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The price of petrol.


red750
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I've noticed a $30 per tank difference between the recent high prices and the lows of a few months ago. Imagine if the prices were controlled and what $30 more spending money per household would do for the economy. It would filter through to small business a lot more than just giving it away on fuel.

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Crude oil price has gone up (and may continue to).   Russia and the ME love it. Dog only know what peak it will hit.  Angus Taylor bought 85 million dollars worth of crude for us in the USA when THEY were short on storage (and it was going cheap, so rest assured we will be alright  with Angus involved.. Just WONDER WHERE it's stored and when WE will get it?  Maybe they are interested in a Cheap Harbour Bridge?  Nev

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51 minutes ago, red750 said:

                      If only......

 

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Yeah, but your car only got like 3 miles to the gallon.

 

2 hours ago, facthunter said:

Crude oil price has gone up (and may continue to).   Russia and the ME love it. Dog only know what peak it will hit.  Angus Taylor bought 85 million dollars worth of crude for us in the USA when THEY were short on storage (and it was going cheap, so rest assured we will be alright  with Angus involved.. Just WONDER WHERE it's stored and when WE will get it?  Maybe they are interested in a Cheap Harbour Bridge?  Nev

 

Still in the US I think.  Yes, Angus Taylor, minister for "Industry, Energy and Emissions reduction".  In that order.

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2 hours ago, facthunter said:

Crude oil price has gone up (and may continue to).   Russia and the ME love it. Dog only know what peak it will hit.  Angus Taylor bought 85 million dollars worth of crude for us in the USA when THEY were short on storage (and it was going cheap, so rest assured we will be alright  with Angus involved.. Just WONDER WHERE it's stored and when WE will get it?  Maybe they are interested in a Cheap Harbour Bridge?  Nev

I remember there at one stage some producers were paying people to take their oil. Idle ships were all full as well as the land storage tanks. It's also disturbing to see the amount of gas by-product from oil wells in places like Texas burnt off to atmosphere because there's no other cost effective way to get rid of it.

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I remember a few years ago when crude was about $150 per barrel and petrol was so expensive at about $1.50 per litre. What is the price of crude now?

Government controls our petrol pricing and it is all worked out to align with Singapore or somewhere. So don't blame the producer or the retailer.

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I think West Texas and Tapis are the two prices quoted locally. The other factor is the value of the $AUD. WE process a small amount here but most comes from Singapore.  Local profit margins were at historic lows but that's changed lately and likely to stay that way. There appears to be little REAL competition. Lube oils have skyrocketed but dealer s say the margins are not great for them. Nev

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West Texas Price: https://markets.businessinsider.com/commodities/oil-price?type=wti

 

Brent Crude Price: https://markets.ft.com/data/commodities/tearsheet/summary?c=Brent+Crude+Oil

 

Nymex Gasoline futures are also an important player in the price of petrol at the pump. And four countries that import a lot of their energy, so too are freight futures and options. I am not sure on oil tanker futures, but general freight costs have gone up 10x, so those holding futures contracts have done very well..

 

 

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13 hours ago, Jerry_Atrick said:

so those holding futures contracts have done very well..

What sort of global society do we have where people can sit at a desk and gamble on the future price of all types of commodities? We have laws to deal with people gambling at roulette wheels, or one-armed bandits, but don't let the gods forbid the uncontrolled excesses of free enterprise.

 

I'm getting to the point where I would support a dictatorship in Australia that nationalised our resources and reinstated our primary products processing so that we were the ones who added value to raw materials and made the rest of the world pay for them.

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There is a bit more to it than pure gambling. Like any venture, there is risk v reward, but research is your friend and if you do your research, you are likely to do OK. Of course, no one could predict COVID, but many non-predictable external events occur every day. In fact, for professionals, there would be market and credit risk calculations in their positions.. and for market risk, there are built in scenarios to try and work out expected losses, and now, expected shortfalls to take into account whether or not the invest in something.

 

In the case of commodities futures, they are primarily a risk management mechanism, but, like in so many things, they handle the usual deviations well, but when there is an outlier, they sort of fall short..

 

I should have been a little more explicit.. Those holding long positions in  freight forward options or futures (i.e. purchasing freight in the future) would have done very well, because the contract purchase amount will be a lot less than the current price of the freight forwarding.  That does not necessarily mean they have made a money profit per se, as quite often, buyers of freight will be buying long futures (or call options). The price for them will be locked in. They will be enjoying significant savings over people buying freight on the spot market - and this is what is meant by risk management - purchasing a long futures contract (or a call option) locks in the price for the buyer. So, they take a risk in the sense they could pay more for the freight when they want it than if they had of waited, but by the same token, as in this case of freight futures maturing around now, they could pay a lot less.. in this case, a lot, lot less.

 

Similarly, the seller of freight can write a short future (or put option) and also lock in the price. Each party enjoys the knowledge that they will be buying or selling a commodity in the future for a specific price and they can plan their financial performance around it. By the way, futures are a zero sum gain.. in this case, the winners will be the holders of long futures in freight; those short on futures will be required to stump up the freight for the price of the contract regardless of the spot price. If they have to source the freight on the open market at spot (i.e, it is not their ship), then they are in for a rough ride (pardon the pun).

 

Of course futures, and most commodity options are exchange traded, which means traders, speculators and investors get in on it and hope to profit on their price movements before the "front month" of the contract occurs - this is the month the specific futures contracts in the commodity occur and the holders of short positions in the futures must deliver up the commodity, and the holders of the long positions must pay and accept delivery. Investors, speculators and the like don't want to have to physically deliver or take delivery of the goods and will offload their positions in the contracts before the occurence of the front month.

 

As an example, say you hold a long (buy) position in oil futures, where the contracts expire in December this year. You will look to back out your position in those contracts, this months, or early next month so you don't have to pay for and take delivery of the oil.. you just want to lock in the profits (or take the losses), or you can roll over to the another futures contract in the same commodity..

 

The prices of the commodities you will see in the news is for the futures contract price in their front month, or the spot price if there is one.

 

In terms of financial markets, commodities is quite a specialised asset class. Traders in say equities (shares), fixed income (bonds) and FX may move around, but few will be able to transfer to commodities without significant training.

 

Energy companies are especially active - in the UK, many energy retailers in the gas and electricity market have gone bust recently because they decided to play the spot market rather than use futures to hedge their supply costs. Ofgem. which is the UK energy industry regulator has price caps on what retailers can charge consumers, and as a result, the wholesale cost of energy on the spot market is higher than the capped price - so they go bust. The smart retailers are buying futures and options to lock in the supply prices.

 

The difference between a futures contract and an option is in the name.. the futures contracts oblige the holders of shorts in that contract to sell, and holders of the long positions in that contract to buy and take deliver of the specific quantity of the commodity at the specific price. A call option allows the holder of the option to purchase the item (in this case the commodity) at the price stated, but the holder does not have to buy it (i.e. if they can get it cheaper in the spot market, they will get it there rather than from the option issuer; if it is more expensive in the spot market, then the holder of the option will call the issuer to supply the item at the strike price of the option).

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No matter how you carefully you explain futures trading contracts, it's still essentially gambling in its purest form. I can remember the huge German company MetallGesellschaft AG went bankrupt in 1993 by excessive dealing in futures or "hedge" contracts - specifically in oil futures. MetallGesellschaft AG employed 20,000 people and was one of Germanys largest industrial conglomerates at that time.

 

https://en.wikipedia.org/wiki/Metallgesellschaft

 

Similarly, a local large gold miner, Sons of Gwalia NL, went bankrupt in 2004, by indulging excessively in gold hedging. SoG NL lost $800M in that fiasco. They had been Australia's 3rd largest gold producer up to the point where they collapsed.

 

https://en.wikipedia.org/wiki/Sons_of_Gwalia

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You invest in a certain outcome, but if the price never gets near what you have committed to you have to come up with the money. It makes for a very capital fluid situation. You can get filthy rich fast or go stony broke fast.. Leveraged investments CAN Yield large returns on capital .  Nev

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2 hours ago, onetrack said:

No matter how you carefully you explain futures trading contracts, it's still essentially gambling in its purest form

I agree, and the explanation was a good one. But at the end of the cycle, what difference is there between a futures trader, doing all the research and modelling various scenarios, and a bookie working the odds he will give on an event. The bookie will be doing a lot of research as well. You really can't compare those two forms of gambling with gambling on chance as in roulette, most card games, or games using random number generators from dice to tombola barrels.

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They work on numbers. so do insurance companies PLUS often a bit of not paying out under some pretext or other at times. When you work on the stock market it pays to understand the nature of the business you are investing in and what it's basic value is both as market potential and exposure to risk from other factors. GREED and FEAR fuels the stock market and the mug investor is low in the inside knowledge that some privileged traders have. Insider trading is ILLEGAL but it goes on..

    I don't see futures as a great problem. It underwrites things like grain crops and puts some certainty of being paid in a risky market situation for producers who otherwise may not choose to plant.  One of the problems with Primary production is when you have a bumper crop so do many others and the Price tumbles. Nev

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By definition, if you are investing excessively in futures, you are not hedging your business, but trading in an attempt to make a profit. And as futures are leveraged (you only have to put up a portion of the price to buy the contract), if you speculate and win, you win big, but if it goes against you, prepare to hand in the shirt off your back. [Edit]: These companies went bust because they didn't p[rovide adequate control over their treasury/traders to only hedge the risk (with some profit taking where it is safe); not because they used futures to hedge.

 

The current problem with UK energy suppliers is they were under-hedged. The rise of the number of discount retailers led to then competing hard, and one cost they could get rid of was their hedging costs. Many are bust and are going bust. If you don't use futures to hedge, you will go bust. QANTAS are buying oil and kero futures all the time (when they are flying).

Edited by Jerry_Atrick
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