GOOD THINGS COME TO THOSE WHO WAIT
Sometimes old sayings are true. Speculators have really pulled a number on us this year. How they have kept prices up all year in the face of the biggest recessions in Europe and the United States since the Great Depression is a wonder. This story about a drunken oil trader though amusing, proves the point that it does not take much to manipulate the market currently.
Well, we waited and waited, bought a some oil a while ago. Some dealers did well, some like bought a little too early. The prices dropped again in the last three days after skyrocketing up due to the hurricane predictions.
To make a long story short we bought more oil yesterday at good prices. We've now locked in prices on oil and propane with all our dealers. You'll be receiving emails regarding final pricing over the weekend.
Tuesday, May 25, 2010
Bursting Bubbles - New prices
So it turns out the expert WERE right in predicting a big price drop a la 2008. Prices are finally catching up with supply and demand but it took the downfall of several European countries and the crash in value of the Euro to do it.
We welcome a new fuel dealer to Our Town Energy Alliance, Lampron energy of Gorham Maine. They cover western Maine and eastern New Hampshire. Presently, they have the best fixed pricing of any of our dealers at $2,599/gallon. Fielding Oil & Propane is next at $2.69/gallon. Incidentally I am happy to report that, Fielding's, who joined us last year has had the best rack plus pricing of any dealer over the last twelve months. Their $1.98 prebuy LAST YEAR was the also the best price of any dealer. Eastern was second at $1.999. Member comments have been uniformly high.
Eastern's Oil pre-buy was early; we bought at $2.79/gallon after the first big drop and when prices started moving upward again. Knowing that there was a 50/50 chance of the prices dropping again, we only bought half of what we planned. When we feel that prices have bottomed out we'll buy again and blend the second buy with the first. At current market, we hope the blended price will be in the $2.65 or under range. Actual price will depend on prices at the time we buy. All those who bought the oil at $2.79 will be set up at the new blended price and receive a credit for the difference.
Once again, for about the third year in a row, we are having problems coming to terms with Irving on price. Their pricing is currently running about 20¢ per gallon higher than Eastern's, 40¢ above Lampron's and is unacceptable. We hope that, as in past years, the will eventually pare down the price offered to us if we say no long enough. But we are concerned that if they don't move soon, we'll lose the current buying opportunity.
We welcome a new fuel dealer to Our Town Energy Alliance, Lampron energy of Gorham Maine. They cover western Maine and eastern New Hampshire. Presently, they have the best fixed pricing of any of our dealers at $2,599/gallon. Fielding Oil & Propane is next at $2.69/gallon. Incidentally I am happy to report that, Fielding's, who joined us last year has had the best rack plus pricing of any dealer over the last twelve months. Their $1.98 prebuy LAST YEAR was the also the best price of any dealer. Eastern was second at $1.999. Member comments have been uniformly high.
Eastern's Oil pre-buy was early; we bought at $2.79/gallon after the first big drop and when prices started moving upward again. Knowing that there was a 50/50 chance of the prices dropping again, we only bought half of what we planned. When we feel that prices have bottomed out we'll buy again and blend the second buy with the first. At current market, we hope the blended price will be in the $2.65 or under range. Actual price will depend on prices at the time we buy. All those who bought the oil at $2.79 will be set up at the new blended price and receive a credit for the difference.
Once again, for about the third year in a row, we are having problems coming to terms with Irving on price. Their pricing is currently running about 20¢ per gallon higher than Eastern's, 40¢ above Lampron's and is unacceptable. We hope that, as in past years, the will eventually pare down the price offered to us if we say no long enough. But we are concerned that if they don't move soon, we'll lose the current buying opportunity.
The Banks We Bailed Out Cheating Us??
As you know from our earlier posts, the market has been impossible to predict this spring due to speculation overriding the fundamentals of supply and demand. Goldman Sachs with 1.1 trillion in assets has led the charge in overpricing oil through speculation. Thus, I for one am not unhappy to see them get caught with their hand in the cookie jar, i.e. selling marginal equities to unknowing GS investors while betting that the value of the equities would fall. Meanwhile, Europe is thinking of suing GS for its prominent part in Greece's financial downfall (clients of GS seem to be at major risk). I'd be happier when their manipulation of the oil market has been proven. Part of the reason we have been waiting for prices to drop is the expected imposition of financial controls on energy speculation by Gary Gensler, head of the CFTC. Depending upon what he does, heating oil prices for next winter could drop dramatically. If the controls are ineffective or don't pass, prices will continue to climb.
Seventy five per cent of the major players in the oil industry feel that speculation has added $10 to $30 per barrel to the cost of crude oil See "Financial Speculation Seen Boosting Oil Price, Reuters News". The CFTC "has proposed limiting the number of futures contracts financial players can hold at any one time". Though the proposed restrictions do not go far enough to really prevent them from continuing to game the market, the major banks and hedge funds are united in their opposition. See "Big Banks, Shell Blast CFTC Position Limit Plan".
The American Gas Group, an association of 195 energy companies and utilities, fuel distributors, the American Feed industry, Americans for Financial Reform and millions of voters in New England and the Mid West support the introduction of these limits which would curb if not end speculation. See article "...CFTC Energy Speculation Limits", Bloomberg Business Week.
Now that we are finally close to seeing the CFTC put in rules to clean up the casino, I urge you again to call your Congresspersons and Senator and express support for strong limits on energy speculation. It would not hurt to contact the CFTC also at 202-418-5000, 202-418-5521 fax, 202-418-5514 TTY, or questions@cftc.gov. A $15.00 per barrel drop in the price of a barrel of oil would reduce heating oil prices by almost 40¢ per gallon, a $30 drop would result in double savings.
Seventy five per cent of the major players in the oil industry feel that speculation has added $10 to $30 per barrel to the cost of crude oil See "Financial Speculation Seen Boosting Oil Price, Reuters News". The CFTC "has proposed limiting the number of futures contracts financial players can hold at any one time". Though the proposed restrictions do not go far enough to really prevent them from continuing to game the market, the major banks and hedge funds are united in their opposition. See "Big Banks, Shell Blast CFTC Position Limit Plan".
The American Gas Group, an association of 195 energy companies and utilities, fuel distributors, the American Feed industry, Americans for Financial Reform and millions of voters in New England and the Mid West support the introduction of these limits which would curb if not end speculation. See article "...CFTC Energy Speculation Limits", Bloomberg Business Week.
Now that we are finally close to seeing the CFTC put in rules to clean up the casino, I urge you again to call your Congresspersons and Senator and express support for strong limits on energy speculation. It would not hurt to contact the CFTC also at 202-418-5000, 202-418-5521 fax, 202-418-5514 TTY, or questions@cftc.gov. A $15.00 per barrel drop in the price of a barrel of oil would reduce heating oil prices by almost 40¢ per gallon, a $30 drop would result in double savings.
Wednesday, March 17, 2010
St Paddy's Day Update
How do speculators disrupt the market?
Goldman Sachs made record profits this year and distributed record bonuses. In fact the percentage of net profits devoted to bonuses was almost 50%, prompting one pension fund to sue the company on behalf of shareholders who feel they too are entitled to some of that profit. Goldman, Morgan Stanley and a few other institutions "too big to fail" have made much of that money in manipulating commodities, especially oil. One manipulates the market by altering expectations of either a) supply or b) demand. In the summer of 2009, the big players rented 144 oil tankers to store almost 700 million barrels of oil (30.8 billion gallons of oil) on the high seas. This, in addition to additional storage in rented or purchased oil terminals and storage depots on land. In fact, Goldman Sachs led a consortium in 2006 that purchased 21% of all the ports and associated warehousing, etc in England. Goldman and Morgan Stanley are now big players in 'warehousing'.
Goldman was taking advantage of a situation known as "contango" where current prices (in May, 2009 for June 2009 oil futures) were cheaper than prices for futures for the winter months of 2010 (more on that later). In the summer of 2009, there was a worldwide glut of oil. By purchasing that oil and taking it off the market they actually decreased or tightened oil supply somewhat, although oil supply even today is higher than the five year average. Could the removal of 30.8 billion gallons of oil from the open market affect oil supply and pricing? "Hell, yes", my grandfather would have said.
But why was there "contango" in the first place? Why were oil futures for the winter of 2010 so much higher than oil that could be bought last May for June delivery? Remember 2008 when Goldman Sachs was touting "Buy at $150 per barrel, it's going to go up to $200 per barrel!! It took the King of Saudi Arabia to break Goldman's bubble. King Abdullah insisted that speculators were driving the price as oil supply then was more than sufficient, Goldman Sachs, Morgan Stanley and President Bush (an old oil patch hand) insisted that it was not. The gauntlet thrown, King Saud pumped an extra 2 million gallons a day for a few days and the market crashed, dropping at its low point to about $35 a barrel. Big investment firms like Goldman Sachs and Morgan Stanley have two major arms, the economic forecasting side that tells millions of small investors what Goldman thinks the price of oil will be tomorrow or next June; and the trading arm that gladly takes the money of all these small investors who follow Goldman's advice. These firms do not play on a level playing field with the rest of us. Their computers have special access to the markets and can make almost instant trades, making hundreds, perhaps thousands of trades per day in a particular area. They make money when the market goes up or down.
But how do Goldman Sachs predictions about demand a year from now, based on their 'informed' guesses about economic indicators, oil supply, the strength of the dollar actually change demand?? Fifteen years ago, the only people in the commodities market trading oil were actual producers and wholesalers/end users. Today 75% of all the trades are by banks, hedge funds, private investors and other speculators who do not want the physical oil only the ability to buy and sell the paper at 10% down for a 42,000 gallon contract. The important thing to remember is that it is no longer a market, it's a Casino! The volume of trading far exceeds the actual volume of oil available. When you buy an option for a contract for oil delivery in January 2011, you are buying it from a party like Goldman or Morgan Stanley who does not have that oil but is making a bet to deliver it to you (who have no intention of putting 42,000 gallons of oil in your basement) at that price. The other party is making a bet that he'll make a profit at that price (buying it for less) and you are making a bet that you'll make a profit at that price (be able to sell it for more). Multiply this times thousands of millions of trades. One expert figures that each physical gallon of oil is sold 20 to 25 times. Does this artificial trading demand (not related to actual physical demand for oil) drive up the price of oil? You bet!
Can anyone accurately predict prices based on physical supply and demand anymore? Not really. In the absence of financial regulation, one really has to predict what the speculators will do rather than the market. The only apparent constraint upon the speculators ability to manipulate the market is King Abdullah of Saudi Arabia. He is happy with oil in the range of $70 to $80 per barrel. He has the ability to pump 4 million barrels extra per day and flood the market if speculators drive prices much higher than that. He has telegraphed his willingness to repeat his actions of 2008 if price increases by speculators threaten world economic stability. Ironically, it seems we must rely on Saudi Arabia, a member of a cartel devoted to keeping prices high to keep speculators from driving prices higher. Unlike hedge funds and investment banks, OPEC has an interest in keeping world economies from going into the toilet.
What does this mean for Our Town Energy Alliance and its members??
It means that we will pay more than we should for oil and propane. In the short term Our Town Energy is watching the market and waiting. We like most experts, feel that some warm weather will result in a dip in prices for the winter months of 2011, probably in the next four weeks. We'll negotiate fixed price contracts at that time. We still feel fixed price is the way to go as we don't see Congress passing any financial regulations that would prevent the current level of speculation. Thus we don't feel that prices will drop for next year lower than pricing this Spring. Sadly, fuel prices should be much lower based upon supply and demand but until we have a bipartisan congress that refuses to accept lobbying cash from the banks and hedge funds it won't happen. Don't hold your breath, as they say.
Monday, January 11, 2010
RENEWAL TIME FOR THE 2010-2011 SEASON
Prices have jumped since December 18th. Although there is still a huge oversupply of oil and low demand by the developed countries, such that refiners are closing refineries, speculators are betting on increased demand by the developing countries and recovery in the US "down the road". In the words of one analyst, speculators are betting that "every Chinese worker is about to trade in his Schwinn bicycle for a Cadillac Escalade" and that the day after tomorrow, most US workers will be back on the job.
Oil futures for 2011 are in the $2.36 range today (NYNEX cost only), not including freight, differential and dealer margin). These prices are very high compared to current supply on hand. So we are back to mixed feelings about the market. If prices seem reasonable for next year we would want to buy early in February as we did last year ($1.98, $1.99, $2.11 early Fixed Price programs except for Irving who declined to pre-buy in February).
As always, your best option is to sign up before the end of January. That way if prices break and we do a Fixed Price option, you are on board. Dealers will only accept paid up members for the fixed price option, whether pre-buy, budget or Net 30. Note: Irving has tentatively agreed to go along with and early Fixed Price program if other dealers do so. However, if Irving does not provide an early Fixed Price program (assuming that we feel conditions warrant it), we will break tradition and allow Irving members to use other dealers if other dealers in their area are offering such a program.
We finally finished the Auto Renewal program, by the way, If you click on that option, it will automatically sign you up and charge your credit card every January until you cancel it. A time saver and a hedge against forgetfulness.
We will be evaluating the market every day from this point forward. for those of you who like to follow the details, here are some articles pro and con on oil price predictions. Click to read:
OIL PRICES WILL BE LOWER
OIL PRICES WILL BE HIGHER
NO CHANGE IN PRICE
And an interesting article regarding the elephant in the closet:
Oil futures for 2011 are in the $2.36 range today (NYNEX cost only), not including freight, differential and dealer margin). These prices are very high compared to current supply on hand. So we are back to mixed feelings about the market. If prices seem reasonable for next year we would want to buy early in February as we did last year ($1.98, $1.99, $2.11 early Fixed Price programs except for Irving who declined to pre-buy in February).
As always, your best option is to sign up before the end of January. That way if prices break and we do a Fixed Price option, you are on board. Dealers will only accept paid up members for the fixed price option, whether pre-buy, budget or Net 30. Note: Irving has tentatively agreed to go along with and early Fixed Price program if other dealers do so. However, if Irving does not provide an early Fixed Price program (assuming that we feel conditions warrant it), we will break tradition and allow Irving members to use other dealers if other dealers in their area are offering such a program.
We finally finished the Auto Renewal program, by the way, If you click on that option, it will automatically sign you up and charge your credit card every January until you cancel it. A time saver and a hedge against forgetfulness.
We will be evaluating the market every day from this point forward. for those of you who like to follow the details, here are some articles pro and con on oil price predictions. Click to read:
OIL PRICES WILL BE LOWER
OIL PRICES WILL BE HIGHER
NO CHANGE IN PRICE
And an interesting article regarding the elephant in the closet:
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