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13 comments on A gentle cough in the direction of the NYT

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CassandraOil on November 30, 2005 - 4:55am Permalink | Subthread | Parent | Comments top
My dear OilTrader, there are many irrational markets in the world (the real estate market in the US just now is a very good example of a market in a pique of irrationality) but crude oil is behaving very rationally at the moment.  

Supplies are up relative to demand. Prices are falling. It is a correction in the upward trend. OPEC wants to sell. I pull up at the local gas station and want to buy. Everyone is happy.

Yes, your criticism is of "futures" prices, by which you mean prices for crude oil not in December or January but perhaps March or June.

But those prices are led about by the current price as a horse is by its bridle. The most fear or greed can add or subtract is a dollar or two.

Whatever Mr. Halfin may say about the matter, you and I both know that anyone buying June 2006 crude oil at the current price of $59 is going to make money so long as he or she can hold till delivery.

And 2011 crude at $52? Well now, that is irrational.

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LevinK on November 30, 2005 - 2:04pm Permalink | Subthread | Parent | Comments top
you and I both know that anyone buying June 2006 crude oil at the current price of $59 is going to make money...

You can not know that. It is the price of risk that stops people from speculating largely even though the supply/demand equation is close to clear.

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Atticman on December 1, 2005 - 12:37am Permalink | Subthread | Parent | Comments top
We have new summer driving season and  hurricane season coming soon to a theater near you.
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LevinK on December 1, 2005 - 5:00pm Permalink | Subthread | Parent | Comments top
:)
Yeap, what this means is that maybe with 90% confidence I could say that price will go up. But with how much? And how do you know that it would be in these 90% not the 10% left?

Now look at the market. Maybe 80% of the futures deals are an insurance against future price volatility. If speculators (20%) manage to influece the price significantly (say futures go to 100$/barrel) the spot price will also grow to say 95$ (because it would become cheaper to buy now and store until maturity). But at 95$ there would be a disbalance because producers would not be able to clear stock and storing crude would cause huge loss, consequetivly both prices will drop. It turns out that the marginal barrel matters for the futures price, and only a major change in market expectations can change that.

In short I believe now is a good opportunity to become a speculator... anybody know how I can participate?

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13 comments on A gentle cough in the direction of the NYT

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