How Rich Oil Gets Richer: A Lot Of That $127/Barrel Is Going To Fin’l Institutions
The largest oil companies, and some of the smaller ones as well as most of the smallest, don’t hedge. This means that, when oil is $127 on Nymex, that’s what the no-hedgers are getting at the pipeline, or something equivalent based on what they’re selling into the pipe and where they are geographically.
An oil and gas company that hedges may have locked in some percent of their oil and gas production months ago at $80/barrel and $8/MMBtu. They may be getting more at the pipeline for it, but they’re writing checks to a financial/hedging partner for the difference.
Investors should note that some oil and gas companies’ all-in costs may be $60/barrel and $6/MMBtu to find, produce, sell and find again. Their margin isn’t $60/$127 or $8/$12. It’s $60/$80 and $6/$8.
Americans should note that also getting rich off higher oil and gas prices are financial partners, the banks and other hedging counterparties that are…trying to work out of their subprime mortgages.
While oil prices at $100 made sense, considering the weaker U.S. dollar, $127 just doesn’t add up. And, the Nymex speculators consist greatly of financial insitutions that are heding counterparties.
–Nissa Darbonne, Executive Editor, Oil and Gas Investor, A&D Watch, Oil and Gas Investor This Week, www.OilandGasInvestor.com; ndarbonne@hartenergy.com
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June 2nd, 2008 at 8:21 am
Very well said. I had this same conversation with a work colleague just last week. 127 oil doesnt add up and make sense. He pointed out (the same lame excuse that everyone else who have peanuts for brains uses) look at China and India. Well what about China and India, its not like those two countries double there consumption since January.
Good post, most times i disagree with your points but have to give this one to you, short and sweet.
The market is being manipulated by traders, thats it, pure and simple.
June 2nd, 2008 at 9:25 am
Of course the market is being manipulated by traders. The question is “who?”. Who are the traders and are they local or global?
I get more of a feeling that world traders are jacking this up and don’t think it’s happening within the confines of U.S. investment community. Call it paranoia, but I believe this is coming from OPEC, Russia, China and various entities with an interest in our post-Bush foreign policy. Wanting no more preemptive attacks in their world, this strategy of economic terrorism is precisely their way of ensuring a manipulation of our elections in November. Tick off the voters in the U.S. by way of high fuel costs and weaker economy and you end up with the stronger liklihood that the electorate will vote for change for the sake of change.
Without a real energy policy coming from Washington, we aren’t left with much of a defense against this type of attack on our economy. Over the next four years, we may be talking about milk, grain and metals the way we’re talking about oil. May as well continue to “speculate” on oil and while you’re at it, silver is looking like a pretty good investment. I’ll buy it today at $17 and sell it in January at $25…