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I discovered that I can view a chart of Light Crude Oil contracts without having to set up my account to trade futures and here is what I found: FutureSource’s charts (which are from Quote.com) show the previous day’s Volume and Open Interest under the daily candlestick at which I am looking. This is confusing, but it does, in one sense, make sense. It seems that some charting services wait to close of market to calculate Volume and Open Interest in a sort of time delay and chart it under the next day’s candlestick. Why they do this is a mystery to me, since my trading account charts are in real-time and show volume and open interest in real-time.
On June 9, 2008, I found it hard to believe that volume and open interest went down with the price of oil climbing to a new record high, so I decided to see if I could use the charts in my trading account to view Oil’s July contract and compare it to FutureSource charts. The chart I looked at in my options trading account shows Light Crude Oil July 2008 contract had a direct relationship in volume and price, but open interest (according to the FutureSource chart) did go down. Not much, but it did go down. Usually, with such a climb in price, open interest goes up in direct relationship to volume and price. Looks like a sell off. Nothing to write home about, but worth noting.
I was also told that the price of Oil went up due to the fact that a minor Minister in
Oil prices, traditionally, rise and fall based on supply and demand. According to William Engdahl, 60% of oil’s price today is purely speculation and has nothing to do with supply and demand. The reason for this: unregulated oil exchanges. Read Mr. Engdahl’s article. It’s a real eye opener!
Here’s another little eye opener that will make you see why some folks swear the price of oil is going up due to a true supply and demand issue. When a trader or speculator buys a Futures contract, they are literally buying oil, corn, coffee, etc. In other words, they are buying oil and will take delivery of that oil, unless they sell all contracts before the contract expires. Most traders will sell all open contracts before they expire. When a trader/speculator has no intention of actually buying oil, but is instead buying to invest in oil futures contracts for the sole purpose of making money, then they are creating what I call speculation demand and are creating a pseudo-supply and demand.
So…who do we thank for all this pseudo-supply and demand? The latest controversy is ICE (InterContinental Exchange), an energies trading exchange. From everything I have read and heard about ICE, it is unrestricted and traders are virtually anonymous. Only the “big boy” oil trading banks know who is trading oil contracts. It’s only one of several energies or oil trading exchanges, but it seems to have the most influence on oil speculation.
In May of this year (2008), Congress questioned the Executives of the five top oil companies and basically asked (and I paraphrase), “Why do you keep setting oil prices higher and higher?” Their response was, “It’s not us…honest!” To be perfectly honest with you, I knew it wasn’t oil company Execs who were causing oil prices to climb. It was nothing more than trader speculation brought about by all the hype created by analyst, brokers and unregulated oil exchanges. If I knew it was trader speculation, surely Congress knew this. If they didn’t they didn’t know it, that’s not saying much for common sense intelligence of Congress!
Personally, I think Congress questioned the Oil Execs due to pressure from the public. A majority of the public knows very little to absolutely nothing about oil, how it’s priced, what speculation or a speculator is and how the stock and commodities markets work. Since they know very little about oil and it’s price, it’s much easier to blame the obvious offender - oil company executives. Who is the real offender?
In September of 2000, a 15 year old high school junior was accused by the SEC of running a “pump and dump” campaign on stocks that he had bought, knew were virtually worthless, hyped them on Internet message board and sold them to unsuspecting investors. This 15 year old was doing nothing more than what most brokers and stock and futures analysts do: convince (con) you, me and professional traders into buying a certain stock or futures contract.
Why am I telling you about this? To show you the real offenders. Two years ago, every time I went to the mailbox, I would receive brochures hyping an energy crisis and how I needed to buy energy futures before it’s too late. I called it the “pump and hype” campaign and it was very obvious to me what was going on. Shortly after that, the price of Light Crude Oil started climbing creating a speculation bubble.
Why didn’t I buy oil futures? First, common sense. I knew of no supply and demand (S&D) issues with oil or natural gas and couldn’t imagine why all of a sudden, out of nowhere, there is this shortage of oil and natural gas. I knew it had to be a fictionalized issue with supply and demand, so I did some research. I didn’t find anything that told me that there was a S&D issue with oil, so why would I trade oil futures? I wouldn’t and I didn’t! Am I sorry that I didn’t buy oil futures? No! Not one single bit!
Second, I have a conscience. (1) I realized that I was being conned into believing there was an energy shortage and prices were going to go up due to “hyped” S&D problem with oil. This creates panic buying. It also creates economic turmoil. (2) I wanted nothing to do with prices going up beyond S&D pricing. Something as sensitive as oil pricing has an effect on the economy. Whether it is by truck, train, plane or ship it has a direct effect on Goods and Services. Don’t think so? I used to pay $80 a week for groceries for a family of 3. I now pay $160 to $200 a week!
Third, a price and speculation bubble were eminent! Don’t you just love the word bubble? Mortgage bubble, oil speculation bubble, stock bubble… Makes one wonder what “bubble” is next, but like all bubbles, they eventually pop! In the 90s, Microsoft was the hot ticket. Traders couldn’t buy shares fast enough, but even I knew the bubble would burst at some point. While Microsoft was not a “pump and hype” campaign by analyst or brokers, it’s the same problem with any stock or commodity that climbs higher and higher in price with no correction or retreat in price. At some point it will go down and it usually goes down hard and fast.
BTW, if you are thinking about buying future contracts in Light Crude Oil, you may want to think again! It’s been on a steady climb almost straight up and it’s due for that hard and fast drop in price. It’s creating the very same trend as a the mortgage bubble and stock bubbles of Microsoft and Enron. The price starts with little or no trading action, suddenly takes off like a rocket, peaks to a new high, to very suddenly and very quickly drop like a rock creating a major sell off and correction before settling at normal price (Microsoft) or dying completely (Enron and AmeriQuest). The bubble is due to burst!
It is a sad fact that the dishonest behavior of “pump and hype” by brokers and analyst is what drives the stock and futures market. It’s now driving oil futures and it is just as bad, if not worse, as the mortgage crisis. Lately, it seems we go from one financial crisis to another and one thing that creates it is greed; another is lack of regulation. Isn’t that interesting! The mortgage industry crisis was created by greed and lack of regulation and now it’s the oil exchanges! When will Congress and the powers that be ever learn.
Not one speculating trader, not one unregulated oil exchange has stopped to think about the consequences of driving oil prices to 60% speculation. This careless, unethical behavior by speculators and exchanges is reeking havoc on the world’s economy and they don’t care and what is worse is that Congress and law makers allow it to go on and on.
I saw the very same behavior by Congress concerning the mortgage crisis. Actually, from everything I am reading about the mortgage crisis, Congress created it and allowed it to happen. Mortgage company CEOs lobbied and donated campaign funds in return for Congress creating lax Federal laws that literally let mortgage companies do business totally unrestricted creating a financial crisis. These same laws took presidence over state laws which were much more strict and protective of homeowners rights and property. I hope that’s not the case with oil, but we do have a president in office that has a lot of cronies in the oil (energy) industry.
I was told that the SEC told ICE to clean up their mess with the price of oil or they would find themselves under strict regulation with all anonymous traders revealed. Personally, and this is just my opinion, but I think we may be seeing the start of the clean up. From May 22 to June 5, price and volume were falling and open interest is falling. Are speculators selling off their open positions and starting to develop a conscience OR is it fear of coming under scrutiny and regulation by the SEC and US Congress? I think the clean up has started.
It would be great to see speculators become responsible traders and develop a conscience. Do I honestly believe this will happen? NO! It would be great to see Congress and the SEC close all of these wide open loopholes by creating trade regulations for oil in order to protect the World economy. It’s going to take an act of Congress with new oil trading regulations to bring things under control and it needs to be done soon.
This is unregulated speculation at it’s worst and I hope that speculators and oil exchanges do something about it soon before Congress has to step in to create laws to make them bear the responsibility of ethical trading!
Consumer Advocacy oil prices oil speculation personal growthConsumer Advocacy oil prices oil speculation personal growth