moldybluecheesecurds 2

Monday, June 23, 2008

Oil market - speculative nonsense?

Economist and NY Times columnist Paul Krugman has been tackling the issue of high oil prices and he soundly debunks the notion of speculator-driven oil prices.

Any effect [of speculation] on the spot market has to be indirect: someone who actually has oil to sell decides to sell a futures contract to Joe Shmoe, and holds oil off the market so he can honor that contract when it comes due; this is worth doing if the futures price is sufficiently above the current price to more than make up for the storage and interest costs.

As I’ve tried to point out, there just isn’t any evidence from the inventory data that this is happening. (emphasis mine)

So there's no hoarding. And to boot, spot prices (what people actually are paying for oil based on supply and demand) have been higher than futures prices. In other words, it's supply and demand.

No comments: