<Some history on Coal EROI and UK coal numbers The Oil Drum DrumBeat: July 10, 2007>

122 comments on The International Energy Assocation's Medium-Term Oil Market Report

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noutram on July 9, 2007 - 7:15pm Permalink | Subthread | Parent | Comments top

Nate, I'm not an expert but I have read about Options and traded them a few times.

Correct me if I'm wrong but futures in no way 'predict' the value at any given date, rather they are an indication of the probability of a future price based primarily on the current price, variability of price and how long into the future you are projecting.

The fact that Futures are not showing $120 a barrel for 2012 delivery in no way reflects the possibility that that is what the price will -or won't be... I.e. Futures are not a crystal ball for oil price somewhere down the line -to use them as such is highly misleading, especially as availabilty of the underlying asset may be reaching what could only be described as a 'chaotic boundary' or at best tipping point.

NEW SCIENTIST: On another note there is a cover story/article in this weeks UK New Scientist regarding how we are going to survice 'after oil. There's an interesting pie chart that shows the 3.4% petrochemicals market worth $375Billion - about the same as the 70.6% market for transport fuels. The article proposes that the feedstocks to the latter industry can come from Bio-based sources if the price of oil stays up around the $75 mark....

Nick.

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docscience on July 10, 2007 - 1:00am Permalink | Subthread | Parent | Comments top

DocScience

The price of a futures contract for what ever future month you are looking at, is just the dollar amount that people right now, are willing to buy and sell it for.

If the traders buyers and sellers think that the future amount will be much higher, they will buy or sell accordingly to what they can afford or according to the risk that they wish to take. The reason that the futures contract is $72.30 crude for 2012 delivery, is that is what the present buyers and sellers are willing to pay for that contract.

Those readers of "oil drum", who are sure that oil prices will be much higher in 2012, and were able to buy contracts for then, have bought them at the $72.30 or less, and only need to hold on to them until oil is high enough to sell out for a profit. They only bought as much as they could afford, and that has kept the price from rising much higher.

There is also the risk that if we have a complete monetary crash before then, those who bought 2012 contracts , can’t get there money out, losing it all.

.

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Jack on July 10, 2007 - 3:49am Permalink | Subthread | Parent | Comments top

Of course futures don't accurately predict the future. Nothing does.

However, broadly speaking future prices do give a more accurate view point of future price direction than any other forecasting method (except for looking backward, finding who was right and then saying that person is better than futures markets).

I haven't seen any quantitative studies regarding oil futures, however, there is good documentation that currency forcasters are not, over time, able to out forecast currency futures.

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122 comments on The International Energy Assocation's Medium-Term Oil Market Report

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