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I really do not understand how this whole commodity trading thing works

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Hugabear Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Apr-07-11 09:43 PM
Original message
I really do not understand how this whole commodity trading thing works
http://www.ft.com/cms/s/0/47ddd6e4-60eb-11e0-8899-00144...

According to this article, oil traders are worried about the possibility of oil reaching $175, and are preparing for a "worst-case scenario".

Aren't they the ones who are creating these high prices?
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DJ13 Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Apr-07-11 09:46 PM
Response to Original message
1. "Roast me! Hang me! Do whatever you please,"
said Brer Rabbit. "Only please, Brer Fox, please don't throw me into the briar patch."

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Newest Reality Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Apr-07-11 09:48 PM
Response to Original message
2. I don't want to hijack here,
but while we are on the subject of commodities:

Why do the contracts for next month's unleaded gas translate into higher unleaded fuel prices within a few days at the pumps? Is that gouging? Shouldn't the gas prices go up next month when the contracts come due?

I am curious and have not looked that up.
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RB TexLa Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Apr-07-11 09:51 PM
Response to Reply #2
5. So if you are selling gasoline and you are told the next 10,000 gallons are going to cost
you $50,000 you are still going to sell the 10,000 gallons you have at at the price you paid $40,000 plus your margin? What if your margin isn't enough to pay the $50,000 for the next 10,000? Are you just going to not offer gasoline and hope people come in for the corn nuts?
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dkf Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Apr-07-11 10:00 PM
Response to Reply #2
6. Actually they were lagging the commodity prices.
At least they were here. I noticed oil stocks going up quite some time before I noticed it at the pump.
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Canuckistanian Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Apr-07-11 09:50 PM
Response to Original message
3. We're screwed
$175 a barrel means Armageddon. Stock up on non-perishable foods. And penicillin. LOTS of penicillin.
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Poll_Blind Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Apr-07-11 09:51 PM
Response to Original message
4. "We are here to try to explain to you what it is we do here. We are commodities brokers, William."
Billy Ray Valentine learns commodities

Kidding aside, in this case it looks like they're trying to prepare for very volatile markets which means a much higher volume than normal. So it's not a problem for them if the price shoots way up, but what about situations where situations where they have X-thousand customers who are trying to sell during a sudden downturn? The volatility greatly stresses their ability to keep up (going both ways, price-wise) and their ability to execute trades quicky under even stressful conditions is the lifeblood of commodities trading.

Or something like that. All I learned about commodities trading was from Trading Places, anyway. I just ad libbed the rest.

:rofl:

PB
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theDash Donating Member (89 posts) Send PM | Profile | Ignore Thu Apr-07-11 10:37 PM
Response to Reply #4
8. lol, yeah - likewise most of what i know I learned from Trading Places
But what I don't understand, is why people can invest in commodities that they do not intend to take delivery of. All that does is enable people to gamble on the price of commodities, making the price fluctuate wildly. I thought the whole point of a commodities market was to make the price more stable, by allowing those who actually take delivery and use (or sell) the actual commodity to set a fair market price for said commodity.
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denbot Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Apr-07-11 10:25 PM
Response to Original message
7. For the 500th time on this board..
I used to be a series 3 (commodity's) broker. Here is an example of how oil is marketed as gasoline. Mobile owns, or leases fields that the oil is pumped from. It moves the oil on company owned (Mobile) transportation, to Mobile refineries. From the refineries the products go to Mobile gas stations.

Do you really think there is a guy in the oil "pits" selling contracts of crude oil in a Mobile tanker, to a guy buying crude contracts for a Mobile refinery, which produces gasoline which a trader sells, to a buyer who buys that contract for a Mobile gas station?

Look at the total volume of contracts deliverable in gas or oil sold in the U.S. against actual use. The amount traded on the commodity's market is a fraction of the true total of petroleum product used in this country. The "open" markets are simply pricing mechanisms of a monopolized market. The guys in the pits are just responding to market moves mostly created by "funds" (Gee, where does Mobile park its money), coming in and moving markets to the highest supportable prices.

Small speculators (you and I) can swing markets, but only for very short periods of time. It takes huge amounts of money to move and maintain a near 50% market change.

Hate the game, not the players
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sharesunited Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Apr-07-11 10:58 PM
Response to Reply #7
9. Mobil is the name. More specifically Exxon Mobil given the acquisition.
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denbot Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Apr-07-11 11:01 PM
Response to Reply #9
10. Derp..
I stand corrected
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