The Blame for $135 A Barrel Oil - Part II UPDATED
If you missed Part I, you can find it here.
For 2007 where the average price of Brent blend was ONLY $72, because the range went from $49 to $96 by year end.
The following numbers are based ONLY on Brent Crude Futures traded on ICE exchanges.
ICE Futures Europe product records achieved for April 2008:
The ICE Brent Crude futures contract set an all-time total monthly volume record of 5,703,333.
ICE Brent Crude futures ADV April 2008 259,242 April 2007 214,855 20.7% Increase
Using April 2007 Average Daily Volume 215K contracts x 22 trading days per month...
equals 4.7 Million per month x 12 months = 57 million contracts per year.
Each contract controls 1000 barrels of oil x 57 million = 57 billion barrels of oil
According to the International Energy Association (IEA) Monthly Oil Market Report,
the TOTAL global production of ALL crude oil came to 85.6 million barrels in 2007.
57 billion paper barrels / 85.6 million produced barrels = 663 to 1 pricing leverage in 2007.
Using the new April record yields a 21% increase on this leverage to 800 to 1 pricing leverage so far in 2008.
UPDATE: Hattip to Yves Smith at Naked Capitalism who caught our math error.
Global Oil Production 2007 is 85.6 million barrels PER DAY.. times 365 = 31.244 Billion per year...
Remember, the amount of Brent on ICE is only a small portion of the whole.
Considering EIA estimates, total European oil production for 2007 of which the bulk of Brent originates from is
5.426 million barrels per day times 365 days = 1.980 billon barrels per year.
Now divide 57 billion ICE Brent contracts by 1.980 billion barrels and the price leverage is 28.78 to 1 for ICE Brent ONLY.
NOTE: The price of Brent as traded on the International Commodities Exchange is predicated on barrels of Brent for delivery at Sullom Voe.
Brent crude is a blend of oil from several fields in the northern part of the North Sea, including Ninian and the Brent field itself.
Sullom Voe is an inlet between North Mainland and Northmavine on Shetland in Scotland. It is a location of the Sullom Voe oil terminal.
Oil is pumped to Sullom Voe via the Brent and Ninian pipelines. Crude from the Schiehallion and Clair fields are also exported from Sullom Voe.
According to a Bloomberg article,
"Brent exports from Sullom Voe peaked in 1985 at about 1.2 million barrels a day."
2007, estimated total oil exports from the UK, which includes Sullom Voe:
616 million barrels divided into 57 billion virtual barrels = 92.4 to 1 pricing leverage. We stand corrected.
For a missive on how the oil trading exchanges (IPE, ICE, NYMEX) have been deregulated, read here.
The Nattering One muses... Just as greedy speculators ran up housing prices to benefit themselves and the banks, so it is with oil prices.
Just as housing speculation has ruined our economy, so commodities speculation is causing double digit stagflation throughout the supply chain.
There should be laws which prohibit this kind of speculation in basic essentials such as housing and fuels.
For 2007 where the average price of Brent blend was ONLY $72, because the range went from $49 to $96 by year end.
The following numbers are based ONLY on Brent Crude Futures traded on ICE exchanges.
ICE Futures Europe product records achieved for April 2008:
The ICE Brent Crude futures contract set an all-time total monthly volume record of 5,703,333.
ICE Brent Crude futures ADV April 2008 259,242 April 2007 214,855 20.7% Increase
Using April 2007 Average Daily Volume 215K contracts x 22 trading days per month...
equals 4.7 Million per month x 12 months = 57 million contracts per year.
Each contract controls 1000 barrels of oil x 57 million = 57 billion barrels of oil
According to the International Energy Association (IEA) Monthly Oil Market Report,
the TOTAL global production of ALL crude oil came to 85.6 million barrels in 2007.
57 billion paper barrels / 85.6 million produced barrels = 663 to 1 pricing leverage in 2007.
Using the new April record yields a 21% increase on this leverage to 800 to 1 pricing leverage so far in 2008.
UPDATE: Hattip to Yves Smith at Naked Capitalism who caught our math error.
Global Oil Production 2007 is 85.6 million barrels PER DAY.. times 365 = 31.244 Billion per year...
Remember, the amount of Brent on ICE is only a small portion of the whole.
Considering EIA estimates, total European oil production for 2007 of which the bulk of Brent originates from is
5.426 million barrels per day times 365 days = 1.980 billon barrels per year.
Now divide 57 billion ICE Brent contracts by 1.980 billion barrels and the price leverage is 28.78 to 1 for ICE Brent ONLY.
NOTE: The price of Brent as traded on the International Commodities Exchange is predicated on barrels of Brent for delivery at Sullom Voe.
Brent crude is a blend of oil from several fields in the northern part of the North Sea, including Ninian and the Brent field itself.
Sullom Voe is an inlet between North Mainland and Northmavine on Shetland in Scotland. It is a location of the Sullom Voe oil terminal.
Oil is pumped to Sullom Voe via the Brent and Ninian pipelines. Crude from the Schiehallion and Clair fields are also exported from Sullom Voe.
According to a Bloomberg article,
"Brent exports from Sullom Voe peaked in 1985 at about 1.2 million barrels a day."
2007, estimated total oil exports from the UK, which includes Sullom Voe:
616 million barrels divided into 57 billion virtual barrels = 92.4 to 1 pricing leverage. We stand corrected.
For a missive on how the oil trading exchanges (IPE, ICE, NYMEX) have been deregulated, read here.
The Nattering One muses... Just as greedy speculators ran up housing prices to benefit themselves and the banks, so it is with oil prices.
Just as housing speculation has ruined our economy, so commodities speculation is causing double digit stagflation throughout the supply chain.
There should be laws which prohibit this kind of speculation in basic essentials such as housing and fuels.
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