Oil Commodities Barrel

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With speculators, and people with money to burn, pulling their money out of real estate and the stock market and investing in hot commodities, and specifically OIL, will we see $200 a barrel this summer? And what if a tanker goes down in the Persian Gulf? Can the price un-tether itself from pure supply and demand forces, where we would ordinarily expect prices to fall with low demand as a result of these extreme hikes?

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There are three factors that will increase the price of oil in US dollars. 1. Dollar inflation 2. Oil reserves are going to decrease and current production levels won?t last. 3. Countries like China and India are becoming major consumers of oil There is only one factor I can think of that goes the other way. The recession in the US will lead to lower demand due to decrease in transportation activities. My guess it will reach $200 sometime in 2009.

It always seems like the price of gas goes up instantaneously when the spot commodity price of a barrel of oil goes up.

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The system is not working as simple as you describe it. It is very complex. Oil companies, the major ones at least, usually pump their own oil. They have exploitation premisions from the countries that they are pumping the oil from. In every contract the case is different. In some cases they pay a fixed amount at the beggining to take the permit in other cases they pay a fixed amount per barrel they pump. The most usualy case is that in these permit they agree on some very complicated formulas that determine the ammount the companies pay to the countries for each barrel. In these case they take under consideration the cost of pumping, oil prices, investements, number of barrels pumped etc. In any case the oil companies are affected by increased oil prices but not as much as the consumer. As for commodity markets usually they work with Futures and Options. Both of them are financial products. I will try to make a generalization to explain how they work. Lets say that you want to buy a barrel of oil in six months. You believe that in six months the barrel will cost 60$. Then you buy a future that worths 60$. In six months you go to the market to buy your barell. If the barrel costs more than 60$ you use your future and take it at that price.If it costs less you do not use your future and buy it normaly. Do not take all these leteraly, the way futures and options work is far more complex and they are also under the supply and demand law. Please note that oil is not baught only by Oil companies but also countries. When the spot value goes up usually the future and options value go up. This is not always the case but today in oil market this is the reality. That means that when the prices increases the companies anticipate that in the future when they will need to buy more futures to buy more oil they will have to pay more money. What they do is they sell the oil they allready have at a higher price to find the money to buy the new options and futures. You can understand now why when the spot prices go up you have an imidiate increase on the gass at the gass station. They will sell oil at higher prices even though they use reserves that they bought much cheaper to compencate for the future prices they will have to pay. One more reason for the immidiate rises at the gass-stations is the fact that the gass-station owners and gass distributors take advantage of the situation. When all the media say that the prices go higher they find it a great oportunity to take advantage and make more money. Also they have to find the money to buy in the future the more expensive oil. Please also note that the taxes on fuels, in most countries, are a precentege of its value. So the higher the price the more taxes you pay. Finaly the supply chain of oil is complecated and a lot of different companies take part in it. All of them have a specific margin that they calculate it on the price they bought the oil. The gass that you buy at the pump is much more expencive than the oil that it is pumped at the well.

How can I invest in commodities beside buying stocks of say Exxon or Shell. Say I believe bushel of corn or barrel of oil are going to rise? How do I invest? I do not want to buy the commodities per se, but just invest and sell it on paper. NOT INVESTING IN STOCKS, MUTUAL FUNDS etc, ideas? Where can I go thanks.

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"Investing in commodities" is not easy and requires a good amount of capital and research/knowledge. You are investing in futures or options. There are a lot of resources available to someone who wants to "invest" in futures or options. But it is not something you want to jump into without some knowledge and money. Linn Waldock and Alaron are decent futures/options brokers. Chicago Board of Trade and Chicago Merchantile Exchange and New York Board of Trade have a lot of information. Good luck and be patient.

I would like to get into Crude Oil trading (or commodities trading) but I am not sure where to begin. I don't want to end up in a situation where I have 1000 barrels of crude oil delivered to my house or something. I simply want to buy and sell commodities without ever having to take delivery of anything. Is this possible?

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All you have to do is open an account with a futures broker, who offers access to the markets you're interested in. Most brokers wouldn't allow you to go to delivery unless you are a physical trader, so generally there's a clause in the agreement, which states that the broker has the right to close out your position in order to avoid physical delivery. However, with that said, you must always understand the contract you're trading! That means knowing all the specifications including the key dates, like first notice date, last trade date, expiration date and etc. If you don't want delivery then you should close out your position prior to the first notice date. You can find a lot of info on websites of various futures exchanges: http://www.nymex.com http://www.cme.com http://www.cbot.com and other.

I always hear people talking about how "oil is down to $90 a barrel" or "gold is up to __" so I am wondering where do people find these real-time prices? I see on CNBC they have the current prices on tickers, is there anyway to see those tickers over the internet?

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