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72 comments on A Closer Look at Oil Futures

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westexas on September 5, 2006 - 1:46pm

"Any guess why that isn't showing up more strongly in the futures pricing?"

I think that we are going to see a series of bidding cycles for declining net oil exports. Right now, I think that the only substantial reduction in consumption is in poorer areas like Africa.

Of course, a recession here would cause demand, or at least the rate of increase in demand, to fall here in the US.

IMO, the big difference between now and prior cycles is that we are not going to see a (higher) production response from higher prices. I think that we are just going to see a series of auctions for declining available oil.

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kjmclark on September 5, 2006 - 7:22pm

Thanks for the reply. I get all that, and really think you're right about it. But while the futures markets don't seem to agree with the spot market at the moment, they still don't seem to be pricing in the full extent of the problem. I have a lot of respect for the folks working the futures market, so I'm having a hard time believing they're just missing such a large problem. On the other hand, it really looks as though they're missing the extent of the supply problems.

I wonder if they're expecting a significant enough recession to slowly lower demand and keep prices fairly constant (but high). That would fit both your expectations and their prices. Otherwise the prices just seem too low.

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