Comments from the Algeria Oil Minister

DJ Algeria Oil Min:Increasingly Hard To Understand Market Dynamics

Agreed!

DJ Algeria Oil Min:Oil Markets Increasingly Respond To Financial Speculation

Agreed! The funds involved in commodity speculation dwarf the funds involved in the physical markets

DJ Algeria Oil Min:Market Volatility Makes Energy Investment Difficult

Agreed! The risk of a price collapse is a major factor for long term investment decisions.

DJ Algeria Oil Min: Seeking To Exploit Shale Fields In Algeria
DJ Algeria Oil Min: Will Seek Partnerships To Exploit Unconventional Oil, Gas
DJ Algeria Oil Min:Sonatrach, Partners To Invest $2.5B/Year On Unconventional Hydrocarbons
DJ Algeria Oil Min: Europe Will Need Long-Term Gas Contracts

Yes, long term contract work best for both producers and users to ensure the viability of investments and the stability of supply and price

DJ Algeria Oil Min: No Shortage Of Physical Oil

Agreed! Reinforces the fact that the Saudis are the swing producer/ultimate price setter as previously discussed

DJ Algeria Oil Min: OPEC Will Respond If There’s A Shortage Of Crude

Confirming excess Saudi capacity estimates

DJ Algeria Oil Min: No Requests For Extra Crude From Algeria

Confirming no supply shortages and Saudi price setting

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20 Responses to Comments from the Algeria Oil Minister

  1. Mario says:

    Hey ESM,

    I totally agree with you there on greed in that way. I was trying to say that it’s this sinister type of greed that will lie, cheat, steal do ANYTHING it has to do just to get what it wants regardless of how it effects others (like running 400 to 1 leverage with no reserves, going bust, crying, getting saved, then doing it again for example). I like to think of this type of greed in the same way as I view Iago, the evil antagonist in Shakespeare’s tragedy “Othello”, in that Iago (as well as this greed) has no real justifiable motive for his actions outside of merely his own whim and fancy. THAT is dangerous both b/c of its effects but also b/c of the ruthlessness it requires to put it out.

    What you’re talking about is a very positive, competitive, uplifting approach and highly valuable and I completely agree with you. Some may even say that what you’re talking about could be called the human labor-force (aka LIFE) and that force is THE value that prices all things in an economy (ie that’s what I see Marx saying and note for the record that this idea is inherently NOT communist)…but that’s another topic for another day. ;)

    Reply

  2. JJTV says:

    L. Randall Wray wrote a good piece on the commodities bubble of 2008. Explains the financialization of commodities and the enormous effect managed money had on driving up prices. Pension funds appeared to be major culprits as there have been issues with traders at Cargill leaking information to Pension Fund managers (within last few months) and during the drought in Russia. A link to paper is below:

    http://www.levyinstitute.org/publications/?docid=1096

    Reply

    Mario Reply:

    great post. Thank you very informative. I think I have no choice now but to agree that speculators are marking things up. Very thorough and very informative. Interesting and vital to note how POLICY CHANGES allowed this to occur (as usual) in the first place.

    Greed is a real bitch eh? Maybe this is what the bible meant by the “love of money is the root of all evil” eh? It’s just incessant and has no real “root cause” or reason other than it’s own existence.

    Thanks again.

    Reply

    ESM Reply:

    The bible is wrong. Greed, for lack of a better word, is good. Greed is right. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit.

    I agree that the development of commodities as an investable asset class has led to distortions in the market — most notably an increase in contango in the futures market and an increase in storage and storage costs (which has prompted the construction of new storage facilities).

    But one can argue (reasonably in my opinion) that this is good for the world. It not only reduces the impact of a major disruption in supply, but it helps to offset the distortion caused by producer hedging (which caused there to be not enough storage and not enough investment in new production in the first place).

    Reply

    beowulf Reply:

    Right, the markets are what alerts us to an underlying condition (just as medical symptoms alert us to an underlying medical condition), they aren’t the condition itself.
    http://en.wikipedia.org/wiki/Prediction_market

    As for “greed is good”, its like Samuel Johnson said, “A man is seldom more innocently occupied than when he is engaged in making money.” :o)

    WARREN MOSLER Reply:

    it would only reduce the impact of a major disruption if there was excess physical supply that was available to the market place for direct consumption.

    and if that is a benefit, there are a lot less disruptive ways to accomplish it.

    the problem was created by the deadly innocent fraud that we need savings to have funds for investment, which created the tax advantages for pension contributions, ira’s, etc. etc.

  3. Amen, especially to the second point. As a buyer who actually wants to take delivery of millions of gallons of fuel a year, it is a giant penalty to the taxpayers that we have to compete in a speculation-driven market with people who have no intention of participating in the market other than to play the swings in prices.

    Mike

    Reply

    Mario Reply:

    wow. okay. But what about the concept of a company hedging in the futures market to offset future price fluctuations? Don’t you think that is a good idea though? And what about when prices go down? Don’t they benefit from that as well? And how much is price moving b/c of speculators versus the actual commercials? I thought the futures market makes prices more open and therefore stabilizes them whereas if they were “closed” they would have a more volatile tendency which is very challenging for businesses who rely on that commodity to reasonably function and operate over time and season to season. no?

    Reply

  4. Mario says:

    when we talk of oil “speculators” ramping up the market are we talking about traders of the futures contracts for oil? WHO are these speculators exactly? Are we implicitly “blaming” the futures market then for high oil prices by crying out “speculation”?

    Reply

    Tom Hickey Reply:

    The speculation affecting price is not financial speculation in futures, which does seem to create an upward bias but is just “paper.” However, there is also a lot of supply off the market in anticipation of higher prices. Every storage facility is now full, including tankers, and more storage is being constructed as we speak. On the other hand, if prices should break, then liquidation of some of that hoard will break prices more quickly and deeply.

    Reply

    Mr. E Reply:

    The total value of Open interest is surprisingly low.

    800-900K Brent total across all months. 1000 barrels * $110 = $110K per contract.

    total value is only $90-$100 billion, right? Hedge funds have $2,000 billion in allocations.

    Speculation could easily drive prices higher…

    And as you point out, basically every storage depot is filled.

    Reply

    ESM Reply:

    I’m not an efficient market purist by any means, but the “speculation” driving prices higher seems perfectly rational. After all, there is some non-zero probability that there is a disruption in Saudi supply which could drive prices significantly higher.

    Tom, aren’t you the one that is so concerned about peak oil and competition for resources with the developing world? If you believe in that, it certainly seems like oil is too cheap.

    On the other hand, if every storage depot is really filled, oil is going to have a hard time going any higher without a major disruption in supply.

    Reply

    Tom Hickey Reply:

    I’ve said for some time that I’m OK with oil increasing substantially in price in the US as long as it comes gradually enough to adapt without major disruption.

    Some disruption is inevitable since the addiction runs deep. What is underpriced is over-consumed. Higher prices would decrease demand, increase conservation, and make space for development of alternatives.

    The global economy is way too dependent on petroleum considering true cost when externalities are included, not to mention the pernicious effects of supply problems.

    Humanity really needs to be working on energy redundancy as a survival strategy, not just for progress. We apparently have some space to do that, but it will not last forever, and a shock could arise at any time. But we knew this back in the 70’s, and have done little.

    ESM Reply:

    “But we knew this back in the 70’s, and have done little.”

    Well, whether by design or by accident, the US at least has managed to do quite a lot.

    This table shows historical energy consumption in the US.

    In 1973, energy consumption per person in the US was 357mmBTU. In 2009, it was 308mmBTU — much lower despite the giant leap in living standards over the intervening 36 years.

    Also, the US gets vastly more of its energy from domestic natural gas.

    Not that I care particularly.

    I do agree that oil should be taxed more than it is. Perhaps as much as $40 per barrel because of externalities.

    WARREN MOSLER Reply:

    does the energy consumption include the energy used to produce the imports minus exports?

    WARREN MOSLER Reply:

    agreed, and also there’s the chance that new supply and falling demand could dislodge the saudis in the other direction.
    not sure anyone actually knows which risk is higher

    ESM Reply:

    “does the energy consumption include the energy used to produce the imports minus exports?”

    Great point. I don’t think it does. Of course, imports minus exports is only 5% of GDP, so unless the imports are more energy intensive than the exports, or the average product, it shouldn’t change the numbers by more than 5%.

    ESM Reply:

    OT, but I am watching Michael Moore on Rachael Maddow just now, and I have to say he makes Charlie Sheen look like Mr. Rogers.

    Tom Hickey Reply:

    Moore: “This is war. Class war.”

    This is going to be the developing social trend over the next couple of years, unless there is an extremely speedy economic recovery. It is already a growing global phenomenon.

    Tom Hickey Reply:

    Sociologist Daniel Little expands on this theme in today’s post at Understanding Society, Social Justice and democratic stability

    This is a social movement that is gathering momentum. When Moore’s says that “this is war, class war,” he makes clear that he is saying the elite has declared war on the middle class, and so far the middle class has rolled over. He sees that passivity as now ending.

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