What always smells weird to me about the oil market is that headlines about supply/demand way into the future have such an effect today... the Chevron announcement, even if true, wouldn't bring any more oil to market for several years, and announcements such as "China's demand for oil will double in 30 years" dramatically increase the price of oil.
After my post which was two paragraphs short of a thesis, that's the best you can do?! <g>
It always makes me wonder if the oil companies have a hand in pushing negative news in front of the media and hence in front of speculators.
Seriously, there is a reason why future supply and demand has an impact on today's markets and it doesn't necessarily make a lot of sense. Did you read the article on the contango effect on the pricing of crude? The concept behind the effect is that global supply and demand are nearly in equilibrium. For that reason, certain reserves have to be maintained in case of disruption. Adding to the effect is the Peak Oil theory. I bet you haven't heard that one. Peak Oil suggests that we have found all the easy oil to be had in the world and that the oil in future discoveries will be more expensive to extract. That theory has gained considerable traction in the last few years.
Now lets go back to the 'discovery' of oil in the Gulf. The reason it had a positive impact on crude oil prices, meaning the price came down, is because it suggests that the Peak Oil theory may not be correct; that there is still 'easy' oil in the world after all. Let me interject here that accessing the oil in the new discovery, assuming there is oil, will not be cheap relative to other platforms in the Gulf but its cheaper than what Peak Oil has implied. So based on this news which may or may not be true coupled with a shortage of hurricanes and negative political events in the world, oil has come down over ten dollars in less than a month. Why? Because suddenly, the reserves that were deemed necessary under the contango effect do not have to be as big.........and the access capacity has been released into the world markets. And that's because it looks like things are not as bad as what was once thought just a month ago. Of course this could all change next month, requiring that the reserves be increased again. Makes sense? Probably not. Its why I stayed away from the stock market. For the longest time, I could never figure out how they determined the price of a stock. Every time I tried to figure out logically the price for a particular stock it never matched up with the actual price.
And that's because the prices for stocks as well as crude are based on a certain degree of calculated emotion as well as fundamentals. For an example, there is a strike on the oil platforms in Nigeria. The strike won't disrupt production but oil still goes up a buck. Why? Well, the strike has interjected a certain level of uncertainty and traders don't like uncertainty. They worry the strike will act as a catalyst to provoke some other event to take place and even though they don't know what that event might be, it could well be negative and seriously upset the balance of oil in the world. Hence the price of oil goes up. From one day to the next, different things or events will happen and the price of oil will fluctuate based more on emotion that logic. That's why we get bubbles. After all, how else do you explain a single tulip bulb selling for the price of a house?
You suggest that oil companies might push the bad news in front of the media and traders in order to effect the price of oil. Completely unnecessary......traders are hungry to find out any news that might give them an edge either long or short on a futures trade in oil. And to be honest, the whole trading scenario is so crazy, its hard to predict what the impact will be from a piece of news. For an example, an insurgent attack on an oil line in Iraq may make the price of oil go up one day and down the next. And there will be some line of reasoning behind why the impact was different from one day to the next. If it seems confusing, it is. That's why I have to laugh when people suggest there is a conspiracy rampant in the price of oil. Injecting a conspiracy into the trading of oil might actually make the whole pricing scenario operate more logically. |
