Sunday, January 22, 2006

New Record for Crude Oil Speculators

I simply do not understand why media and even oil market analysts blame on market fundamentals for the increases in the oil prices again. Not to forget also the nuclear talks, developments in Nigeria, Russian gas issues and Chavez.

As I mentioned in my previous post it is in fact speculators to be blamed. I still haven’t changed my poisition on that. In 2005 crude oil traded in ICE and NYMEX futures markets was three times more than world’s daily crude oil production. And that was a record year!

Here are some facts about how I came up to that claim.

The IPE Brent Crude futures contract set an annual volume record of 30.4 million contracts, surpassing the previous annual record of 25.5 million contracts set in 2004 by 19.5%. On Wednesday, January 11, 2006, exchange-wide volume reached 299,585 contracts, exceeding the prior daily record set on August 10, 2005 at 295,501 contracts.

IntercontinentalExchange (ICE), the leading electronic energy marketplace, announced on January 9, 2006 that ICE Futures will launch an electronically traded WTI crude futures contract beginning in February 3. ICE will convert the liquid over-the-counter WTI Crude Oil Bullet swap contract currently trading in ICE’s electronic OTC markets to the ICE WTI Crude futures contract. The ICE WTI Crude futures contract will trade continuously for 21 hours a day. Therefore, it is obvious that it will be much easier for speculators to play with prices.

The 17 January 2006 Press Release of the NYMEX said that crude oil futures reached 59,650,468 contracts in 2005, surpassing the record 52,883,200 contracts traded in 2004. Crude oil options set a record with 14,726,263 contracts, surpassing the record 11,512,918 contracts traded in 2004. To this we should also add NYMEX miNY™ crude oil futures contracts (5,682,214 contracts, which shattered the 2004 record of 720,421 contracts).

Now, let’s add them up for 2005:

59.65 + 5.68 + 25.5 = 90.83 million contracts.

Each contract represents 1000 barrels, and one year contains 365 days. So, by applying a basic math I come up with a number of 248.85.

This means that in those two futures markets (ICE and NYMEX) approximately 249 million barrels of oil is traded in the world daily. AND daily world oil production in 2005 was only 84 million barrels.


At 4:57 PM, Anonymous Anonymous said...

Re: Speculation in oil futures.

You remind of a teenage boy who has just discovered sex. Futures markets are all like this. This has been going on since their invention. As an Iowa corn farmer, I know corn futures, and therefore the price I recieve for my corn has nothing to due with the physical amount of corn available. The bins can be full of corn all over the country and the price will go up. The bins can be empty and the price will go down. All that matters is what the traders want to do. I know it's unbeliveable, but that is the way it works. Get use to it.

At 12:40 AM, Blogger Postman said...

Who are the traders who speculate, why, the oil cos. They state this in their financial reports ... profits are based etcetc on hedged at $USD XX per barrel.

The other great wedge are the big oil users , energy cos airlines etc.,

The speculators - ie, gamblers per se is a fraction of the market. Maybe 10% ?


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