Oil commodity futures are in demand as financial instruments in a different way than when they were used primarily as a way for refiners and distributors to manage the risk on their physical market activities. As that demand grows--as more individuals, companies, and hedge funds want to participate in the oil market, without a link to any physical supply or demand for the commodity--then the price of these instruments ought to rise, in tandem. But with the price of most physical oil pegged to a futures market, whether for WTI or European Brent crude, that demand can influence the physical market, as well, without changing the real supply or demand by one barrel.
Would you like to comment?
Join Diigo for a free account, or sign in if you are already a member.