Because oil futures prices provide more information than spot prices, movements in these markets were used to explore the effect of naval forward engagement and crisis response. Oil futures markets serve as an efficient substitute for the bulk storage of oil. Instead of stockpiling oil reserves, futures markets such as the New York Mercantile Exchange (NYMEX), and the London (Brent) allow companies to purchase contracts to buy or sell oil at some future time. These contracts are transacted for individual months in the future. Traders base their offers on the best economic, political, and military information available to them at the time the contract is traded. As a result, futures prices are considered to be the best unbiased estimate of the likely spot or daily price of oil when the contracted delivery date actually arrives.
Would you like to comment?
Join Diigo for a free account, or sign in if you are already a member.