Street Speculator

It seems as though the HIGH GAS prices we experienced this past spring and summer was not the result of Supply and Demand after all. A 60 minutes report detailed the reason for those high oil prices.

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It was all due to, you guessed it, SPECULATORS!!. Oil is a publicly traded commodity where trading in the U.S. is regulated by the CFTC (Commodities Futures Trading Commission). Oil is traded in Futures Contracts, where the buyer buys the contract for one price hoping to sell the contract in the FUTURE for a higher price. The difference is the investors profit.

Exxon Mobil (Symbol: XOM) was the main scapegoat along with other oil companies during the high oil price bonanza. This was due to their incredible profits during the time consumers experienced high oil prices. However, the Hedge Funds and Wall Street Investment Banks were the largest purchasers of Oil Futures contracts, which subsequently drove up the price.

These entities are more than welcome, like you and I, to purchase any publicly traded investment product. But, when investing in oil, a purchaser has the option of taking physical possession of the oil or either sell their contracts for a “higher” price in the future.

What would  J.P. Morgan (Symbol:JPM) or Morgan Stanley (Symbol: MS) do with a barrel of oil? Nothing!! But, they could make a nice ROI in buying and selling Oil Futures contracts. Plus, as so-called market analysts peddling rationales for the reason of price run-ups and future price targets, they kind of manipulated the oil market. Remember, analysts from these banks as well as Goldman Sachs (Symbol: GS) all told us they felt the price of oil would go to between $150/barrel & $200/barrel.

Boone Pickens was also making the $150/barrel oil predictions. One of his investment funds through BP Capital lost about $1 billion and many of his limited partners/investors made capital calls. At one point BP Capital attempted, we believe (Don’t quote us) to halt all withdrawal requests in order to conserve cash. They subsequently provided this option to any investor whom wanted to move in this direction.

What these SPECULATORS did not anticipate was the magnitude this Global Credit Crunch. When the credit crunch started to spread, these companies (Investment Banks, Hedge Funds, etc….) were getting capital calls from their investors. In order to fulfill these investor requests , they had to sell most of their Oil Futures Contracts in order to raise capital. This is one reason why the price of Oil & Gas is so cheap now.

The airline industry is one industry whom actually purchases Oil Future contracts and then take the physical commodity to use for its business.

IMP: In ‘09, take whatever you hear from an analyst or Investment Adviser with a grain of salt. You cannot possibly know what conflicts-of-interest they have underlying their statements and the reasons for “pushing” certain market conditions. Conserve your cash and pay off debt.

1. It would take over 10 years for any drilling company to realize a profit

Translation: No oil company is willing to wait that long

2. Oil is a publicly traded commodity, which is how the price is set

Translation: If oil is trading at $130/barrel, Neither EXXON, Chevron or anyone else will sell to the U.S. consumers at the $90/barrel price

3. Supply and Demand

Translation: If China, Japan, Pakistan wants to purchase U.S. oil, EXXON will sell it to them 1st if the profit margin is higher than selling to U.S. consumers

4. People will re-start chasing TAD (The American Dream) if oil prices drop

Translation: People will revert back to buying things they neither need nor can afford, like cars.

5. A terrorist attack in an OPEC country will bring back the SPECULATORS

Translation: Any attacks, or threat of attacks will cause the Oil Speculators back into the futures market and drive up the price of oil based on a perception of a cut in global oil supply.

COMMENT if you have additional analysis.

High Gas Prices: Blame EXXON

Gas Station Shutdowns: Blame EXXON

People stealing gas from pumps: Blame EXXON

Outrageous CEO Pay Packages: Blame EXXON

War in the Middle East: Blame EXXON

Oil Speculators driving up the price of oil on the NYMEX: Blame EXXON

The EXXON Corporation (Symbol: XOM), one of the largest corporations in the world has been the perennial whipping boy since Hurricane Katrina hit (Which coincidentally is the same time oil prices started to rise) including Congress and at times Wall Street, yes Wall Street.

This past week EXXON reported quarterly earnings. For the 2nd quarter of ‘08, EXXON generated over $100 billion in revenue of which $11.68 billion was in profits, or $90,000/minute (WOW!!!!!!!!!!!). This is currently the largest ever corporate profit generated in U.S. history.

However I expect within the next month or so gloves will come off again and EXXON will be the target. Your fellow Congressman (When they return from vacation) will conduct another hearing on oil prices and request the presence in D.C. of CEO’s from the major oil companies. WHY, to justify their respective profits in relation to oil prices. This will have been the 3rd/4th time(or more..) Congress has done such. But you and I both know this is only a dog & pony show.

NEXT, there will be another call for a windfall profits tax. This will come from the Congressional DINOSAURS. Anything to create an impression to the American public that they are somehow trying to control oil prices (Which is something no politician can do with oil, or any other publicly traded commodity).

WALL STREET more than anyone really surprised me this week. On the date EXXON reporting earnings, the STREET had a sell-off of EXXON shares. I believe XOM dropped by $4 + dollars. This is in retrospect to the high earnings. I believe the STREET estimated more. Does not make sense to me, but I like you is still trying to analyze the STREET and how it thinks.

I would definitely purchase EXXON as a long term investment. Look at them as an investment and not some “pariah” as people portray them to be. They generate a large amount of cash flow and have consistent earnings.

ALSO, remember that EXXON is an “Oil Company” and not an alternative fuel company. So do not wait or expect them to invest in alternative energy because they are not in that business. They do not price gouge (Over 5 congressional hearings to investigate, no one has been charged with a crime).

Go EXXON!!!!!!!!!!!!!!!

As you are well aware, President Bush lifted a previous ban on offshore drilling. The purpose behind such action, I imagine is to reduce U.S. gas prices by using more domestically produced oil.    

Ask yourself these question as we are all potential economists here:

Will this really help drive down oil prices? (Before answering remember, that oil is a publicly traded commodity)

If China, India, and Taiwan ask Exxon is they could purchase their DOMESTICALLY PRODUCED OIL, will Exxon say “no” because they are saving it all for safety and welfare of the U.S. citizens?

If on the public markets oil trades at $135/barrel consistently, will Conoco, Exxon, Shell, etc… sell the product to U.S. citizens for a cheaper price, because they feel our pain at the pump?

The answer is NO!!!!!!!!!

Don’t be fooled by the political pandering. Any publicly traded commodity, whether oil, cocoa, gold, natural gas, wheat, will sell at a price determined by the “investor speculators” in these products.

The media has attempted to make these guys the scapegoats for the high oil prices–

But, these speculators are no different than the speculators (You Included) who invest their money in Mutual Funds, Stocks, Real Estate, and even Education. You go in with the attitude that you will receive some return on the investment. If such is the mindset, YOU MY FRIEND ARE A SPECULATOR!!!!!
& there is nothing wrong with that.

The Speculators did it again.

After the Jedah Summit on yesterday, oil prices rose again today on the open markets. As stated on yesterday, there was nothing to come out of this meeting other than pandering to the masses. Watch for the price of oil to increase in the future as well.

This discussion will continue. However, the Speculators on this site will attempt to help you CAPITALIZE as the price of oil increases. It does not have to be GLOOM and DOOM for everyone!!