<An expanded version of what I meant to say on the Beeb The Oil Drum The water is still rising>

30 comments on It may not be that easy

Comments can no longer be added to this story.

| Show without comments | PDF version

NC on August 30, 2005 - 6:04am Permalink | Subthread | Comments top
I have been struck by the posts at TOD which predicted the damage and the effect on supply of oil and distillates.  Over the weekend there was an almost apocalyptic tone to the posts.  The storm was going to do some serious long term damage, supply would fall, prices would rise.  Act now because bad things are going to happen.  All presented in black and white cause and effect arguments with date to back it up.

As of yesterday evening the markets had downplayed and discounted storm damage.  Yes, there was some talk of supply tightening but not a big deal over all.

It strikes me that the people posting at TOD are very accurate in there assessment of the situation.  Both Katrina and Peak Oil in general.  The problem is that the "Market" is very slow at recognizing problems.

I fully expect that supply will be disrupted within the range discussed here over the weekend.  However, I think the market will take at least a week to fully understand this and send signals that there is a problem.  In the interim there will be calls to tap the SPR, move refinery production elsewhere, use different ports, etc.  Only after we find out this isn't working will prices rise significantly.

This is my main concern about letting markets dictate energy policy.  It is only reactionary.  It is too slow to recognize problems, even when they happen.  It has no planning component to prevent predicted problems.  I don't trust the market to operate well in crisis situations.

Lets see if my prediction comes true.  Or if I am just a doomsdayer as well!

Comments can no longer be added to this story.
Glenn on August 30, 2005 - 6:42am Permalink | Subthread | Parent | Comments top
Thanks NC. Us TODers feel that we are providing the market with valuable information, but they are very slow in listening, preferring to learn only through harsh lessons.
Comments can no longer be added to this story.
louGrinzo on August 30, 2005 - 7:08am Permalink | Subthread | Parent | Comments top
The commodities market is a harsh, and more than slightly psychotic, mistress.

True, the traders often get it wrong, sometimes spectactularly.  Compare their "predictions" of the price of oil in 2008 that they made two years ago vs. predictions for that same time today.  It looks like two completely different views of reality, which, in all candor, it is.

But the commodities markets do serve a valuable purpose, in that they extrapolate the current analysis to future months.  In effect they provide a "lookahead" function for the economy.  You're right that they're often reactive, needing a smack over the head with a 2x4 before they notice what's going on, but once they get the message they provide a much needed (if belated) service.

One other thing to keep in mind about the markets is that the people buying and selling there are NOT trying to guess what will happen with market prices, but what other people will guess about prices.  That's a subtle point that many people overlook; traders don't make money by correctly guessing about fundamentals, they make money by outguessing their fellow traders about future market prices, which are in turn determined by everyone's collective guesses abtuo everyone else's guesses.

Comments can no longer be added to this story.
Donal on August 30, 2005 - 10:25am Permalink | Subthread | Parent | Comments top
So with the grizzly bear close behind, each trader is still buying and selling and just hoping he isn't the slow guy.
Comments can no longer be added to this story.
mw on August 30, 2005 - 10:28am Permalink | Subthread | Parent | Comments top
Not all traders work in the same time frame. Some are in a market for minutes; some for days; some for months.

The competing interests, patience levels, risk tolerance, and deepness of pockets make the market what it is...

Comments can no longer be added to this story.
Dave Cohen on August 30, 2005 - 9:17am Permalink | Subthread | Parent | Comments top
Nymex sweet crude is at $70.70/barrel as I write this. The response of the market is just beginning. Gasoline at 2.35, up 29%.
Comments can no longer be added to this story.

30 comments on It may not be that easy

Comments can no longer be added to this story.

| Show without comments | PDF version