price goes down– we’ve been pouring insane amounts of money into alternative fuels for my entire life, and get a bunch of white elephants.

    Really? Just how much money have we been pouring into alternative fuels*? And where’s the white elephant graveyard?

    *Obviously, “fuels” aren’t the only source of alternative energy.

    master shake (27ee58)

  36. You actually believe that oil that would maybe go on line in 10-20 years would affect 90-day oil futures? What an idiot.

    …Welcome, Troll. I must offer my sympathy, because all the major bridges around here are at full occupancy. Maybe there’s a koi pond with an ornamental bridge where you could retire?

    Foxfier (15ac79)

  37. Patterico forgets to mention, or doesn’t know, that commodities are selling off across the board.

    In the past 10 trading days, natural gas is down 17 percent, more than TWICE the decline in crude i the same period.

    Soybeans, nickel, corn, sugar and platinum all FELL MORE THAN CRUDE OIL.

    So no, Patterico, we can indeed credit Bush for the decline in oil, but not because of his decision to unban offshore.

    Rather, the problem is that the sub-prime crisis just keeps winnowing banks, forcing them to tighten credit, crimping economic growth, raising concern that demand for commodities, including oil, will decline, even if China steams ahead economically.

    Nice try, Pat. All you really prove is that your instinct is to fit any data to your ideology, not the other way around.

    McLovin (12868a)

  38. …..

    “Hey! Soybeans, corn, sugar and natural gas fell at the same time as oil! That PROVES it’s not energy related!!!!!!”

    ….

    You’re kidding, right?

    Foxfier (15ac79)

  39. McLovin — you do know that natural gas recovery is a byproduct of oil drilling, don’t you?

    More oil drilling equals more natural gas production. Hence, more of the former equals lower prices for both oil and NG.

    WLS (ab3e74)

  40. Nice try, Pat. All you really prove is that your instinct is to fit any data to your ideology, not the other way around.

    Unfortunately, he’s too stupid to even retrofit the data right. His theory makes absolutely no sense.

    McLovin — you do know that natural gas recovery is a byproduct of oil drilling, don’t you?

    WLS, you do know that most natural gas reserves are in isolated natural gas fields, don’t you? In fact, almost all (~90%) natural gas in the US is non-associated (i.e., not dissolved in oil).

    master shake (27ee58)

  41. The steep decline in oil prices pretty much conclusively refutes the troll who was here before trying to claim that the rise in oil prices was entirely a function of exchange rates / weak dollar.

    SPQR (26be8b)


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