<Some history on Coal EROI and UK coal numbersThe Oil DrumDrumBeat: July 10, 2007>

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

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docscience on July 10, 2007 - 12:00am 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 - 2:49am 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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