I appreciate your thank you. You are correct on the total futures picture. I was just trying to point out that futures begin at the producer level. The producer of a commodity wants to pay his cost of production first, then lock in a profit going forward. Once he sells a contract against his production at a stipulated date, that contract can be re-sold. And you have the short side to consider. A trader can sell a futures contract in the market, or go short. He just needs a buyer. More sellers, more buyers, mean more open interest.

I was just trying to give an overview of where the crude price drop may have been sourced. I didn’t want to get into the nuts and bolts of futures in a brief comment, so you were right to make that distinction. Good catch.

As far as markets needing more regulation…my opinion is there are plenty of regulations in place already. It’s the lag or declining of enforcement of regulations that is questionable. Which I suppose one could also say concerning life in general.

Is there any principle he won’t disavow to get elected?

NO.

The more I watch members of the Democrat party, the more convinced I am that they will say or do anything to get elected. And once they’re elected, they just do what they want. They conveniently ignore and drop into a black hole any previous statements or positions of them that are now ‘inconvenient’.

Remember Pelosi’s plan to cut gas prices before the 2006 elections? Heard anything about it from any democrat since then?

But, I have to disagree as to your last point. The possession of actual oil contracts. My understanding is that much of the trading was in the nature of contracts NOT tied directly to a given physical barrel of oil. This is a needed reform in the commodities market that makes sense to me. If commodity trading were tied directly to a quantity of the actual commodity, and traders were made to take actual ownership (like short sellers eventually must), much of the ridiculous spike this year in oil would have been mitigated.

Anyway, thanks for the excellent explanation of where the “real” money was and how it began to flow away from oil.

If you think that $4 and $5 gasoline has been brutal this spring and summer (and it has been brutal) just wait until it gets cold in the Upper Midwest and Northeast this winter.

In the mid 70s when Nixon, Ford and Carter imposed price controls and production restrictions on the U.S. petroleum industry, a favorite bumper sticker in Texas was “Let those Yankee Bastards Freeze in the Dark”.
Well Ms. Pelosi and Harry Reid–having refused to do anything–and believing that $10 a gallon gasoline is a good thing–from an environmental perspective–are going to be responsible for a lot of frozen grannies in Massachusetts this winter.

A common measure of overbought status in the oil market is the crude to gold spread. While gold has been in a significant uptrend since 2001, crude has gone ballistic. The spread has reached extreme levels historically speaking, and the large players have left the playing temporarily. The commodity markets are the last vestige of free markets other than the various blackmarkets around the globe. As most can see they are self-regulating. One reason that has kept the price of petroleum products at ‘low’ levels has been heavily subsidized gas and diesel to consumers in such countries as Russia, Iran, and China. Those subsidies have been eroding, witness the fuel fueled riots earlier this year in two of those countries.

The only ‘bad’ news here on the crude drop is that the underlying conditions have changed little. Widely reported US recession based drop in demand is just part of the global picture. Oil is found in some very unstable regions. Something like 70% of the world’s crude is controlled by nationalized corporations, or by govt bureaus directly. And the Fed and Treasury can’t/won’t move the dollar up at this juncture. What most people don’t take into account is that while crude has become more ‘valuable’, it’s also important to realize the US$ has plummeted hard.

I’m not an expert of any sort, just a mere trader, passing on what he’s read. Taking stances or opinions I will leave to the braver here. I just try to stay on top of my trades. And to preempt the “speculators are horrid scum” calls, without the specs you would not have any liquidity in the markets. And you do know what illiquidity gets you, right? Plus, for all those futures bought by the hedge funds, someone had to sell them the futures. [hint: maybe someone who owns some oil and is locking in a price in the future?]

Funny how no one ever complains about the specs bringing down prices…