[Marxism] PEMEX looks to lock in current oil prices
bauerly at yorku.ca
bauerly at yorku.ca
Fri Jul 25 08:45:03 MDT 2008
>>>>"It is not enough for PEMEX to want to SELL future production as what it
views as an attractively "high" price from the producer point of view. You also
need, for each and every futures contract, a purchaser who sees that price as an
attractively "low" price.">>>
PEMEX operates in this example as both the seller and the buyer through the
futures contract. There is no other party who sees the price as low necessary.
There is no requirement for someone else to disagree and bet against PEMEX. A
futures contract is between the supplier and the buyer, either long or short
(higher or lower), not between two futures contract buyers. There is no need
for one party to think the price will rise and another to think the price will
fall. The suppliers hedge their bets by accepting long futures buyers
contracts and buying short contracts themselves. If the price rises they loose
on the futures market but win on the increased price of oil. If the reverse
then they win on the futures market (ie: they hedged).
The fact that PEMEX is now attempting to buy short (betting that the price will
not rise further)shows that they think the price is inflated and will fall. It
also, if others follow, places large amounts of future oil already in the market
at a set price and removes volatility and uncertainty. This would lead to a
price decrease as the speculation that the market will continue to rise (due in
part to uncertainty over the ability to supply) will be undermined by the
security produced by large sell shorts.
There are also numerous large hedge funds beginning to liquidate their commodity
holdings. As we begin to see large amounts of capital flow out of the commodity
futures market we will see both a decline in commodity prices and a commensurate
rise in some other investment vehicle.
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