Is it all about speculation?
Oil prices are soaring because of the reports out of Libya and gasoline prices, according the Lundberg survey, have had the biggest two-week jump in history. This comes at a time when US oil supply is at a record high and gasoline supply is running over the five-year average. It just has to be the speculators behind this move, doesn't it? Sure, this is just another case of the evil speculators taking advantage of the situation in Libya to get rich and rip off the American consumer, right?
Wrong! Every day I have the pleasure to be on the Fox Business Network with Cheryl Casone and on Friday we got the question whether the price move in oil was a result of speculation or does the price fairly reflect the fundamentals. I said absolutely it reflects the reality of fair price. So later that day on the Cheryl Casone’s blog called, "The Casone Exchange” put the question to viewers like this.... "Today we did a five minute segment with Phil Flynn of PFG Best from the floor of the CME. We usually talk with him briefly at the top of our show, but considering that stocks are selling off right now because oil is hovering at $104, we felt it best to have him give us some context. I am a big Phil fan, but when he said the market [fundamentals] could absolutely support this, and that the fear was real with regards to the Middle East (and not from pure speculation), my other on set guest James Frischling said wait a minute? James believes the supply is there, and investors are getting greedy. They disagree! That is what makes great debate and great television, but I am curious what all of you think? You've been emailing the show, sending me the fundamentals and commenting on Facebook and Twitter, but let me know here at Casone Exchange in the comments section. It's time for you to give your Best Guess...have at it."
So have at it and vote for the fact that speculators are not just driving price but are being driven to the market because fundamentals. I can't print the link but if you go on the Fox Business website and search for Cheryl's blog you should find it. If you are not convinced and you need some reasons why the fundamentals are backing this move let me give you ammunition.
As if 1.0 million barrels of lost Libyan oil production wasn't enough. First of all when people talk about fundamentals they sometimes have too narrow of a view of what the real fundamentals are. Too often they think it's a numbers game of just supply versus demand, counting barrels if you will and hard figures as compared to demand. While that is part of it the meaning, fundamentals goes far beyond that. You also have to include transportation cost, which includes insurance or risk premium. Already we are seeing actual oil buying driving up prices because certain refiners and European countries are fearful they won't be able to get oil next week. Not speculators, unless you define refiners as specs and users speculating that they won't get supply.
Bloomberg News reported on Friday that we have, "An 18-fold surge in oil-tanker rates in two weeks is a sign that European refineries are rushing to secure cargoes of crude from Libya as an uprising against leader Muammar Qaddafi disrupts supply. Rental income from tankers, capable of carrying about 600,000 barrels of oil, was at $46,330 a day today, up from $2,511 on Feb. 14, data from the Baltic Exchange in London show. The ships, most commonly used to carry oil across the Mediterranean, now cost more than supertankers, which are more than three times bigger, according to data from the bourse, which publishes rates for more than 50 maritime routes.”