I wish I could find the news article, but I remember reading a week or so ago about how many oil storage facilities are filling up or already at full capacity, despite the high price of oil.

The reason is thought to be speculators, who are taking delivery as their futures contracts come due, and storing the oil as an investment. I guess the idea would be to sell new futures contracts in later months, at a higher price.

So, that would dampen the argument that speculators would be forced to sell out of the commodity as their futures contracts come due. However, I still can't find this news article, so take it lightly.

Damn, you have been on a ticker writing rampage lately. Every one is better and better. I'm not sure what else to say other than nice work.

I happen to disagree about Rick Santelli's explanation of futures speculation. If you roll your contracts forward you never have to take delivery. Speculators do not take delivery. So, all you have to do to check to see if they are actually holding positions is to look at the open interest. If speculators are driving up prices there would be a constantly increasing number of open contracts. I do not see any evidence of this, so the conclusion is still the same. There is a supply/demand imbalance here.

Excuse my dumbness. When you sign up for futures trading do you have to specify a physical address where deliveries will take place for all your contracts? And I suppose the commodity side of the trade is responsible for shipping?

Brilliant work again KD! Breaking through the BS seems to be one of your specialties. I don't believe that this is a "speculator" problem any more than I believe this is about "Bush's War" or "Peak Oil" or "Chindia demand" or any other bull**** story. Sure, these things have some truth to them and they are contributing some of the upside lift - like maybe $20 worth.

The rest of the move is a perfectly justifiable flight to real assets while our currency is debased and the US treasury and Fed balance sheets are destroyed. Inflation numbers are a joke and can't be trusted. The common man knows this and it is showing up in the unhinged inflation expectations and the consumer sentiment. The real danger in a crack-up-boom is when commodities become a replacement for the currency. This is incredibly dangerous and represents a complete destruction of our financial systems. We have wiped away literally thousands of years of financial progress when people start using "stuff" (ie oil, food, gold, etc.) as a substitution for an actual sound currency. It's Mad Max economics.

So having said this, if the Fed (and the other central banks) created this oil bubble monster they can also destroy it. But they better make quick work of it before it destroys them. Of course the solution is accurate accounting, transparency, fraud control, balance sheet restoration but most importantly much HIGHER interest rates. Higher rates will encourage folks to SAVE rather than speculate on asset bubbles to stay ahead of actual inflation which is probably around 10-12% or even more.

Will higher rates lead to GD2? Sure, but there are MUCH worse things than a depression, like hyperinflation, hoarding, and chaos for example (Mad Max).

Boz,

Didn't you see the documentary on Leave it to Beaver? I believe it involved egg futures although my memory is a bit hazy...

Bozonian wrote..

Excuse my dumbness. When you sign up for futures trading do you have to specify a physical address where deliveries will take place for all your contracts? And I suppose the commodity side of the trade is responsible for shipping?

It depends on the commodity. Some commodities consider physical delivery fulfilled with a shipping receipt delivered. If you were long, you could then take the shipping receipt to the grain elevator (or what have you) and go pick it up!

Having a look at oil, it's a bit more complicated:

Quote:

(B) At buyer's option, such delivery shall be made by any of the following methods:

(1) By interfacility transfer ("pumpover") into a designated pipeline or storage facility with access to seller's incoming pipeline or storage facility.

(2) By in-tank transfer of title to the buyer without physical movement of product; if the facility used by the seller allows such transfer, or by in-line transfer or book-out if the seller agrees to such transfer.

(C) All deliveries made in accordance with these rules shall be final and there shall be no appeal.

(D) Any seller delivering less than 5 contracts for one customer shall deliver out of storage at the Equilon Pipeline Company LLC facilities, unless the buyer and seller mutually agree to exempt the seller from this requirement.

The various exchanges describe the delivery methods in detail if you dig hard enough. I found this particular one at http://www.nymex.com/rule_main.aspx?pg=3....

Yeah, and the fun part of it is that if its a "delivery by invoice" (as opposed to a dump of the **** on your front yard) you get billed for storage on a demurrage basis.

That gets expensive FAST and since the facility has YOUR oil, they have a very nice security interest if you don't pay.

is it true that you can continually roll over futures without ever taking delivery?

if it is perhaps this is why speculation has indeed increased the price of oil.

Mish posted about exactly this today: http://globaleconomicanalysis.blogspot.c....

In Tuesday's Ticker, the last sentence was...

"Why are you tolerating being saddled with The Bill?"

Until people lose their bread and circuses, no one is going to do anything. Karl, you are smart guy and you tell the truth. But you are just one guy. Meanwhile, over the weekend, how many thousands went to their circuses (baseball games, NASCAR, Indy 500, whatever).

Seriously, until those people are wiped out, nothing is going to change. The sad part is I think Ben, Hank, and the rest of the lot KNOW this.

Meanwhile, the weekend Ticker has two great videos from CNBC. Anyone that watched them cannot say CNBC is all crap all the time.

http://hussmanfunds.com/wmc/wmc080527.ht....

Interesting that Hussman shares my views exactly on crude oil. (And Lehman)