You say when OPEC last cut production prices doubled in a year, the implication being that they can somehow control the price. The fact is that OPEC has a lot of heavy, sour crude oil that not many refiners can refine. Most want the light, sweet stuff like WTI. In fact the whole market trades off WTI which is why the DOE inventory numbers every Wednesday have such a large influence on the market.
Prices have risen not because of OPEC but because:
- Funds have moved into commodities and out of stocks and currencies. They buy commodity indices or call options and the banks that sell these need to go into the underlying market to BUY the future.
- Consumers (airlines and any one else exposed to oil prices) BUY call options or the future to protect themselves against price rises. It's a self-fulfilling act because...
- Producers don't hedge. Why would they need to? If they're worried about falling prices they hold back supply. In fact, more often than not you'll find producer / traders BUYing the future, especially during the infamous Platts Window.
Thank heavens for speculators who have picked up on the US demand destruction theme and are now trying to push the price down with momentum trading. Unfortunately momentum flows two ways. All the BUYers above know this all too well and are keeping their powder dry for when it turns back up.
Most thermal coal traders (hence coking coal and steel prices) are also following oil prices now so where oil goes the economy will go in the opposite direction.
Who said anything about the fundamentals?
Would you like to comment?
Join Diigo for a free account, or sign in if you are already a member.