Thursday, October 14, 2010

Petroleum demand falls to a 10-month low, yet oil prices are rising!




By Margot Habiby and Moming Zhou
Oct. 14 (Bloomberg) -- Crude oil fell as a government
report showed U.S. petroleum demand declined to the lowest level
in more than 10 months as the economy struggled to recover.
Crude dropped for a third day this week after the Energy
Department reported total petroleum demand declined 0.7 percent
to 18.3 million barrels a day in the week ended Oct. 8, the
lowest level since the seven days ended Nov. 27, 2009. A Labor
Department report today showed U.S. jobless claims unexpectedly
rose to 462,000 in the week to Oct. 9.
“The demand numbers were very weak,” said Tim Evans, an
energy analyst at Citi Futures Perspective in New York. “We
don’t really have a bull market unless we have stronger consumer
demand.”

Yet oil prices are rising for no fundamental reason. It's all speculation and we deem that to be okay?? People will have to pay for higher fuel, heat and just about everything else because we are letting speculators raise the price of oil when demand is falling. Insanity!!!

27 comments:

Unknown said...

It's called inflation...

mike norman said...

No, it's called speculation.

wilwon32 said...

On his site, Max Keiser will attempt to convince all that the rising prices of precious metals signal the decline of the dollar. He and some other gold bugs are outspoken advocates of the safe haven nature of precious metals and I get the impression that there is a lot of enthusiasm for the idea that inflation is in some manner an underlying factor (He frequently refers to himself as a 'gold hawk'). Many people who have no knowledge of MMT buy the 'deficit hawk' position because they simply do not know enough. The MMT advocates have a hard time trying to convince the neo-liberals whose belief systems have been supported by the super-rich. The MMT crowd has a lot of educational work to do.

welfarewarfare state said...

Commmodities are rising because the FED has been on a mission to debase the dollars. The FOMC minutes from a couple of weeks back indicate that the FED has deliberately set out to create price inflation. And here I thought the FED was the great inflation fighter, and their mission was a so-called stable price level. They've only debased the dollar by 96% of its 1914 value. What a terific success! What is truly laughable is that the FED's goal of monetary debasement will be the one thing that it will actually succeed in doing. Helicoptor Ben will insure that all prices go the moon. These speculators are just responding to what the gloriously inept central planners at the FED have openly indicated. I'm sure some of you have noticed the inverse relationship of the dollar index and commodity prices, right? It's just inflation. Mr. Norman is mistaken again. Tell us Mr. Norman, at what price level did you stop buying gold? $400? $500? How about silver?

bubbleRefuge said...

The fed hasn't actually done anything to debase the dollar because it can't. The Fed sets interest rates. Period. What you are witnessing is speculative runs in commodities sparked by fed rhetoric coupled with mass marketing of the fear trade around gold and monopolistic price setting by the Saudi Arabia/Russian oil complex.

Unknown said...

Not sure about how it works but oil prices always correct themselves when the dollar slides down. Also the US is not the only importer on the market

welfarewarfare state said...

bubbleRefuge said, "that the Fed hasn't done actually anything to debase the dollar because it can't." Really? You don't think that there is a corrrelation to the quantity of money and its purchasing power? If you simply create more of the medium of exchange out of thin air, then all else being equal it will take more units of the currency to buy anything.

The Federal Reserve is the monopoly issuer of the currency. If prices are rising in the aggregate across an economy as large as ours there can be only two possible causes: 1) the supply of all goods has dropped across the board (extremely unlikely) or 2)the money supply has been increased.

bubbleRefuge also that that the Federal Reserve "sets interest rates." They don't directly set interest rates, but they do indirectly influence the interest rate by making purchases on the open market. The only way that the FED can artificially lower the market interest rate is to create new credit money out of thin air. If the interest rates are lowered substantially and for a long enough period of time, an asset bubble can form. The resulting bubble is a sham because it was driven by phony credit moeny. Real credit can only come from real savings.

Unknown said...

It's NOT speculation (the rising price of oil/commodities)??, It’s a fact that globally, the market doesn't think our $$ is worth what it was 4 months or 4 years or 40 years ago and they are demanding more for these products in exchange for our weakening $$.

You can debate this or that point all day long on why the price is rising but the market is speaking loud and clear, the $$ is worth cr@p and what this administration is doing has everything to do with this trend.

Investors are buying hard assets because the $$ is buying less every day, that's not speculating.

World currencies are strengthening against the $$. That is additional proof that it's obviously going to take more $$ to acquire the same goods and why oil is rising.
–OBVIOUS-!

Severus said...

Mike is a proponent of the free lunch theory. In his misguided world, the federal reserve buys treasuries from the government and there are no consequences as to the perceived value of the US dollar. According to Mike, monetizing the US federal deficit is no problem, it's all double entry accounting! Were it so easy...
Now commodities are rising and Mike cries "speculation!!". This was so predictable.
Next, Mike is going to demand that the government establishes price controls.
The same movie has played many times throughout history and geographies.
It always ends the same way: an eventual crash of the currency. It may take 20 or 30 years, but the way things are going, it will happen.
Now, if Mike and his MMT friends were in charge, it'd happen in 2 years! ;-)

bubbleRefuge said...

You don't think that there is a corrrelation to the quantity of money and its purchasing power?
It depends what you define as quantity of money? The fed controls the price of money not the quantity. In Modern Monetary Theory ( which is what we believe here and which describes the nuts and bolts of the monetary system) we believe that an increase in NFA (Net Financial Assets) will increase demand at some point. And when this increase in demand surpasses capacity utilization in the economy, inflation results.

If prices are rising in the aggregate across an economy as large as ours there can be only two possible causes: 1) the supply of all goods has dropped across
the board (extremely unlikely) or

ok

2)the money supply has been increased.
False. Its depends on if aggregate demand increases. You can create as much money in the world as you want, but if nobody spends on goods and services then there is no inflation. So you are wrong. Base money (M0, or the level of reserves in the system) have increased something like 12,000%. Have prices increased 12000%? Of-coarse not. We are in a deflationary environment. If anything this exposes your and the mainstream financial media's lack of understanding of the monetary system that is absolutely destroying this country right now.

bubbleRefuge said...

The only way that the FED can artificially lower the market interest rate is to create new credit money out of thin air.
The fed does not create new money. They swap one form of deposit for another in order to drain reserves or increase reserves so as to control the price of the federal funds rate which is the feds main policy mechanism.

If the interest rates are lowered substantially and for a long enough period of time, an asset bubble can form. The resulting bubble is a sham because it was driven by phony credit moeny. Real credit can only come from real savings.
There is no such thing as phony money. Money is money. That is ridiculous. Your arguments seem pretty phony to me. And you clearly have not educated yourself on monetary operations because you probably spend all of your time reading propaganda material distributed by Golds Bugs and their minions. Gold bugs just want you to buy gold so they can take your money. Stop reading that shit.

bubbleRefuge said...

administration is doing has everything to do with this trend. I agree the administration wants the dollar to go down (to our detriment) because they want to increase exports. But your analysis is pretty weak.

bubbleRefuge said...

Servus, Mike is one of the few media analysts that has spent enormous amounts of time education himself on monetary operations. Commodities are rising because speculators can buy massively leveraged commodity futures contracts. For example, with $2500 in margin requirements I can buy a corn future contract worth 25K.
Commodities are not rising because people are getting rich and buying more. If that were the case, then we would truly have an inflation problem and not a deflation problem.

mike norman said...

Severus:

YOU are the one who is misguided. The Fed does not buy Treasuries from the gov't you idiot. The Fed sets rates by buying securities from the public. There are $13 Trillion in Treasuries outstanding; so there is plenty out there for them to buy.

Second point: I am not talking about the Fed pumping money into the banking system. That does nothing to create wealth you moron. I am talking about the government creating the demand that will lead to greater economic output and employment. THAT is wealth you jerk.

mike norman said...

What the dollar fetches in foreign exchange markets has abolutely no effect on the supply and demand for a commodity. If Americans lose purchasing power because the dollar weakens they buy less of a particular commodity, like oil, and someone else's purchasing power has risen by an equal amount so they buy more. The net change in demand is zero as is the net change in supply. The price is going up on pure speculation as Bubble Refuge said.

Matt Franko said...

Severus,

Mike says: " I am talking about the government creating the demand that will lead to greater economic output and employment. THAT is wealth you jerk."

Severus consider: Real wealth is measured as economic FLOWS not economic STOCKS. This is your disconnect.

Resp,

Severus said...

Mike,

1) Whether individuals are intermediaries in the transaction is of no consequence. If I buy a car from Ford or from the dealership does not matter much to me or Ford. The end result is the same. I have a Ford car and Ford has sold a car. My buying a car from the dealer frees him to buy another car from Ford in the same way as the Fed buying a treasury from an individual frees that individual to buy another bond from the treasury.

2)I know perfectly well that you are talking about federal deficit spending to create government jobs. It is my understanding that you believe that government deficits do not matter since this deficit spending results in equivalent assets (dollars) for Americans. The problem is that individuals, while getting "richer" from government money, are very well aware that either: a) they will have to pay that money back in future taxes or b) the fed will monetize the deficit by creating dollars to buy treasuries or other assets.
Neither of these prospects are very enticing to individuals holding these dollars that have been spent by the government. Since most individuals believe that the politicians will take the easy way out and go for b), they buy commodities rather than hold dollars which in the long term will substentially depreciate.

Severus said...

Matt,

I respectfully disagree. Money FLOW (GDP) does not necessarily create wealth. The money may flow but if nothing useful has been built or if no useful service has been performed, no wealth has been created.
You can pay me to dig a hole and I can pay you to fill it up. We can do this for months and plenty of money will flow but no wealth will have been created.
In general, that is the problem with government jobs and projects. They are inefficient and do not result in significant wealth creation when compared to private endeavors which are guided by the profit motive and therefore strive for efficiency.
The USSR may have had 0% unemployment and plenty of rubles flowing, but wealth? not so much.

Matt Franko said...

Severus,

Do you think landscape maintenance is useful? If you cut the grass or trim the hedges, they just grow back.

Why do they bother to cut the grass at the Whitehouse? The grass just grows back. What about the grass around school buildings that are not athlectic fields?

What about exterior painting? If you paint the house, eventually the weather and UVs cause the paint to peel, and you have to scrape and re-paint.

What about fender benders? If it is just a dent and you can still drive the car, why bother? Why have a car wash the car just gets dirty again.

Is baseball really necessary? The MLB playoffs? Do we really need them? You know, we pay the pitchers to typically dig a hole in front of the rubber, and then we pay the ground crew to fill it back in before the next game. Sev, tell all those bazillionares in/around MLB they are not creating 'real' wealth there.

What about a senior citizen who gets a disease? havent they lived long enough? They could then get sick again the nerve!

Where does your logic start and stop?

Resp,

Severus said...

Matt,
In a way you are proving my point. If all of our economic activity was limited to your examples, yes indeed, we'd be very short of real wealth.

googleheim said...

Stopping the drilling permits in th Gulf was an attempt to keep prices up high.

We are in a deflation spiral.

The inflation was during the Iraq war. It's already passed but without the high interest rates.

Now we are monetizing the Republican debt, not Obama's.

Deflation

Matt Franko said...

Severus,

So we can build the car wash but we just can't drive our cars through it?

Baseball stadium: ok
Baseball games: not ok?

Sanitary sewer system: ok
Toilet flushing: not ok? Do we all have to "hold it"?

What kind of world do you envision?

Resp,

bubbleRefuge said...

Matt, since they can't make a rational economic argument they redefine economics to match their "religion"

Severus said...

Yes my religion is the reviled Austrian school of economics.
Meanwhile, you guys can continue believing you can go to baseball games while the U.S. Fed and Treasury distribute cheap dollars to American to enable them to buy clothes from China, oil from Kuwait, TVs from Japan and cars from Germany. Nice, as long as it works. Eventually it doesn't.
Signing off...

Matt Franko said...

Severus,

Consider my comment about Stocks vs. Flows.

That Austrian School is very dark stuff, consider abandoning it.

Resp,

oukid said...

Mike, how often do you convince someone to your point of view with remarks like "...you idiot...you moron...you jerk"?

Pretty classy discourse coming from the chief economist of such a prestigious Wall Street firm as John Thomas Financial!

Unknown said...

Actually Oukid that is what his character is. I have seldom seen him giving logical arguments in debates and often he tried to intimidate his opponent by bullying or laughing (see peter schiff was right video).

Mike you know you are wrong and what you tend to do by these intimidating tricks is an attempt to force others to accept your point.

I still visit this blog to understand what could have been going in the mind of establishment.