Discussion about this post

User's avatar
Overcoming Bias Commenter's avatar

Traders don't have to shift markets only through differential pricing. They can shift markets the old fashioned way, through marketing and disinformation.

How much are corporations spending to influence the election? Billions? If corporations and individuals are willing to spend millions, tens of millions and even billions on shifting public opinion, presumably they would be willing do the same thing with oil trading profits which are from pre-tax income.

What does all the saber rattling about war with Iran do to oil prices? It drives them up. Who is rattling sabers about war with Iran? Mostly the GOP. Who does the GOP blame for high oil prices? Obama.

The price of oil has two components, its actual value as a commodity used to supply energy and other things. The price also has a component of signaling. This component signals the relative risk that future prices will be higher or lower.

Oil Users make profits using oil to produce other things. Oil Speculators make profits by capturing differences between the signaling prices at different times. The signaling can be manipulated easily, just rattle the sabers with Iran. Oil Users have to take potential future disruptions seriously because they have more to lose than speculators. Oil Users have the financial risk of not recovering their investment in what ever factory it is that they use to turn oil into products that they sell.

If you look at the ratio of US oil consumption to GDP, there are large fluctuations.

http://www.epmag.com/Produc...

with GDP varying between 100x oil consumption (1999) and 15x oil consumption (2008).

Oil users with a lower GDP production to oil consumption ratio have a reduced ability to tolerate higher oil prices. Oil is not the only component of what goes into their production of GDP. Oil is the only component of an Oil Speculators production of GDP.

Expand full comment
gwern's avatar

McCluskey's followup: http://www.bayesianinvestor...

Expand full comment
23 more comments...

No posts