Another reason not to get excited about $100 a barrel oil: it was a stunt.
Some observers questioned the validity of the price mark when it emerged that the peak was the result of a trader – one of the “locals” who trade on their own money – buying from a colleague just 1,000 barrels of crude, the minimum allowed, industry insiders said. The deal on the floor of the New York Mercantile Exchange was at a hefty premium to prevailing prices.Insiders named the trader as Richard Arens, who runs a brokerage called ABS. He was not available for comment. Analysts said he may have been testing the ceiling of the crude price, but the premium he paid surprised the market.
Before the $100-a-barrel trade, oil prices on Globex were at $99.53 a barrel. Immediately after the trade, prices went down to about $99.40, suggesting a trading loss of $600 for Mr Arens.
Stephen Schork, a former Nymex floor trader and editor of the oil-market Schork Report, commented: “A local trader just spent about $600 in a trading loss to buy the right to tell his grandchildren he was the one who did it. Probably he is framing right now the print reflecting the trade.”
The price is still fluctuating near $100, so it's not that it's bogus . . . just to say that there wasn't any special market shift involved in crossing the $100 barrier.
Unless you're a chartist and this changes your view of price barriers, I don't see how this news is at all meaningful. It's not like oil was at $73 when he placed the order.
"I don't see how this news is at all meaningful. It's not like oil was at $73 when he placed the order."
X2
"the ... barrier": that's a daft cliche that a bright young thing like you could usefuly savage.
Did you notice the huge multiple article write up on this in the WSJ? Seems like the articles were lined up before $100 was reached. They just pulled the trigger early.
I think the more interesting factor is the potential money making opportunity. One has to wonder if $100 per barrel is merely a stop along the way to much higher levels, or if supply and demand will equalize in a manner that eventually sends prices plunging back down to $70, $50 or less.
How does one play that? Buying long term puts and calls to catch either direction?
Someone, somewhere, will be making a bundle (and probably not the guy sitting there saying, "My passive index fund will totally rock this year. I just know it!!")
Finn, all the major oil companies are betting on oil dropping back to $40 a barrel — or else you'd see a major investment in Fischer-Tropsch plants on the order of Sasol's Secunda. Instead, all that's being built are small pilot plants.
Now, of course, the oil companies could be overcautious, overreacting to what happened in the 1980s to all the exploration they financed in the 1970s. But they also have all the best experts in petroleum geology, extraction, and refining (unlike the people yelling about "peak oil"). So how hard do you want to bet on "$100 per barrel is merely a stop along the way to much higher levels"? Oh, the experts might be wrong, of course, but . . .
I just wish I had a hundred thousand dollars I could blow on slightly overpriced commodities. I agree the hundred dollar mark is arbitrary, but then, all marks are basically arbitrary. It isn't arbitrary, however, to suppose that at some point the price of oil has gotten a little out of hand. Of course, where that point is, I couldn't say-why not set it at 100 a barrel?
Also, I actually don't know whether it's legitimate to take a person's apparent motive for buying oil at a certain price as a reason to disqualify his decision in the overall pricing curve. You say, "he deliberately bought the oil at 100! he cheated!" I say analyzing the motives of individuals when trying to understand phenomena that are the result of the decisions of aggregate numbers of individuals is useless and foolhardy. What if he just wanted a 1000 barrels of oil to burn in his backyard to celebrate a lifetime of ecology abuse, and that he bought them at 100 a pop because he likes round numbers? Would it not be a stunt then?
I'm shocked, shocked to hear that a free market price was manipulated.
@happy
It's not manipulated, he paid for the extraordinary privilege of seeing a $100 price. Do you want to regulate the market or something?
Someone, somewhere, will be making a bundle
And someone, somewhere, will be losing his shirt.
Finn wrote: Someone, somewhere, will be making a bundle.
Tracy W wrote: And someone, somewhere, will be losing his shirt.
...while a hundred thousand gawkers like us observe it from the sideline, comment "That's kind of interesting", and then continue with life as usual.
The measure of disconnect between these commodity trading prices and derivative products I use regularly was driven home when I came back from holiday travels and found two things staring at me: ongoing commentary about $100/b oil, and a pump price of gas that had dropped by over $0.20/gallon from the pre-Christmas price. Go figure.
"Finn, all the major oil companies are betting on oil dropping back to $40 a barrel"
True, but it's possible that these conservative estimates by the majors may end up keeping oil prices this high longer than they would have been otherwise, since the $40/barrel expectation has discouraged some expensive exploration and extraction projects. It seems clear that there will be an oil glut sometime in the next several years, as huge new sources such as Brazil's Tupi discovery come online and China's economy inevitably slows (slowing the economies of its myriad commodity suppliers along with it). But how long will oil prices stay at this level? I don't know, but I'm comfortable owning oil stocks like BPT for the rest of tis year at least.
"The measure of disconnect between these commodity trading prices and derivative products I use regularly was driven home when I came back from holiday travels and found two things staring at me: ongoing commentary about $100/b oil, and a pump price of gas that had dropped by over $0.20/gallon from the pre-Christmas price. Go figure."
I've been following this more closely since I bought stock in a refiner last spring, FTO. Gasoline prices seem to be driven more in the shorter term by gasoline inventory and refining issues than by oil prices.