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post #1 of 42 (permalink) Old 06-17-2008, 12:56 PM Thread Starter
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Congress takes aim at oil speculators

Anyone else read this yet and form any thoughts or opinions on how good/bad Congress can do? (If they even do anything at all other than posture and blow steam)

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Record prices have prompted a slew of bills to curtail the role of investors, but traders say they could backfire.

NEW YORK (CNNMoney.com) -- Fed up with soaring oil prices and a chorus of people blaming Wall Street speculators, Congress is considering a host of rules aimed at limiting the inflow of investor money into oil contracts.

But oil traders urge caution. While more disclosure is a good thing, they say making it harder for speculators to invest in oil futures could have the opposite effect intended, and send prices higher.

In light of oil's phenomenal climb from under $50 a barrel to nearly $140 in less than 18 months - and the public belief that Wall Street traders were behind the rise - Congress is awash in bills that attempt to limit the role of speculators. Several have bipartisan support and could soon become law.

"In two days, the price of oil rose $16," said Sen. Richard Durbin, D-Ill., at a joint hearing of two Senate panels on oil speculation Tuesday. "Did I miss something, was there some war in the Middle East?"

"No, something is going on besides supply and demand, and it could be excessive speculation," he added.

Proposals include requiring foreign exchanges to provide more information about crude oil trades, limiting the number of contracts speculators are allowed to hold, increasing the amount of money speculators need to put up to buy an oil contract, and removing speculators from the market entirely and limiting trade to just producers and consumers.

Government regulators said they are monitoring the markets for evidence of manipulation - which is when someone withholds production in an attempt to bid up prices - and are gathering more information on the role speculators play.

"If the CFTC sounds busy, it is," said Walter Lukken, acting chairman of the Commodity Futures Trading Commission. "This small agency is working hard to protect the public from manipulation and abuse."

Lukken said the CFTC has just reached an agreement with the IntercontinentalExchange (ICE) in London for that exchange to comply with U.S. disclosure rules - basically letting regulators know who is buying oil contracts.

Traders say requiring more information from foreign exchanges is a good idea, as markets function better the more transparent they are.

But they urge lawmakers not to hamper speculative trading. They say big oil users such as refiners or airlines - unable to find a counter party to offset their bets - could send prices higher by hoarding product or through panic buying.

"They have to be very, very careful with what they're doing here," said Phil Flynn, senior market analyst at Alaron Trading in Chicago. 'I always worry when politicians think they know better than the market what the price of oil should be."

Another trader agreed, especially when it comes to doing something such as raising margin requirements, the amount of money traders are required to put up to buy contracts.

"You're raising the cost of doing business for the people who need the futures market," Stephen Schork, publisher of the industry newsletter The Schork Report, told CNNMoney.com. "In the long run, it's bullish."

CFTC's Lukken also said raising the margin requirement may have a negative effect.

"Margin (requirement) is a very blunt tool, and it could potentially drive markets overseas" where there is even less regulation, said Lukken.

First Published: June 17, 2008: 11:18 AM EDT
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post #2 of 42 (permalink) Old 06-17-2008, 01:00 PM
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I think getting rid of speculators all together is a good thing. But, I'm quite inexperienced at the effects that could possibly have. Hopefully 01WC will get in here and make some comments after his afternoon Metamucil.
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post #3 of 42 (permalink) Old 06-17-2008, 01:02 PM
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Originally Posted by bcoop
I think getting rid of speculators all together is a good thing. But, I'm quite inexperienced at the effects that could possibly have. Hopefully 01WC will get in here and make some comments after his afternoon Metamucil.
LOL! It will hurt the speculator's for damn sure. You will see nothing but assholes and elbows if they even start to debate this...

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post #4 of 42 (permalink) Old 06-17-2008, 01:03 PM
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The absense of the oil speculators won't have much change. I think the rise is here to stay (with an occassional correction here and there).
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post #5 of 42 (permalink) Old 06-17-2008, 01:04 PM Thread Starter
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Originally Posted by bcoop
I think getting rid of speculators all together is a good thing. But, I'm quite inexperienced at the effects that could possibly have. Hopefully 01WC will get in here and make some comments after his afternoon Metamucil.
That's what I was thinking. I'd love to get rid of them, but I know there has to be some sort of negative effect from doing this and figured a few of the more educated might enlighten some of us on the implications.
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post #6 of 42 (permalink) Old 06-17-2008, 01:08 PM
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Originally Posted by AdamLX
That's what I was thinking. I'd love to get rid of them, but I know there has to be some sort of negative effect from doing this and figured a few of the more educated might enlighten some of us on the implications.


Only negative effect I see, is hedgies not being able to make money off of it anymore. But again, I'm not experienced enough to know what other things it could affect.


This is the part I don't understand. Speculators are the ones driving the cost up. However, from what I do understand, speculators make money whether the cost per barrel moves up, or down.


So if they still make money when it drops, exactly what is driving the price up. I mean, I understand that speculators say the price will rise to _____. What's actually driving the price to that? The princes watch the trends, and raise prices accordingly or what?
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post #7 of 42 (permalink) Old 06-17-2008, 01:47 PM
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I believe it could backfire by reducing storage capacity in the long run. I don't know though. Besides, since when did Congress gain control of the global markets?

Just wait patiently as the subsidized markets start feeling their nuts in the vice. They will ration and we will benefit.

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post #8 of 42 (permalink) Old 06-17-2008, 01:50 PM
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Originally Posted by bcoop
The princes watch the trends, and raise prices accordingly or what?
The USD, problem is not with just the speculators or oil companys, there is so many different options on why oil prices will rise. Any negative flux in the economy drives the price of oil up because the USD drops.

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post #9 of 42 (permalink) Old 06-17-2008, 02:13 PM
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Restrict the speculation and you dry up liquidity which will force suppliers to horde product which will increase the price.

I wrote on this board about a month ago that price/bbl was going to peak around 137-145 before correcting.

The action lately has been really sloppy in the oil markets which typically indicates an exhaustion gap is forthcoming and possibly a 20% correction down to under 110/bbl. Where it goes from there is anyone's guess.

For example, yesterday oil gapped higher only to finish the day lower. This isn't to say that oil won't advance in the coming days or weeks but for now I think 145 would be the peak before the correction.

If it happens to carve some new ranges above 137-145 I can see it advancing another 20-30/bbl to the 160-170 range.

July and August will be interesting months to watch because, typically, the speculators are vacationing in Europe and in the Hamptons. If oil makes a huge drop during that timeframe then blame the speculators. If it doesn't the price isn't the speculators fault.

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post #10 of 42 (permalink) Old 06-17-2008, 02:18 PM
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Originally Posted by 01WhiteCobra
Restrict the speculation and you dry up liquidity which will force suppliers to horde product which will increase the price.

I wrote on this board about a month ago that price/bbl was going to peak around 137-145 before correcting.

The action lately has been really sloppy in the oil markets which typically indicates an exhaustion gap is forthcoming and possibly a 20% correction down to under 110/bbl. Where it goes from there is anyone's guess.

For example, yesterday oil gapped higher only to finish the day lower. This isn't to say that oil won't advance in the coming days or weeks but for now I think 145 would be the peak before the correction.

If it happens to carve some new ranges above 137-145 I can see it advancing another 20-30/bbl to the 160-170 range.

July and August will be interesting months to watch because, typically, the speculators are vacationing in Europe and in the Hamptons. If oil makes a huge drop during that timeframe then blame the speculators. If it doesn't the price isn't the speculators fault.
I'm still sticking to my $5 a gallon gas price.

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post #11 of 42 (permalink) Old 06-17-2008, 02:53 PM
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"In light of oil's phenomenal climb from under $50 a barrel to nearly $140 in less than 18 months"

This is the part that doesn't make much sense to me. Does anyone think the "correction" (when it finally comes) will bring oil prices to $50/barrel again? Hell no.

There was no supply-demand forces that brought the price up by 280% in a year and a half to begin with. Now there is so much investment in this commodity that it would be economically damaging if it DID fall significantly.

Related to the original post - I don't see a problem with adding visibility to the marketplace. The only reason this wasn't already visible was to ALLOW this shady/underhanded shit to take place.

I love how the investors act like Congress is waaaaay overstepping into the market when all they're trying to do is allow us to see who is doing this shifty trading. Why shouldn't they raise margin requirements? Everyone jumps on the free-money bandwagon and it eventually tips the cart over.
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post #12 of 42 (permalink) Old 06-17-2008, 03:00 PM
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Related to the original post - I don't see a problem with adding visibility to the marketplace. The only reason this wasn't already visible was to ALLOW this shady/underhanded shit to take place.
Adding visibility to the US markets isn't going to help much. It is nice that the UK will help with disclosure and I'm guessing alot of contracts are traded through those two exchanges.

But oil is a global market and it doesn't take much in the days of the internet to transfer funds to countries where disclosure isn't required.

Just gonna move more money offshore.

The whole speculation angle is sort of played out at the moment. I doubt speculation is adding to the price that much. When you have refiners paying 5-6 dollars a bbl ON TOP of the market price to secure quality crude... supply is short.

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post #13 of 42 (permalink) Old 06-17-2008, 03:07 PM
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There was no supply-demand forces that brought the price up by 280% in a year and a half to begin with. Now there is so much investment in this commodity that it would be economically damaging if it DID fall significantly.
Are you assuming that % increase in demand = % increase in price?

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post #14 of 42 (permalink) Old 06-17-2008, 03:15 PM
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Originally Posted by 01WhiteCobra

The whole speculation angle is sort of played out at the moment. I doubt speculation is adding to the price that much. When you have refiners paying 5-6 dollars a bbl ON TOP of the market price to secure quality crude... supply is short.


How is that even possible? Homeslice in Saudi (or wherever it was) said he would increase production when supply was short, and that's not the case. Sure, he could be lying.


But also keep in mind, refineries are running at 80% capacity. Not 40% capacity.
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post #15 of 42 (permalink) Old 06-17-2008, 03:27 PM
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How is that even possible? Homeslice in Saudi (or wherever it was) said he would increase production when supply was short, and that's not the case. Sure, he could be lying.


But also keep in mind, refineries are running at 80% capacity. Not 40% capacity.
The problem being the increase from homeslice's spare capacity is low grade crude. Saudi is bringing the Khursaniyah field on line which is a high-quality field but it isn't online at the moment.

There is also lack of capacity at refineries to put out low-quality/heavy crude into things like diesel.

The Saudi difference between exporting low quality and high quality crude is at an all time high at the moment.

As far as capacity, according to the DOE, US refineries at running at a rate of 88.6% at the moment. I'm not sure of any plant shutdowns (or partial shutdowns at the moment.) The best utilization rate this year was 91.3% back in January.

Keeping in mind we're at 88.6% capacity and were as high as 98.1% in 2005 tells me there is a problem getting crude to the refineries... or someone is stock piliing crude.

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post #16 of 42 (permalink) Old 06-17-2008, 03:35 PM
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Are you assuming that % increase in demand = % increase in price?
Not at all.

My understanding is that demand for petroleum products is down in the US and Europe, and slightly up or static throughout China and India, with the net result(reports vary - maybe you can confirm) that oil demand is just slightly down worldwide.
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post #17 of 42 (permalink) Old 06-17-2008, 03:46 PM
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Not at all.

My understanding is that demand for petroleum products is down in the US and Europe, and slightly up or static throughout China and India, with the net result(reports vary - maybe you can confirm) that oil demand is just slightly down worldwide.
The demand forecast has been cut but demand itself is increasing. Currently forecast for this year is 86.8MM barrels a day or about 800K barrels a day higher than 2007. Back in January they forecast a 2MM barrel a day increase for 2008.

If you listen to T Boone Pickens, he believes global supply is about 85-86MM bbls a day. So we are at the "last ounce" stage of supply. Not that there isn't enough supply but the demand, on a daily basis, is outstripping the supply on a daily basis. There is plenty of oil but they can't get it out of the ground fast enough.

Back to speculators... the market is made up of 4 types of participants: arbitrageurs, short and long hedgers and speculators.

Arbs insure the prices are consistent over times frames (spot, futures, options, etc.), short hedgers are commercial producers, long hedgers are commercial users, and speculators assume the role of "getting in the middle" between hedgers and the arbs.

When they raised the margin requirements, which was predicted by many, the price of oil spiked in the past couple of weeks. Why? because of a short covering rally. The rally is appears to be over and I assume we'll see some stability in the price of oil.

My best guess is, now, the predominant long hedgers are commodity index funds and wouldn't be known as being in the speculator camp.

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post #18 of 42 (permalink) Old 06-18-2008, 12:25 AM
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post #19 of 42 (permalink) Old 06-18-2008, 12:50 AM
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post #20 of 42 (permalink) Old 06-18-2008, 06:22 AM
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We can revisit this in a month or so and see if it helps. China economy is expected to grow at 10.6% this year and India at 8.5%.
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post #21 of 42 (permalink) Old 06-18-2008, 06:25 AM
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post #22 of 42 (permalink) Old 06-18-2008, 10:48 AM
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I have a question ..... why are other countries relying on Saudi oil to begin with ? Why are they not trying to drill for oil on their own land to sell to their people ? I mean China is fucking huge and India isn't exactly some tiny place either . You mean to tell me there are no oil deposits in those countries ?
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post #23 of 42 (permalink) Old 06-18-2008, 10:50 AM
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I have a question ..... why are other countries relying on Saudi oil to begin with ? Why are they not trying to drill for oil on their own land to sell to their people ? I mean China is fucking huge and India isn't exactly some tiny place either . You mean to tell me there are no oil deposits in those countries ?
I'm sure they have some, but can they research, explore, drill, etc., and keep it cost effective? Most of them do not have the technology or the knowledge that an Exxon has.

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post #24 of 42 (permalink) Old 06-18-2008, 10:55 AM
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I'm sure they have some, but can they research, explore, drill, etc., and keep it cost effective? Most of them do not have the technology or the knowledge that an Exxon has.
Well then they need to do like the Saudis and hire Americans to come over there to find the shit and show them how to operate the equipment . I remember back in the mid 90's , the Saudis were paying top dollar for oil field workers . My friends dad went over there several times for 6-10 month periods and made a shit load of cash . He also made a shit load of cash selling gold and other shit he picked up over there and illegally imported back into the US .
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post #25 of 42 (permalink) Old 06-18-2008, 11:11 AM
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I have a question ..... why are other countries relying on Saudi oil to begin with ? Why are they not trying to drill for oil on their own land to sell to their people ? I mean China is fucking huge and India isn't exactly some tiny place either . You mean to tell me there are no oil deposits in those countries ?

It's there... probably not profitable yet though.


India:

Quote:
DOHA, Qatar--Srhi Shankar Aiyar, minister of petroleum for India, knows the idea sounds outlandish, but he believes that India could become a petrodollar state in the 21st century.

The optimism is grounded in massive oil deposits, close to 30 billion tons, in Central India. That's twice the size of the deposits in Iraq (13 billion tons, according to the Institute of Petroleum) and just shy of Saudi deposits. With this, India, which imports 70 percent of its oil, could become an exporter, Aiyar hypothesized.

Unfortunately, oil is stuck under the Deccan Traps, a deep layer of volcanic rock

"How do you begin to do seismic surveys before you even drill through this mess?" he said. "It is necessary that the best kind of scientific R&D be brought to bear upon this problem."
http://news.cnet.com/Indias-next-big-business/2010-11395_3-5975384.html


China:

Quote:
Chinese geologists have found deposits of copper, iron, lead and zinc ore along the Qinghai-Tibet Railway route, state media said on Thursday, adding that the area may also have petroleum potential.

Should further exploration prove the government's estimates correct, the Qiantang field would be one of the world's largest petroleum reserves. Four billion to 5.4 billion tons of oil translates to 28 billion to 37.8 billion barrels. By comparison, the world's largest oil field, Saudi Arabia's Ghawar reserve, produces 70 billion to 85 billion barrels. Kazakhstan's Kashagan oil field, another mega-deposit, contains an estimated 10 billion to 30 billion recoverable barrels.




Just as an FYI, Brazil recently found another HUGE deposit of light crude. The biggest discovery since the mid '70s.

Quote:
Brazil's Petrobras has discovered the largest light crude Oil Field since the Mexican Cantarell Field in 1976. The massive find is in the same area off the coast of Brazil as the restly discovered Tupi field which is beleived to hold 8 billion barrels of extractable crude. The new Sugar Loaf Field discovery is 5 times larger than Tupi and could signal an end to declining oil production around the World.

According to officials at Petrobras, Brazil's state-run oil and gas company, the Sugar Loaf field may produce up to 40 billion barrels of oil. Several multinational petroleum companies are already lining up to explore the region, including Petrobras, Royal Dutch Shell and ExxonMobil.

Petrobras also noted earlier this year it was in the final stage of construction and installation of its $900 million P-54 platform, one of the world's largest, with a production capacity of 180,000 bpd and capable of compressing 6 million cubic meters of natural gas per day.


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post #27 of 42 (permalink) Old 06-18-2008, 12:12 PM
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India already produces quite a bit, and China has major deposits of coal and viable gas sreserves.

I doubt that the US uses that much oil from Saudi Arabia in the grand scheme of things.
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post #28 of 42 (permalink) Old 06-18-2008, 01:23 PM
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A little off the subject but I have noticed a shit load of 18 wheelers hauling blades for windmills . I heard they were going out to west Texas . I see those trucks hauling them at least 5 or 6 in a group at a time and all day , every day .
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post #29 of 42 (permalink) Old 06-18-2008, 01:25 PM
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A little off the subject but I have noticed a shit load of 18 wheelers hauling blades for windmills . I heard they were going out to west Texas . I see those trucks hauling them at least 5 or 6 at a time and all day , every day .
They come through Midlothian on 287, headed west. BIG blades!

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post #30 of 42 (permalink) Old 06-18-2008, 01:27 PM
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They come through Midlothian on 287, headed west. BIG blades!
Yeah fucking huge ones . They come up loop 1604 on the east side of San Antonio as well . I am guessing they are being built south of San Antonio and take the loop around town and exit back on to 35N heading up state with them .
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post #31 of 42 (permalink) Old 06-18-2008, 01:48 PM
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Yeah fucking huge ones . They come up loop 1604 on the east side of San Antonio as well . I am guessing they are being built south of San Antonio and take the loop around town and exit back on to 35N heading up state with them .

There's a place near Bryan/College Station that makes them.


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post #32 of 42 (permalink) Old 06-18-2008, 02:16 PM
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Back to the thread topic...anyone else see where Congress has rejected Bush's proposal to lift the off-shore drilling ban? Son of a bitch! THAT is one reason gas is $4 a damn gallon. If we don't start now, then when?

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post #33 of 42 (permalink) Old 06-18-2008, 02:19 PM
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Back to the thread topic...anyone else see where Congress has rejected Bush's proposal to lift the off-shore drilling ban? Son of a bitch! THAT is one reason gas is $4 a damn gallon. If we don't start now, then when?
How far off shore is considered US waters ? How far off shore do they typically drill in ?
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post #34 of 42 (permalink) Old 06-18-2008, 02:22 PM
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Originally Posted by 01WhiteCobra
Restrict the speculation and you dry up liquidity which will force suppliers to horde product which will increase the price.
Yep, suppliers will make sure supply levels meet price points and because they know demand is a constant regardless of price....the last 12 months on the US retail market have proven that. Only once gas hit $3.80/gal did usage actually drop and that was nearly 6% in ONE MONTH...yet oil rose still.

While I would agree, there is probably a lot of money being made by speculators, it isn't more than 5% of the price, not 40% like the media makes it out to be.

What NO ONE will say in the media is comparing world oil prices to currency exchange rates. Nobody will publish a chart showing the value of the USD in relation to foreign currencies over the same time period that oil prices have nearly tripled. I don't think it would be a direct correlation as there was a catch up period for oil prices to come up but the price we are paying for oil is purely a product of our reduced buying power with a weak dollar.

We MUST stop buying shit from overseas. Period. None of that money is coming back to the US. We might as well be dumping our money into the pacific ocean or burning it for fuel. If the shit you are using to buy stuff on the world market is only worth 1/2 what it was 3 years ago, guess what, the stuff you are buying will cost you TWICE as much! That's too simple an explanation and would point to a government with no controls on import/export....instead, it must be big oil's fault!



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post #35 of 42 (permalink) Old 06-18-2008, 02:27 PM
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How far off shore is considered US waters ? How far off shore do they typically drill in ?
About 200 miles out, I believe. But this will carry over to ANWAR, too. Get this...the drilling "footprint" in ANWAR, would be the size of a small airport. ANWAR is about the size of Connecticut...

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post #36 of 42 (permalink) Old 06-18-2008, 02:44 PM
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Quote:
Originally Posted by thesource
How far off shore is considered US waters ? How far off shore do they typically drill in ?
200 miles, except when the distance to a neighboring country's waters is closer.

Between the Florida keys and Cuba, China, Canada and Spain are drilling within ~50 miles of US soil.





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Last edited by Strychnine; 06-18-2008 at 05:58 PM.
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post #37 of 42 (permalink) Old 06-18-2008, 02:51 PM
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We need to invade Cuba . We might as well since half their people are living off the US anyways . I bet that property would bring damn good money if some money went in and developed it .
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post #38 of 42 (permalink) Old 06-18-2008, 03:06 PM
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http://www.cnn.com/2008/POLITICS/06/...l#cnnSTCOther1

There is a map of where they would be able to drill if the ban was lifted and whats already being drilled in the gulf. Congress didnt "shut it down"(well literally)but they might as well have, they just postponed it and took it off the reports for today.

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post #39 of 42 (permalink) Old 06-18-2008, 05:54 PM
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Quote:
Originally Posted by Vertnut
Back to the thread topic...anyone else see where Congress has rejected Bush's proposal to lift the off-shore drilling ban? Son of a bitch! THAT is one reason gas is $4 a damn gallon. If we don't start now, then when?
"You can't drill your way out of this" - quote from one of our congressmen.

What is stupid about the offshore drilling ban is that other countries are ALREADY drilling in the areas that are off limits to US companies. Dumb, dumb, dumb. It is clear to me that people in power want to restrict exploration for their own purposes. However, I believe that the tide is slowly turning and I expect soon that to stand in the way of energy exploration when gas hits $5-6/gallon is going to be political suicide.
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post #40 of 42 (permalink) Old 06-18-2008, 05:59 PM
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DC doesn't care about gas prices.

Republicans like the price because they all have something to do with oil companies.

Democrats like the price because it all their alternative fuel bullshit pork barrel spending gets approved.

If you look at the map MadMan posted you'll see why Galveston is the shithole it is and everyone else enjoys nice beaches. Time to fuck up their beaches as well or charge them a Texas-sized surcharge on their shit.

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post #41 of 42 (permalink) Old 06-18-2008, 06:00 PM
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Quote:
Originally Posted by mikeb
"You can't drill your way out of this" - quote from one of our congressmen.

What is stupid about the offshore drilling ban is that other countries are ALREADY drilling in the areas that are off limits to US companies. Dumb, dumb, dumb. It is clear to me that people in power want to restrict exploration for their own purposes. However, I believe that the tide is slowly turning and I expect soon that to stand in the way of energy exploration when gas hits $5-6/gallon is going to be political suicide.
How can they even say that? What happens when there's too much oil around? $30 a barrel? $20 a barrel? They are ignorant beyond belief, and it will bite them in the ass. If they really want to keep Exxon from making money, find a bunch of oil! But see, that's not it at all. They are control freaks. It's in the Lib's nature. We're not smart enough to look out for ourselves, so they will. Just like health care, and our shitty educational system. I pray that this is all over Fox News tonight, because the networks and Clinton News Network probably won't even mention it.

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post #42 of 42 (permalink) Old 06-18-2008, 06:05 PM
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Quote:
Originally Posted by Vertnut
How can they even say that? What happens when there's too much oil around? $30 a barrel? $20 a barrel? They are ignorant beyond belief, and it will bite them in the ass. If they really want to keep Exxon from making money, find a bunch of oil! But see, that's not it at all. They are control freaks. It's in the Lib's nature. We're not smart enough to look out for ourselves, so they will. Just like health care, and our shitty educational system. I pray that this is all over Fox News tonight, because the networks and Clinton News Network probably won't even mention it.
That was from Rep. Ed Markey (D-MA).

Here are some others. Rather revealing at the idiocy and disconnect running rampant in DC.

http://www.foxnews.com/urgent_queue/...f44,2008-06-18
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