RE:RE:Huge bids coming in....easindown wrote: Can you expand on that? What would be the purpose?
I'll try to answer:
Many reasons, but most likely relating to trading. For example, I'm certain JP Morgan Chase is short oil and/or trying to cover their shorts and got stuck on the wrong end of the trade. We have a ton of analysts out there caught with poor oil predictions. Their trading departments are surely trying to either continue with their short positions or close them out. Either way they need the price of oil to go down. This is apparent with the media. Even great news for oil fundamentals is always spun in a way that highlights the negatives. It is really remarkable. It is nearly impossible to find a mainstream source with a truly bullish article despite the remarkable run crude pricing has had in the last few months. Market manipulation is rampant everywhere. Oil is no exception. Eventually those trades will turn around and we will see spectacular predictions on the price of crude. That will signify the 'pump' part of the cycle. We are currently in the 'dump' (but turning point).
The second reason that is most certainly present is market share. You can read about this everywhere. The Saudis in particular would like to keep a lid on prices in order to decrease production in other parts of the world, mainly US shale producers. Since they are presumed to be the lowest cost producer (their data is not reliable so who really knows), they can sustain a lower priced crude environment when others can't. This will, in the long term, allow them to gain back some market share and, idealy for them, their influence over crude pricing. We have never seen a free market in crude. Nobody knows what it would look like. OPEC has kept prices within a trading window for decades. They can't control the market entirely, in general prices are determined on a more macro basis, but they do keep the prices stable. Now the Saudis have decided to open the flood gates, if you will. They are using up their excess supply that previously was used to keep prices stable. If they continue this, we will see what a true free market in crude looks like (or nearly free). This is expected to result in much more volatile pricing. While our banking friends mentioned above don't believe so, a true free market in crude could easily end up with prices as high as $200+/barrel or as low as $30/barrel for short periods as demand is not very elastic.
A tertiary and more 'conspiracy theory' type reason (yet still possible) would be that there is political pressure to keep a lid on crude pricing. A low crude price hurts a number of economies much more than others. For example, not only does the USA benefit from lower crude as a net importer but it also serves to significantly hurt Russia and Iran, two of America's biggest concerns at the moment. In fact, the drop in crude pricing may have put the breaks on Putin's expansionist plans (Georgia was in their sites). Similarly, Saudi Arabia greatly benefits from a weaker Iran.
There are other, more minor reasons as well. Overall, the price of oil is almost certainly being capped at the moment. The question is for how long can this be maintained? Furthermore, the fundamentals of oil right now are truly a question mark. True global production and demand numbers are not known. There is a ton of guesswork involved in estimating it and those estimating are usually wrong. For example, currently we are told there is a surplus supply of 2MMboe/d out there and has been for months. However, if this were the case, we should have seen inventories climb much higher than we have seen (even though they are at records in the US). So where did that oil go? Did it ever exist? Are the numbers off? Are they off intentionally? Look up "missing crude barrels" in Google for further reading on this. In general I'm quite convinced the fundamentals of crude are nowhere near as dire as many will have you believe. In fact, I believe we are coming into a crude supply shortage by this summer.
Hope that was helpful.