Links to latest "nearby" options: STILL DON'T THINK OPEC HAS PRODUCT??? They found the "price of pain" and now are backing off.

http://aol2.marketwatch.com/data/dbcfiles/curcommt.htx?source=blq/aol

Unleaded Gas Futures

http://tradingcharts.naq.com/futures/quotes/1HU

Links to most major heavily traded options: (energy link expanded)

http://tfc-charts.w2d.com/marketquotes/menuframe.php3?sctr=PETROL

-- cpr (buytexas@swbell.net), March 15, 2000

Answers

Good post cpr, thank you.

Dee

-- (Dee360Degree@aol.com), March 15, 2000.

Gas prices are reflecting a need to dump the winter blends. There is a serious shortage of summer blend and concern there is not enough refinery capacity to produce it. These future prices will have little to do with the high gasoline prices expected this summer at the gas pumps.

-- Brooks (brooksbie@hotmail.com), March 15, 2000.

BULL.

And about the lamest excuse for the inverted market so far.

The price of EVERY option : fuel oil, unleaded gas and crude both NY and Brent is high in nearbys than distant.

Apr 00 9580 9630 9305 UP

Aug 00 7750 7820 7700 UC

GOT IT?? Apr. unlead gas: 93.05 VS AUG: 77.00

THAT means you can contract today for delivery in Aug. at 77 CENTS. Vs. 93 today??

CLEAR?? And to "drive" that point home you can buy Dec.00 at: 67 cents. WAKE UP. INVERTED MARKET !!!

http://tradingcharts.naq.com/futures/quotes/1HU

Go and see the prices for the Options in the Summer. The market has been inverted. It is still inverted. All of the petroleum products pricing reflects the current inventory status. Apr 00 9580 9630 9305 UP 9375 14:17 - -304 May 00 8970 8980 8750 UP 8785 14:16 - -240 Jun 00 8500 8500 8350 DN 8360 13:44 - -205

Jul 00 8160 8160 8050 UC 8120 13:07 - -75

Aug 00 7750 7820 7700 UC 7800 13:40 - -45

Sep 00 7400 7470 7385 UC 7470 12:22 - -70

-- cpr (buytexas@swbell.net), March 15, 2000.

CPR,

Please enlighten this unusually ignorant person. What is an "inverted market"?

Thanks in advance,

Frank

-- Someone (ChimingIn@twocents.cam), March 15, 2000.

The next "crisis" is not going to be the "refineries" not able to make unleaded gas. No because if the feed (crude) is there gas will be refined. (See Richardson's statement about only wanting to get the capacity running at 90% instead of..............the current 88% (which statement BTW blows away all the bull about Y2k failures and "cover ups" from the online junkies))

The "NEXT" crisis those same junkies are going to harp on is going to be the "power outages" in Summer Peak. No matter where it happens, any brownouts will be blamed on Y2k just like the rise in Crude.

And just like the rise in Crude, people with facts will reject such ideas. If they had merit the Power plants would be going down on a weekly basis now not some random day in the future (which will coincide with the hottest days of the year).

Like oil.......NO CAUSE AND EFFECT only *NOISE*.

But, it will have **NOTHING**** to do with Y2k. The capacity here is already tight thanks to Texans love of Sub-Meat Locker Temps in homes, office buildings and restaurants (only place in the US where women carry sweaters into Steak Houses in July and August.).

The Studies done by the Industry for Texas showed we would be running thin unless we built by 2003. Now it looks like it will be close but Panda Energy built one plant for Energy resale and Lubbock turned on the Muni last July (announced to Horn's Y2k committee here Aug. 1998).

-- cpr (buytexas@swbell.net), March 15, 2000.

INVERTED? When the distant option is cheaper than the "nearby". Dec. gas and fuel oil is below today's price but if *you* bought today for inventory, you could not sell because of the "carrying charges" (interest loss, storage charges and insurance).

OR in simple terms..Prices today are far higher than you can buy in the future. Even if prices are even month after month (rare), its inverted because of the "carrying Charges".

Common sense tells you the "normal" condition would be you buy X thing today. If everything supply and demand were constant, the price in the future must reflect your cost of storage and insurance and lost interest from investing in something else.

If you used 100 gallons of gas every month, would you pay 93 cents for a 1,200 (year) supply today, if you could pay 77 or 67 (see post above) later in the year?

IF SO,,,,,I believe a friend of mine has a Bridge she can arrange for you to buy linking Brooklyn to Manhattan.

Note that Gold futures rise about 1.20+/= per month. You buy at 290 today and six months from now, sell 297. WHY?? Because the market is not investors (joke, "speculators" is more like it)... but Sources of Product and Users. Supply and Demand.

For gold, there are industrial and the jewelry interests. Since cost of inventory is a major factor and few will(or can) stockpile except in total emergency (wartime, diasters).. most markets will stay "inline" with supply and demand.

It makes no sense for 47th St. to stock up if they can contract to buy for a fraction (the option cost). Same for the Mining Interests who sell.

The Cocoa market was dominated by Hersheys and Nestle's until the rise of MARs and some others. They had to buy in the future for production. The question was "what to pay" to "hedge". In a dry year, prices would rise. Speculators would rejoice. Until.......it rained in Ghana. Then prices would go down the limit every day it rained.

Note also that OIL is not a "crop". There are no "seasons" or Crop Years.

When prices go down the limit, YOU, can't get out. Same on the upside. That was how the Hunts sqeeezed the shorts in Silver to 50/oz. vs. today's 5.15+/-. But when the bubble broke for the Brothers, they couldn't get out either.

-- cpr (buytexas@swbell.net), March 15, 2000.

INVERTED? When the distant option is cheaper than the "nearby". Dec. gas and fuel oil is below today's price but if *you* bought today for inventory, you could not sell because of the "carrying charges" (interest loss, storage charges and insurance).

This baffles me. Whoever is holding a Dec 00 futures contract when Dec 00 rolls around, will receive delivery of and pay for the commodity specified in the contract. There are no storage or insurance charges incurred by holding the contract until it comes due, because the contract holder doesn't yet have possession of the commodity.

If you used 100 gallons of gas every month, would you pay 93 cents for a 1,200 (year) supply today, if you could pay 77 or 67 (see post above) later in the year?

If I need it by April, then holding a contract for May or later delivery does not solve that problem. If I have cash budgeted for future needs, then it may be attractive to buy the currently lower priced contracts for future months. On the other hand, if I was caught unprepared for the recent rise in prices, I might not have the money to buy contracts that were further out.

Expectations of declining energy prices as the year unfolds are not the only possible explanation for the price disparity among futures contracts across the various delivery dates. The disparity might instead or also reflect a lack of available cash to purchase the longer term contracts. The trading volume of the longer term contracts seems to be very small, so I'm not sure how much to read into their price.

Note that Gold futures rise about 1.20+/= per month. You buy at 290 today and six months from now, sell 297. WHY?? Because the market is not investors (joke, "speculators" is more like it)... but Sources of Product and Users. Supply and Demand.

The market for futures contracts is not made up largely of speculators? I don't know what this is based on, but the combination of leverage and amount of assets controlled in a futures contract means that a very small swing in the commodity's price can result in a substantial profit (or loss). Moreover, it doesn't seem reasonable that a futures contract that doesn't deliver for many months will immediately find a buyer who plans to take delivery.

-- David L (bumpkin@dnet.net), March 15, 2000.

Not so fast.

Nat gas rallies to contract highs 3/15/00 - nuke capacity off 57% from same time last year

-- - (x@xxx.com), March 15, 2000.

x, I get a "Document Has Expired" error when clicking on the link you've provided.

-- David L (bumpkin@dnet.net), March 15, 2000.

Here it is:

Wednesday March 15, 4:28 pm Eastern Time

NYMEX Hub gas ends up after late rebound on AGAs

NEW YORK, March 15 (Reuters) - NYMEX Hub natgas futures, pressured early Wednesday by a slumping crude market and a soft cash, staged a late rally and managed to close higher after a supportive weekly inventory report, industry sources said.

April, which dipped early to $2.75, then rallied late to a new contract high of $2.885 on the storage report, closed up 5.7 cents at $2.866 per million British thermal units. May settled 4.7 cents higher at $2.881. Other months ended up 1.8 to 4.4 cents.

``It (the AGA draw) was a little bigger than expected, but it wasn't that supportive. I think they're going to try to take the market higher one more time, but if April can't break $2.90 convincingly, it could be time for a pullback,'' said one Gulf Coast trader, noting another mild forecast for next week.

AGA data released Wednesday afternoon showed U.S. gas stocks fell last week by 31 bcf, above Reuter poll estimates for a 15-25 bcf draw.

Total inventories of 1.126 trillion cubic feet are 333 bcf, or 23 percent, below last year but still above the five-year average.

Eastern stocks were down 16 bcf to 28 percent of capacity, about 21 percent below last year. Consuming region west storage, which fell 13 bcf for the week, was 7.5 percent below year-ago levels. Inventories in the producing region declined two bcf and stood 32 percent below 1999 levels.

If pulls in the remaining three weeks of the withdrawal season match last year's weekly pace of 41 bcf, AGA stocks will slip to about one tcf, a level that should support physical prices during the spring/summer injection cycle.

While most agreed a crumbling crude market, softer physical prices and some follow through technical selling helped pressure prices early, they said concerns about deliverability and low storage coupled with a busy spring nuclear maintenance program were supportive factors for gas longer-term.

According to Reuters survey yesterday of nuclear plant operators, total nuclear generating capacity off line for refueling and/or extended maintenance climbed to 57 percent over the same year-ago period.

WSC expects East Coast temperatures to climb to as much as 15 degrees above normal on Thursday before cooling to two to eight degrees below normal over the weekend. The Midwest will see a similar pattern, warming to 10-16 degrees above seasonal Wednesday, then dipping to four to eight degrees below seasonal Friday and Saturday. Seasonal readings were expected Sunday.

The mercury in Texas will range from normal to six above Wednesday-Thursday to three to eight below Friday-Sunday, while the West will see mostly above seasonal temperatures.

The NWS six- to 10-day forecast released Wednesday still calls for much above normal temperatures in the Northeast and Midwest, with above normal readings expected in most of the Southeast and Texas. Seasonal to below seasonal levels are predicted for the West.

Technical traders pegged April resistance at the new contract high of $2.885, with further selling likely in the low-$2.90s. Psychological resistance was expected at $3.00.

Support in April was seen first at $2.75 and $2.67, with intermediate trendline support in the mid-$2.60s. The 40 day moving average is at $2.63. The fifty-percent retracement point is at $2.53. Better support should emerge at $2.495, which was the Feb 23 low, with further support at $2.44, the low last month.

In the cash Wednesday, Henry Hub swing quotes on average slipped seven cents to $2.76. Midwest pipes were down slightly to the low-$2.70s. In the West, El Paso Permian was two cents lower at about $2.67.

Swing gas on Transco at the New York city gate was down about a nickel to the $3.04-3.09 area, while Chicago was two to three cents lower at about $2.85.

The NYMEX 12-month Henry Hub strip climbed 3.3 cents to a record $2.972. NYMEX said an estimated 64,928 Hub contracts traded today, up sharply from Tuesday's revised tally of 44,419.

NYMEX April crude tumbled 97 cents to close at $30.72 a barrel.

http://biz.yahoo.com/rf/000315/7z.html

-- - (x@xxx.com), March 15, 2000.

What in the world does NATURAL GAS have to do with Crude, Heating Oil and unleaded gas??

All of them except Nat. Gas declined today.

HERE AGAIN.........the Sea of RED in Energy. http://www.mrci.com/ohlc/ohlc-06.htm

Nat. Gas "should" be used more as a fuel (we only have 300 years supply hanging around somewhere).

Nat. Gas does not go through a refinery to become unleaded gasoline. As for the Nukes, many are on scheduled outages overdue since they were kept online 1/1/2000 as a "just in case".

Same for many others.

-- cpr (buytexas@swbell.net), March 15, 2000.

To DAVID,

Its clear that you do not understand that Commodity options are not a play pen for speculators but have an "economic function". GO to the nearest Library and get some books on the role of Commodity Options.

The markets are founded on the principle of "hedging". If you want to bore yourself, trade Barley or Oats. There are very well defined spreads between Corn and Oats which are automatic money if the spreads ever get out of line (they seldom do) but Corn and Oats have a "relationship" (even though they don't date much).... for a simply reason.

Ask any rancher or farmer. Even unusual demand for "Cheerios" as a tribute to the Lone Ranger does not intefere with that.

FACT, you can buy a contract for NOV. Delivery of unleaded gasoline and at tomorrow's opening and "someone" must (repeat, MUST) deliver to you 42,000 gallons of unleaded gasoline at the price you pay for that option. It is called an "option contract" and a contract is a contract.

You will have to go and get it FOB as per the option (NYC docks)and take it home with you but think of how proud you will be.

It closed today at 69.20 .

NOW, ask yourself, why would the price be 69.20 in Nov. if OPEC doesn't want to release oil? After all, they can simply keep buying the Crude or gas long term options until it reaches the price of spot.

Since they have all the money in the world to move the market the fact that long term contracts in Petroleum products from crude are CHEAPER than the current price should tell you something.

What it tells PROS is that there will be product available in the FUTURE OR ELSE THE PRICE IN THE FUTURE WOULD BE FAR HIGHER.

CLEAR?

ITS NOT A "DEBATING ISSUE". ITS MONEY. AND MONEY *TALKS*.

Got the message??

If you buy the contract you will get delivery. The person "selling" the contract MUST deliver something even if he takes a blood bath to do it. NYMEX and the CBOT guarantee such things. 95% of the "Open Interest" never gets to the last day. FIVE PER CENT DO and they must be closed, because they are contracts. As a rule, "speculators NEVER take delivery".

One of the reasons that Fuel Oil (Heating Oil) is such a pill is that few of the thousands of dealers can stockpile nor can the Distributors they buy from for the six months most furnaces are off in the North. That leads to an interesting deal almost every year. You buy long term Heating Oil Options for delivery in Jan or Feb. in June or July and many years the market will simply rise as it follows the spot market. ITS PURE ECONOMICS OF SUPPLY AND DEMAND.

In fact, last year the spot and nearbys were under 40 and that was "too low". Normal high runs 55 to 65 over the last 20 years. Common sense said that "there could be a play there". And there was. Had it been the hottest winter in history or had Opec shipped, there might have been NO PLAY. But those who paid 40-60 cents for contracts were able to get delivery if they did not sell the contract.

There are markets with few or no speculators in them. Most options are closed before expiration but legitimate users and suppliers exercise them.

-- cpr (buytexas@swbell.net), March 15, 2000.

Its clear that you do not understand that Commodity options are not a play pen for speculators but have an "economic function".

My above reply addressed *futures* rather than *options*, and did not suggest that either instrument lacked an economic function. Thanks for clarifying that your earlier reference was meant to be to commodity *option* speculation.

FACT, you can buy a contract for NOV. Delivery of unleaded gasoline and at tomorrow's opening and "someone" must (repeat, MUST) deliver to you 42,000 gallons of unleaded gasoline at the price you pay for that option. It is called an "option contract" and a contract is a contract.

The options to which you provided URLs seem to be for acquiring futures contracts rather than the actual commodity directly. If that is what you refer to here by *option contract*, I see how an option for a Nov futures contract can be used to compel immediate delivery of that futures contract, but not of the actual gasoline.

NOW, ask yourself, why would the price be 69.20 in Nov. if OPEC doesn't want to release oil?

The price of any commodity or security is determined by the collective judgment of its potential buyers and sellers. My point was that if the volume of bids and offers for an option or futures contract is small, then its market price reflects the collective judgment of a relatively few parties and thus may be a weaker indicator than if the contracts were heavily traded.

-- David L (bumpkin@dnet.net), March 15, 2000.

David L (bumpkin@dnet.net), March 15, 2000.

Sorry but your email address says it all.

The options I linked to are Commodity Futures OPTIONS CONTRACTS. If you know what a "Contract" is, you need know no more.

Its clear you do not UNDERSTAND THE FIRST THING ABOUT COMMODITIES AND CONTRACTS EXCEPT FOR ..........CLICHES about buyers and sellers in the market place.

Again, go to a library or a book store and find out EXACTLY what is traded on the NYMEX and CBOT in Commodities. Not "options on futures" but the Option Contracts THEMSELVES. Then when you learn how they came into existence you will know a little more than you do now and not mislead others with misinformation or CLICHES.

A Commodity Futures option contract is an OPTION TO PURCHASE X AMOUNT OF A COMMODITY AT A SET PRICE.

It is not a Put or a Call option which when exercised gets you a piece of paper or shorts a stock.

IF YOU *BUY* a futures option you must pay for it and take delivery unless you sell the futures option.

While option contract markets sometimes show excess speculation the closer you get to the end of the life of the trading of the contract the closer to the spot market you get.

IF YOU DO NOT UNDERSTAND WHY A HIGHER PRICE TODAY and a LOWER PRICE IN THE FUTURE **TELLS YOU** THAT BUYING TO CARRY FOR INVENTORY WHEN NOT NEEDED IS FLAT OUT **STUPID** (not to mention unsound economically), you can't grasp why Today's price plus carry EXCEEDS the price in the future in an Inverted market.

Good luck. If you think "Commodity Trading" is a game for you, I suggest you have a min. of five times what you start "playing the market with" behind your initial trades.

You will need it and more.

-- cpr (buytexas@swbell.net), March 15, 2000.

I think it's great that crude oil prices have moderated in the past few days. However, the rate of increase in gasoline prices during the two weeks prior to this week was a record -- 12 cents in two weeks. With oil inventories now at their lowest level in four years and the spring and summer driving seasons soon upon us, this week's break in prices may only be temporary.

http://abcnews.go.com/sections/business/DailyNews/gasprices000313.html

Link

Pumps Up

Record Speed for Latest Gas Price Hike

The Associated Press

L O S A N G E L E S, March 13  A crude oil crunch sent gasoline prices soaring a record 12 cents per gallon in the past two weeks and they may not dip until summer, an analyst predicted. Prices at the pump continue to soar.

The average retail price of gasoline nationwide, including all grades and taxes, was about $1.59 per gallon on Friday, up 11.99 cents from Feb. 25, according to the Lundberg Survey of 10,000 stations.

The word increase kind of pales, analyst Trilby Lundberg said.

The costliest gas  premium at full-service stations  flirted with the $2-per-gallon benchmark.

Record-Breaking Speed

Consumers could take some comfort that when adjusted for inflation, the average overall price is still lower than the record set two decades ago.

The true high was June 1980, with $2.66 for all grades combined using todays dollars, Lundberg said.

Its more than a dollar lower in real terms. But in terms of speed, this is a true record-breaker, Lundberg added. The rate of increase  6 cents per week per gallon nationwide  has never been seen before.

Prices were higher in the West, where gasoline has been in shorter supply because of refinery problems last year.

San Francisco had the highest price for self-service regular, the most-purchased type of gas, at an average of $1.83 per gallon. That was up 21 cents in two weeks.

Cheyenne, Wyo., had the bottom price, at about $1.39 per gallon.

The high price of crude oil and short supply are driving all increases.

Oil Inventories Depleted

The International Energy Agency reported last week that the United States and the worlds other richest countries have depleted their oil inventories to the lowest levels in four years.

The IEAs David Knapp said there is a shortfall in global petroleum supplies of about 2.5 million barrels per day.

The Organization of Petroleum Exporting Countries is worried about the recent price volatility, and analysts now expect the group to ease some of the production cuts that it made in 1998 and 1999.

However, Lundberg warned, dont look for an immediate dip in gas prices, because demand will be rising due to warmer weather and the start of the spring driving season.

Even if the outcome of the March 27 OPEC meeting brings more oil supplies to the market, U.S. gasoline prices may hover around current levels or rise in the next few weeks, she said.

Prices at self-service stations averaged $1.5450 for regular unleaded gasoline, $1.6385 for mid-grade and $1.7234 for premium. Full-service prices were $1.8211 for regular, $1.9064 for mid-grade and $1.9835 for premium.

Copyright 2000 The Associated Press. All rights reserved.

-- (in@the.news), March 16, 2000.

They found the "price of pain" and now are backing off.

What did you mean by that, CPR? That high prices have reduced demand, and that's the reason why prices are now dropping?

-- It may not be Y2k but it can still (burst@the.bubble), March 16, 2000.

The options I linked to are Commodity Futures OPTIONS CONTRACTS. If you know what a "Contract" is, you need know no more.

The URL that you labeled as "Links to most major heavily traded options: (energy link expanded)" is http://tfc-charts.w2d.com/marketquotes/menuframe.php3?sctr=PETROL

I reached that URL and then clicked on "Unleaded Gas NYH" which brought up a page labeled "Commodity Futures Price Quotes For NYMEX NYH Unleaded Gasoline." At the right of that page is a column labeled "Options" with links labeled "Call" or "Put." Clicking on one of those links takes you to a chart of options on futures contracts.

If you would take care to provide links to the same kind of instrument that you intend to address, that would make it easier for the reader to decipher what you're trying to say.

Its clear you do not UNDERSTAND THE FIRST THING ABOUT COMMODITIES AND CONTRACTS EXCEPT FOR ..........CLICHES about buyers and sellers in the market place.

I wasn't aware that my observation was a cliche. Please tell us where the precise idea I expressed has been expressed previously.

Then when you learn how they came into existence you will know a little more than you do now and not mislead others with misinformation or CLICHES.

How did I mislead? I thought my replies were the epitome of clarity, in comparison to your own.

Good luck. If you think "Commodity Trading" is a game for you, I suggest you have a min. of five times what you start "playing the market with" behind your initial trades.

No argument there. 8^)

-- David L (bumpkin@dnet.net), March 16, 2000.

cpr,

Your title reads"

"Unleaded Gas Options in Free Fall, rest of Energy Sector down"

Natural gas is listed under "Energy". Do you really trade commodities for your own account?

-- - (x@xxx.com), March 16, 2000.

cpr,

Your title reads"

"Unleaded Gas Options in Free Fall, rest of Energy Sector down."

Natural gas is listed under "Energy". Do you really trade commodities for your own account?

-- - (x@xxx.com), March 16, 2000.

x:

This is a semantic issue, right? A sector can be down even if not every element of that sector is down. The market can be down even though a handful of issues reached new highs. You seem to be critical of summary statements, unless of course they suit your purpose.

-- Flint (flintc@mindspring.com), March 16, 2000.

David,

cpr used to trade oil, but he doesn't even know the difference in terminology between a FUTURES contract, and an OPTION to acquire a futures contract. That is hilarious. What a professional.


Flint, why are you supporting the supposed professional, cpr, when he doesn't even know the difference in terminology between a futures contract and an option to acquire a futures contract? I would be reluctant to support any part of someone's position when there is obviously a huge deficiency in that person's grasp of the overall situation.

-- J (Y2J@home.comm), March 16, 2000.

J,

Just for the record, I know CPR, and I assure you that he knows how futures work. OK? He could buy and sell you out of spare change. [g] In fact, he knows enough about Da Bidness that it's hard for him to explain things in layman's terms (as he tried to do here).

But now: please read this part carefully.

If you want to know one reason why so many TB2000 regulars got egg smeared on their faces come the first week of January, this is just one PERFECT example why. You nitpick the precise wording of an argument (with the interspersed ad hominem attacks, of course), then pat yourselves on the backs and say, "there! We dispensed with that one! Hah!"

... all the while ignoring the key point(s) of the argument in question.

When, in time, you are proven to be wrong, you thus have only yourself to blame.

In the case of Y2K, the answers were there. People like CPR and others tried to share these answers with the regulars at TB2000, only to be dry-roasted and chewed up on a regular basis.

Likewise with the current imagined awl crisis. CPR's basic argument, regardless of how you want to nitpick his precise wording to feed your ego, is as conclusive as the day is long. It is a FACT: futures for oil are INVERTED.

Repeat: prices for distant futures are LOWER than nearbys. Draw the appropriate conclusion.

In a practical sense, prices at the pump will continue to rise for a while; but then they'll fall (and actually, to be blunt -- speaking from a pure business viewpoint -- they SHOULDN'T; the United States have been paying artificially low prices for fuel for years).

By next year at this time, it'll all be a memory. There is no oil crisis, period. And -- even *MORE* important! -- EVEN IF THERE WAS, IT WOULD NOT HAVE BEEN CAUSED BY Y2K BUGS.

(You may tell RC and Carl Jenkins this when you get time.)

-- Me (me@thisplace.net), March 17, 2000.

Me,
Based on your reply, I have to wonder whether you had read through this entire thread. I labored to try to help CPR clarify his statements, and in return I endured a flurry of ad hominem attacks, including that I should go to a library, that I know nothing about commodity markets, that I was misleading, that I'm capable only of citing cliches, and that I'm an ignoramous. Despite my restrained inquiries, he absolutely insisted that he had provided a URL to options that allow the holder to take immediate delivery of the commodity, and in exasperation I finally explained in detail how following his URL led to options on futures.

I don't know CPR, and I have expressed no judgments about his knowledge of commodities or of any other area. But his attempts to bully me were unbelievable, and if he had persisted through just one more reply, I was ready to take a razor blade to his statements and he would have deserved it.

-- David L (bumpkin@dnet.net), March 17, 2000.

David L:

CPR has always come across as excitable, intolerant, inarticulate, and incoherent. Often enough, the only thing clear about his posts is that he's insulting you. Reading his posts reminds me of reading some of the Taiwanese data sheets on new parts -- if you already know exactly how the part works, you can sometimes figure out what they were trying to say. If you don't know how it works, you're better off with trial and error.

Nonetheless, regardless of how many bad things you say about CPR or how justified they may be, the oil market is really inverted. Most energy costs really are dropping, and show every sign of continuing a downward trend (at least that's what people are putting their money on, and lose big if they're wrong).

Beyond that, I *think* CPR is trying to say that if costs will drop later, therefore the current rise can't be due to y2k bugs. I fail to follow this logic. After all, IF current rises are due to y2k-related breakdowns, you'd see the same futures as people expected such breakdowns to be repaired later.

I think a direct case is both clearer and stronger. Breakdowns are NOT a major contributing factor to price rises, and no breakdowns have been associated with a single y2k bug.

[Usual footnote: this isn't to say there are no breakdowns. There are some. These breakdowns, if not fixed quickly, will lengthen the delay between greater oil availability and lower prices. In that respect, they are important. But they are neither the cause of reduced availability (which is political), nor are they themselves y2k related.]

-- Flint (flintc@mindspring.com), March 18, 2000.

Flint,

Time to end this as in Regis' "final answer".

As was pointed above, the extraction of a few words or debating the meaning of what is posted lead to the Y2k public confusion and the distortion of reality that continues to today. For the TWIT above named "David" at bumpkin (correct handle that), if you don't like my "style" TOUGH. I don't like assholes so if the shoe fits, wear it.

FUTURES CONTRACTS ARE CALLED OPTIONS by people in the trade and have been for 100 years. PUTS AND CALLS ON COMMODITY FUTURES CONTRACTS are akin OPTIONS ON OPTIONS (and IM.NEVER.HO......gambling). NEITHER have any direct effect upon the market themselves. RATHER.....they reflect the Supply /Demand situation for the underlying commodity upon which they are based (unless manipulated illegally as was the case in Silver by the Hunts).

An *inverted market* reflects a supply/demand imbalance in the nearby contracts. When carrying charges are added to delivered price and that price exceeds the CONTRACT PRICE in the FUTURE, you will loose if you deliver. Unless you are seriously into Financial S.& M. (as in born loser), NO BODY delivers to a loss.

In other words, an INVERTED COMMODITIES FUTURES PRICING STRUCTURE TELLS YOU THAT THE PRICE MAY (EVEN WILL) BE LOWER IN THE FUTURE.

YOUR......"opinion" about buyers and sellers making markets in Commodities doesn't matter. The Trade Forces owning and needed the commodity rule the market.

IN OIL........the "Trade Forces" are in a CARTEL. It is a monopoly called OPEC. PERIOD. When the Monopoly breaks or decides to release product, the prices come down. You are witness to them having raised prices since LAST MARCH.

You are entitled to your opinion of me and my style. I could care less but.......DON"T EVER.....put words in my mouth or extrapolate on them after that.

And the very last thing I plan to do with the rest of my life is change because some "newbies" on the Net demand I "debate" according to THEIR RULES. Not gonna happen. It was that "demand" that lead to the "legitimization" of stances from the Y2k Doom Jockies since 1997. Even giving such types a Podium elevates them to legitimacy. Allowing them to "debate" is de-facto "equal status" and they are hardly the equal of the truly legitimate people in Y2k Technical matters such as Jay at Texaco who called the Oil Y2k Speculations, "bull shit" and signed it with his Texaco email address. He is correct and giving such "voices" a mike equates to giving the Street Prophet with Sandwich Board Signs and a shopping cart filled with his worldly goods a status far above what they have **EARNED**.

Similarly, giving "newbies" "tolerance and forebearing" becaus they have a vote and $19.95/month (+/-) allows their questionable views to be heard and spread by others even less equipped. THAT was the Y2k problem in the public arena and in Y2k the price of tolerance of all views in "banking" alone exceeded $100 million for "damage control".

For over 3 years, I have demanded that people examine not only the statements about Y2k but also the motives and background of those making such statements. In many cases, the Messenger WAS the Message.

The Selective memory used trying to place Gary North and Ed Yourdon in the same category as de Jager, Urlich or the real forces of Y2k Remediation (IBM, UNISYS,Cap Gemini, Arthur Anderson and many more) is absurd. Yourdon's book appeared in Winter, 1998 and by Summer, his fans and Gary's were castigating de Jager as a "traitor".

You nor anyone else are not entitled to put words in my mouth or nitpick words out of context........ and then derive another Flint essay on your interpretations of what I say:

QUOTE:

Beyond that, I *think* CPR is trying to say that if costs will drop later, therefore the current rise can't be due to y2k bugs. I fail to follow this logic. After all, IF current rises are due to y2k-related breakdowns, you'd see the same futures as people expected such breakdowns to be repaired later.

I think a direct case is both clearer and stronger. Breakdowns are NOT a major contributing factor to price rises, and no breakdowns have been associated with a single y2k bug.

xxxxxxxxxxx

Any of the instant Petroleum Experts who wish to ignore the technical status of the commodity charts in Energy will get a rude surprise when their Margin Call comes. Play with margin and you play with fire. The following link goes to charts which have current analysis of almost every traded commodity. http://tfc-charts.w2d.com/marketquotes/menuframe.php3?sect=&exch=

Those who can't read that might read this:

xxxxxxxxxxxxxxxxxxxxxxxxxxx Further fuelling bearish sentiment, OPEC sources indicated that leading produces favor any extra oil coming in addition to current output leakage above the group's self-imposed ceiling.

According to a monthly OPEC report released Friday, the 10 cartel members signed up for output curbs produced 24.138 million barrels per day (bpd) in February, or 1.162 million bpd above the official quota set last March. As negotiations intensify ahead of March 27's OPEC meeting Venezuelan Energy and Mines Minister Ali Rodriguez will tour five OPEC member countries in coming days to work for a consensus on the next move.

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

THAT....is OPEC!!!

OPEC doesn't care about coffee shop, diner or Bar Room BS passed off as fact on Net forums.

I *never* ever said that there were *no problems* in any industry from Y2k. I do claim that we have failed to see the Calamities predicted on TB I and in TB2000 1st and 2nd Ed. of Ed. Those who wish to think Y2k caused this or that......are more than welcome to also believe the Cow jumps over the Moon because said Moon is made of Green Cheese (samples of Moon Dust to the contrary.)

****** ......FACT: Richardson asked OPEC to increase supplies so that REFINERIES CURRENTLY WORKING AT **** 88% *** could then work at *** 90% ***.

TRANSLATION FOR THE DIMMER BULBS:........FACT......there is **UNUSED CAPACITY AT OIL REFINERIES THAT NEEDS FEED STOCK IN THE FORM OF CRUDE**. That sort of puts the lie to the gossip about the Y2k caused Crisis doesn't it?

WHAT PART ARE THE DOOMERS INCAPABLE OF UNDERSTANDING?

IF THERE IS CAPACITY..........WHAT DID ***Y2k** EFFECT? EXCESS CAPACITY??

GIVE ME A BREAK. AGAIN.......the PRICE OF OIL REFLECTS A **SUPPLY SHORTAGE** and ...........the INVERTED MARKET IS PROOF THAT PRICES WILL BE LOWER IN THE FUTURE.

Anyone incapable of understanding that needs a "Remediation Course in Commodity Trading for Beginners" and should not be commenting on extraneous data supplied them by USA-Today or some Net Forum.

And it should be noted that Heating Oil is coming down so hard now that the fuel market is beginning to "right" itself. (That also reflects the pure "seasonality" of the Heating Oil market whose spot market rises when it gets.............COLD.)

FACT: I have yet to see verified reports that "refineries" were shut down due to any Y2k related problems. In addition, why have there not been shortages across the board of products from Chemical Production which uses many of the same devices in embedded systems that the Oil Refineries do, as predicted before 2000?? Why have there not been shortages and plant outages in ANY MANUFACTURING FACILITIES as predicted before 2000 ??

We now have the statements of THREE MAJOR PRODUCERS saying that oil prices will range from $16-21 (Venezuela) to the Saudis on the high end at: 21-25. (REUTERS, 3/17/2000, full article at: http://206.28.81.29/HyperNews/get/gn/2202.html ).

I claim the INVERTED market of spot over long term Futures Contracts (which are called options by long term players who call the puts and calls on said CONTRACTS: options on options (and I call gambling))...Said INVERTED MARKET IS PROOF OF THE NEAR BY SUPPLY SHORTAGE CAUSED......NOT BY Y2k.......but by OPEC (with the aid of the Oil Majors who were more than happy to see OIL come off the depressed pricing of 1998 to 1999) In addition, I charge anyone buying into the "Y2k Caused the price rise" gambit as either ignorant of the facts of OPEC and OIL OR...........a "charletan". In addition to that, those who got caught using the price rise as "proof" and then .........changing the argument to "I was right" such as the Lame Argument of "RC" Combes is engaged in Deceptive Propaganda or pre- mature senility.

The "oil price rise" argument falls into the same set of "thoughts" as the "speculations" and conjectures of Gareee' and the Gang pre- 2000.

NOW........after the fact of 1/1/2000 and even 2/29/2000, some would have people believe that OIL is Divinely Chosen as the "demo" for "Y2k Was a Bigga Problemmo" **TO THE EXCLUSION OF ALL THEIR OTHER PREDICTIONS** which they would have all simply ignore or for the truly disturbed, claim, "its still coming, any day now, you wait and see...you'll be so sorry....etc."

To claim that OIL *was subjected to Y2k problems* and the price rise in crude and crude products (heating oil and gasoline/diesel fuel) was the "result" of Y2k problems but that Chemical and ANY manufactured products were "unaffected" requires mental gymnastic absent logic.

Worse, it falls into the category of the "tree falling in the Forest in the Smokies while the Bear defecates near Yellowstone causing the Earthquake in Jakarta". (That is the typical logic of such people as Jim Lord, McElvaney, Beach Ball Brucies of the Sunken Buses and Garee, Lord of the Dark taught to one Paula Gordon ((who can't defend herself due to lack of technical expertise)) ).

SIDEBAR: I DON"T CARE FOR THE ATTACKS ON GORDON which got pretty VILE. While I can't stand to see Liberal Arts or "Management Science" or "Organizational Mgt." people debate technical issues without the least bit of credentials....PAULA GORDON represents only one of many truly BRAIN WASHED by ILL MEANING PEOPLE. If a Ph. D. outside Technology can't differentiate valid Expertise, calling her Vile names won't do. (Well Dressed Bag Lady is far kinder.)END SIDEBAR.

...........

FACT: Crude Oil doubled during 1999 to Nov.'s range of 23-24.50 NY. In the curious "selective reasoning" and double standards of the Doom Zombie Leaders that "had to be Y2k". But, they never offer proof.

*Claiming there "could have been" Y2k problems and they were covered up, then citing the SUPPLY SHORTAGE PRICE RISE, is a DELIBERATE LIE UPON THE Y2k CALAMITY THEORISTS **HUNG*** for an "EXCUSE".

All that time we did not hear of Y2k problems in refineries. Was this an "oversight" upon the part of the leading "prognosticators"?? Or is citing the price rise as "proof of Y2k" merely the same crap as the rest of the silly arguments de-bunked for the last 3 years??

FACT: OPEC set out to limit supply and the shortfall of supply vs. increasing demand caused by the recovering economies of the Pac Rim and Japan dried up inventories to the point where they are below that of one year ago.

FACT: The continued rise in Spot and Futures this year continued the long time INVERTED MARKET and price rises this year which substantiates my claim that it is the OPEC created **SUPPLY SHORTAGE** that is causing the price rises. This is not a circular argument. By cutting back supplies in 1999, OPEC forced the use of inventory purchased at a lower price. When that inventory fell to a level that a user might deem "must have emergency supply" that user HAD TO BUY SPOT CRUDE or refined product.

FACT: As an example of the above, the situtation in Heating Oil was a localized (mostly New England) phenomena. There..(unlike the farm states where farmers do inventory),consumers play a game with dealers. That game is simple. Have small amounts in your storage tanks most of the year and then "buy as needed". Dealers play the same game with larger Distributors. It should be noted that the N.E. situation was not duplicated on Long Island where Northville and several other large disties had inventory and marked it up. In the New England situtation, the Disties themselves (including Joe Kennedy's Co-Op) were caught with limited supplies. Consumers were used to short term deliveries, Dealers could merely increase inventory at Distributors and thus avoid costly inventory (which many can't increase due to lack of proper capitalization ((its an industry of many small dealers)) ). As supplies dried up, the ever increasing price of spot create a situtation with lead to some "profiteering" by those holding inventory. THAT is now over. It is over because it was a mild winter and consumers can tell dealers to hold off filling their tanks.

Fact: the Head of Texaco's Y2k project called the speculations of RC and others on TB I and II "BS" as related on every Y2k List serve Kappelman is on. Since Jay Abshier, Texaco was also the person TB I loved to quote as "an expert says" after he was their Golden Boy from the WIRED article on Y2k, ignoring what he says is just another great example of the Doom Zombie "DOUBLE STANDARD IN SELECTING FACTS" (AKA: PROPAGANDA FOR DOOMERISM/SURVIVALISM/SELF RELIANCE for which everyone of course,,,,,,,,,needs to be "prepped".

CPR xxxxxxxx

-- cpr (buytexas@swbell.net), March 18, 2000.

CPR:

I (and evidently others) find your writing style incoherent. This is NOT to be construed as a suggestion that you change it at my request. You are of course free to be as proud of it as you like.

But if we can't understand what you're trying to say, we can either ignore you, or we can make a good faith best estimate of your meaning. I doubt you put in the obvious effort you do to be ignored, yet you seem resentful of efforts to disentangle your prose into something cogent. Failure to communicate is generally considered a weakness in a writing style.

As I said earlier, you clearly have great knowledge and expertise, just like the Taiwanese tech writers. But if your readers require equivalent knowledge for your efforts to be intelligible, most of them end up confused for lack of that knowledge. It may be satisfying to blame them, but communication has still failed.

-- Flint (flintc@mindspring.com), March 18, 2000.

We just went through years of allowing the LCD to lower the standards by demanding that we debate on their level. That and your argument that I follow your "splendid" example lead to the LCD dominating the public bandwidth far beyond their numbers and even to the spurious Doomer vs. Polly mantra instead of the reality of 99% Non-Doomers vs. the few Doomers.

Your inability to follow what I write or what is written by someone in Taiwan is hardly the fault of myself or the Oriental author.

I have found that if you truly know the subject,...... you can wade through even the worst text.

This, of course suggests a deficit in your comprehension skills not my communication skills.

A person's inability to read a 3rd semester Calc. book is not the fault of Newton or Liebnitz but scaling down to the triviality of Y2k level exposes the fallacy in your "logic" patterns.

In addition, I see no reason why I should cater nor pander to the LCD as Yourdon or North simply to make it easy reading for you or "the folks". Such efforts rather gave us the Dr. DooDoos and Markies who mislead Paula Gordon and many others. It seems you find that catering to the LCD was a "good thing".

Even your reference to the Taiwan spec. sheet if flawed. I just put together a P III with a "manual" written in China with flawed English.

You are now reading some output. So, unlike others, I, for one, do not "feel your pain".

I don't cater to the dumbing down foistered upon graduates of AOL or those who truly think Yourdon's TB2000 was a technical explanation of the Y2k problem.

I leave that to you but I consider it "slumming". It is the responsibility of the LCD to rise to a far higher standard or get out of the way and/or shut the F........ UP.

If you enjoy such things, it might be a good career for you to consider and you can use your attempts to convert the brainwashed for the last year on your resume'.

You could become a "Sagan" for the Doom Zombie Sects or at a more elemental level, the "Beakman" for them.

Ready at every moment to lead them from their ill chosen path. But beware, EY thought he could traipse around with such types, take their money..... and he still be "doin' it, Mon".

You might even be able to expand the market. Barney and Sesame Street could add computers to their shows. That would enable the sub-10 year olds to see through the Doom Sayers crud as easily as their older siblings could.

-- cpr (buytexas@swbell.net), March 18, 2000.

Are you kidding me? Do you sincerely believe that a position *must* be dumbed down to be clearly presented? Absurd. Clarity and simple mindedness are opponents, not partners.

I agree with nearly every point you make, as well as I understand it. I *try* to make what you say fit what I'd like to hear. When an audience that shares your viewpoint *still* can't make sense of what you say, blaming it all on the audience is either dumb or it's lazy.

If you think good writing is a myth, for whatever reason, I cannot help you (nor even suggest help is needed). But we've all seen what happens to those unwilling to listen.

-- Flint (flintc@mindspring.com), March 18, 2000.

OK cpr, let's see if I get it. You submit a technical post on commodities to a forum that is not dedicated to the subject of commodities, and expect the vast majority of that forum's readers to understand terminology that only those who had seriously studied that subject are likely to know. But you don't see that as a problem, because only fellow *experts* would be worth talking to in any case. Any lay person who dares question, no matter how politely or cogently, is venturing into forbidden territory and thus warrants (in your humble opinion) the plethora of abuse you dish out.

You could very easily have clarified that your posts use the terms options and futures interchangably as is customary in the trade, but that would have been dumbing down, speaking to the lowest common denominator, and we can't have that. To impart understanding to the masses is much too dangerous. It's much better if they're confused, as their state of awed incomprehension is far more likely to produce a meek acceptance of your views.

Now how would you feel if I had submitted a technical post on the subject of Twitology (in which you have acknowledged my expertise), and got all over you for not fully comprehending the terminology of that domain. You'd probably react along the lines of "cripes, that bumpkin dude is even more of a twit than I thought." No, I take that back. You wouldn't care because nothing I write could possibly be worth reading.

I hope despite your having expressed a desire to stop replying to this thread, that you will continue. Your manner disturbed me while I was earnestly trying to communicate with you, but having finally discovered the pointlessness of that exercise, I am now profoundly amused by your ravings of contempt.

-- David L (bumpkin@dnet.net), March 18, 2000.

<Warning to cpr: Reply to Flint from that bumpkin TWIT.>

Flint,
It might not have been apparent from all the noise on this thread, but I never disputed that the oil market is inverted. I was asking (or intended to ask) to what extent the price of a far-off futures contract tends to accurately predict the commodity's price at the expiration of that contract. I have no idea what the answer is, because I haven't followed commodities. (Perhaps one of the chartmeisters on this forum can find some historical data, such as the prices for a Dec 99 contract between March 99 and Dec 99. I just gave this one example for clarification.)

-- David L (bumpkin@dnet.net), March 18, 2000.

David L:

At the serious risk of picking nits here -- if I understand CPR correctly, these options are contracts. So it's not a matter of "predicting" the price per se, but rather a matter of meeting contract obligations, even in the face of large potential losses. If you agree to deliver at a given price at a given time, then you deliver at that price at that time *whatever* the spot price at that time may be.

So I think you're asking how close these contracted prices typically come to the spot price at delivery time. And while I doubt those entering into futures contracts can see into the future very clearly either, these prices seem interrelated somewhat, since oil was in fact delivered at the contracted price. Your question is interesting. I wonder what the typical range of profit or loss tends to be on contracts 9 months out.

-- Flint (flintc@mindspring.com), March 18, 2000.

Flint,

Most of the futures contracts in play are never actually consummated. They are closed prior to expiration so that the owner has neither to deliver product nor take delivery of product, depending on whether he is short or long the contract.

As far as the inverted oil market goes, to say that an inverted market in oil ALWAYS means that oil is going lower in price is just plain wrong. I would venture that it DOES mean that oil is going lower MOST of the time. I would even venture that every instance of a past inverted oil market might have led to lower oil prices afterwards. But to extrapolate this to guaranteeing lower oil is faulty reasoning akin to the LTCM experts watching their sophisticated "arbitrage" strategy blow up in their faces as something that had never before happened(and therefore, couldn't), happened. This is the type of thinking that can occur when experts start to believe that they know so much that they can't make mistakes.

Now as far as cpr using "insider" terminology, and then berating the rest of us little folk as being unworthy of receiving an explanation from his emminence, that is because cpr is a POMPOUS ASS.

My earlier question now changes from, "why are you supporting the position of someone who doesn't know the difference between a futures contract and an option on a futures contract", to, "why were you supporting the position of a POMPOUS ASS". : )

-- J (Y2J@home.comm), March 19, 2000.

J,

... because in this case, that "POMPOUS ASS" happens to be dead on the money.

If it rains 95% of the time that a certain type of cold front passes through, isn't it safe to say that it's going to rain when you see such a cold front?

By your own admission, an inverted futures market on oil is even MORE accurate at predicting lower prices in the future. So why the hedging?

CPR's best point is that Y2K bugs did *NOT* cause high prices at the gas pump (as I also said). Since this is a Y2K-related forum and since there are people here who STILL regularly make that very claim, it was a point that needed to be made, too.

CPR made it. You may not like the WAY he made it; I'll grant that in a heartbeat. But make it he did. :)

-- Me (me@thisplace.net), March 19, 2000.

It seems even Flint does not understand the *function* of a futures contract. Until you get to expiration the striking price of a contract will vary from spot. 95% of all trades in commodities are done at a loss and 90% of the traders lose. 10% make money on the 5%.

The reason is simple. The commodity doesn't care what people "think" about the value. It is not a stock where values are based on "valuations" from "evaluations" by emotional humans. Users and producers of a commodity pay spot and/or HEDGE with Futures. Speculators *might* drive a price temporarily insane (non rational) in commodity market but the day of reckoning for all of them comes near the last day of trading when they must *put up or get out*. Few can or will. The Hunts learned that the hard way by watching a billion dollars evaporate when they could not "put up".

That function of "hedging" the market to *offset risk* by exposure to unusual price movements. Most markets seldom "go any place". In commodities, you look for that 1 out of 10 year plays.

For speculators in crops, you are literally "betting" on the weather. In mining, you may be betting on Union politics.

Users and producers CAN'T "GAMBLE" but they can Lay off the risks. That was the historical function of Futures.

The addition of puts and calls was to supplement even the "hedging function". As the "tip of the whip" on greater margin, it is pure gambling. There is a way to win known as the "normal pyramid". Jerry Gold explained it 30 years ago. Most speculators try to parlay gains in what is known as the inverted or upside down pyramid by using gains to buy more. They mostly go bankrupt fast.

In Oil, you are betting on Politics, religion and even war. If there is a war limiting production, obviously ending the War suddenly changes the picture. Dealing with Saddam by compromising does the same. Ask Iran.

Contracts in commodities for users and producers are used as "insurance" known as "Hedging". It is as simple as "hedging your bet".

Hedging by options is to remove uncertainties that could effect production and sales. EVERY user of commodities on a major scale must do this to "limit risk". From Millers to miners to industrial users of gold (electronics).

Why would "Sellers" of the commoidity sell for fixed prices? To lock in sales and allocate resources. Farmers allocate fields and crops based on spot market. It was trivial to predict that Wheat would crash the year after it rose to the moon in the 1990s. Farmers used their fields to plant wheat instead of beans, rye, corn or oats. Last I looked wheat was down to $2.55 or so which is why you are seeing sales on bread.

The price paid for the contract on any given day will vary but the price of the purchased contract price is the *striking* price for the commodity *IFF* the contract is exercised. Thus, it serves as an option.

HOW?

The following is a greatly simplified picture. In reality, a huge users dominating a market will not only go long a commodity but "play" the market. It may have inventory it is trying to dollar average out of or some other sophisticated effort. OIL is a suckers game for most "speculators" because you are at the total mercy of not only OPEC but the huge treasuries of the Oil Rich nations who have people who do nothing but buy and sell Futures. As each contract is expiring (Tues. is midnight for them again).....the Traders for those countries are "balancing out". This month you have the all important "meeting" on the 27th. The May and June futures after April is done will give you a forecast in the days before.

Unlike the US "traders", the off shore traders are not in the least bothered by any silly things like SEC or Market "rules" like..... "not trading on inside info". They are the Inside and they act in their own interests through 100s of fronts. Enough about Oil.

COCOA:

Nestle's buys 10,000 Cocoa options in March for Sept. delivery. They pay XX.00. Their ERP/MRP people plan product and sales based on XX.00. Plantations in Ghana sell at that price because they lock in their crop (and also make their Bankers happy because their collateral (the crop) has a locked in re-sale).

Meanwhile, draught continues in Ghana. Price rises in spot to XX.00 Plus ZZ.

Nestle is now protected because it will exercise at XX.00.

The Farmer(plantation) passes on the spot market and ships to the option OR if he was going "naked" by covering the contract position to bet on the spot is replaced by someone WHO MUST DELIVER. That is why the "Open Interest" tells much. Towards the end of the trading life, the contract will approach spot (plus/minus fees).

Reverse happens. RAINS like hell in Ghana, crop is all time biggest every. Price goes down to XX.00 - YY.

Nestle buys in spot and eats the loss of the future. Reason? They based their production on the XX price **no matter what**. It was not worth it to them to gamble.

They are not going to gamble because over a long period of time, prices will rise and fall.

HOWEVER, there is a second season to consider after the "Draught". Nestle now knows the trees are in danger. They buy Contracts for delivery at THE HIGHER PRICE. WHY??

Nestle (like the Oil Companies) knows that if the draught continues the crop could be smaller next time. The trees could die. It could be a 2-3 year thin crop. (For oil, war replaces the "dry years" in Cocoa).

NESTLE and the rest of the Candy Makers look at the picture. And a very well known thing happens the 2nd or 3rd year.

Chocolate Bars and other products get REAL THIN. They also get fat in the 2nd and 3rd etc. years of great crops.

-- cpr (buytexas@swbell.net), March 19, 2000.

cpr, you wrote: It seems even Flint does not understand the *function* of a futures contract.

Nowhere did Flint or I suggest that options contracts were written for any reason other than hedging. The reason for my question about option contracts being a fair indicator of future commodity prices (and the reason Flint thought this question interesting), was that you seemed to be saying that it was virtually a certainty that prices would drop:

GIVE ME A BREAK. AGAIN.......the PRICE OF OIL REFLECTS A **SUPPLY SHORTAGE** and ...........the INVERTED MARKET IS PROOF THAT PRICES WILL BE LOWER IN THE FUTURE.

However, your last response amplifies on this:

That function of "hedging" the market to *offset risk* by exposure to unusual price movements. Most markets seldom "go any place". In commodities, you look for that 1 out of 10 year plays.

So your experience seems to be that roughly 90% of the time (acknowledging that this was probably intended as a ballpark figure), the price that an options contract initially sells for, will approximate the actual commodity's price at expiration date. In other words, based on the price characteristics of commodities in past years, the current inverted market in oil is a very strong indicator that prices will drop substantially as the year unfolds.

Your response has addressed my question. Thanks.

-- David L (bumpkin@dnet.net), March 19, 2000.

-NO. BUMPKIN

It does not mean what you think it means.

Again, because you lack understanding of what is goes on in Futures you draw invalid conclusions.

Hate to break your bubble but a market can stay inverted as the spot prices double over time. So, oil could go to $60/bbl. spot in six months at which point Oct. futures would rise to $60 and at the same time Feb. 2001 could very well be under $30.

A bit of thinking would enable even those with sub-room temp. IQs to envision such a scenario.

However, it is still fact that if you purchase a futures contract for delivery of Crude next Oct. you can do so and get delivery then for less than the current spot price of Crude. The delivered price will be what you enter the contract for plus brokerage and handling fees.

Try again. There is no fast snappy answer to this. You have to learn what Commodity Futures trading involves and not guess at what YOU THINK someone is writing based on your extracting snippets.

That was the Y2k error for many and it would seem some people never learn.

-- cpr (buytexas@swbell.net), March 19, 2000.

It does not mean what you think it means.

What is this, Alice's Adventures in Wonderland? Never mind. I have attempted to digest this thread yet again, to try to discern the essense of your thesis.

I believe that thesis to be the following: the inverted market indicates the confidence of oil producers in both their own and the world's technological ability to produce sufficient quantities of oil to justify a price in future that's much lower than today's spot price. (Granted, they could close out their positions by buying options of the same series as they sold, but this contingency doesn't mean they would have settled for an unreasonably low price on the options they originally sold.)

How spot price or option prices change over the remainder of the year is irrelevant to the above argument. The key is that based on the market being inverted, one may infer that rises in price would be the result of war, acts of governments, or other non-technological (read, non-Y2K) factors.

If that isn't what you were trying to get across, then hey, I took my best shot. I don't plan to take another.

-- David L (bumpkin@dnet.net), March 19, 2000.

Oil prices in August 2000 are at a ten year high.

http://greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id=003deR

-- The future is not what it (used@to.be), August 18, 2000.