Nymex crude oil is tumbling by about 5% today to less than $91 a barrel in frenzied trading as the market wonders what in the heck the International Energy Agency is doing with a mysterious, emergency press conference scheduled for right about now in Paris.
Oil Crushed as IEA Releases 60M in Reserves - MarketBeat - WSJ
It's weird just how much of our economy is based on perceptions and predictions.
The IEA estimates that the unrest in Libya had removed 132 mb of light, sweet crude oil from the market by the end of May. Although there are huge uncertainties, analysts generally agree that Libyan supplies will largely remain off the market for the rest of 2011. Given this loss and the seasonal increase in demand, the IEA warmly welcomes the announced intentions to increase production by major oil producing countries. As these production increases will inevitably take time and world economies are still recovering, the threat of a serious market tightening, particularly for some grades of oil, poses an immediate requirement for additional oil or products to be made available to the market. The IEA collective action is intended to complement expected increases in output by these producing countries, to help bridge the gap until sufficient additional oil from them reaches global markets.
This move may serve one of at least three purposes:
1. Deal with a current/emergent market need. Not all crude is of the same grade. There might have been some kind of shortage that had developed or was developing with Libyan production largely offline.
2. Provide a credible signal to oil producers that the oil consuming nations are facing difficulties under current supply constraints with the hope of influencing the outcome of the next OPEC meeting.
3. An attempt to shift market psychology.
My guess is that the move is probably about the first or perhaps second factor. It amounts to less than a day's global consumption of oil. IMO, the IEA needs to be clear about its goal. If not, ambiguity could lead to challenges and then, if the IEA does not respond in the face of the challenges, lead to market conditions that would be less favorable than they would otherwise have been.
This also makes companies like airlines have to scratch their heads when thinking of hedging their fuel needs. Companies that set up hedges last week are screwed and the companies that buy on the spot market won.
Airlines, from major carriers like Delta Air Lines and United Continental to discount operators like JetBlue and Southwest Airlines down to regional names like Alaska Air, surged in the face of a breakdown in the oil market that saw crude drop to $91.85 a barrel Thursday....
Airline stocks, long tied to the fortunes of oil prices, have become even more linked to their fuel costs in recent years. In May Aviation Week reported carriers have toned down their hedging practices, with most only 20% hedged, since getting burned in 2008. That year crude spiked to an all-time high of $147 a barrel in July. By December black gold had plummeted to a far more pedestrian $32 a barrel, killing the hedges put in by carriers months earlier in a bid to protect against higher prices.
Airline Stocks Soar As Oil Dives, Thanks Obama - Steve Schaefer - Exile On Wall Street - Forbes
It's weird just how much of our economy is based on perceptions and predictions.
I imagine airline executives were overjoyed at the price drop, just as investors were:
I think this is great. And if it shakes out marginal players, even better.
Point made that this is less than one day global usage of oil. Imagine what an announcement that America would be opening up drilling of exploration, as well as known reserves with lessened EPA interference. Price would drop below $50 I bet....
Obama is a dunce.
j-mac
Point made that this is less than one day global usage of oil. Imagine what an announcement that America would be opening up drilling of exploration, as well as known reserves with lessened EPA interference. Price would drop below $50 I bet....
Obama is a dunce.
j-mac
As I write this, Nymex West Texas Intermediate Crude is below $90 per barrel. The amount of oil being released is miniscule compared to the amount of oil being consumed, so it's plain that the speculative emperors have no clothes as they all head to the exits at once.
Point made that this is less than one day global usage of oil. Imagine what an announcement that America would be opening up drilling of exploration, as well as known reserves with lessened EPA interference. Price would drop below $50 I bet....
Obama is a dunce.
j-mac
The dollar extended its losses against the euro from last week on expectations that a second financial aid package would be approved for Greece.
Are these futures or spot rates?
August WTI futures.
Last I looked oil was up today, airlines down.
So your point is what? That the airlines are now making money on their hedges again? They're gleefully celebrating the rise in the price of oil as their stocks drop? Or maybe that the limited government manipulation that you lament so much doesn't work, in which case I would argue that maybe we need to have the CFTC impose margin requirements on swaps and futures like the Fed does with stocks. Unless you don't think that setting margin requirements is manipulation?
Point made that this is less than one day global usage of oil. Imagine what an announcement that America would be opening up drilling of exploration, as well as known reserves with lessened EPA interference. Price would drop below $50 I bet....
Obama is a dunce.
j-mac
The EPA made the air in south Louisiana breathable again. I'm all for them remaining in effect. I want the companies to extract the most oil they can in the cheapest and safest way possible that doesn't damage the environment.
But...but...but...increasing supply won't lower the price.
I have been trying to get that exact message out to everyone in this Forum for a long time.
Our economy is based on perceptions and the whims of those who bet on tomorrow.
When I was talking about increasing the supply I was talking about LONG TERM COST.
oh no! More supply will, in no way, make things better, for anyone. I know it, because the Libbos have said so.
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