Thursday, April 26, 2012

Oil prices

It appears that gasoline and crude oil prices are falling once again.  Energy prices are notoriously volatile so this is no surprise.  Market forces are complex and prices are very hard to explain or predict day-to-day.

It's an old story.  When oil prices rise, politicians, including President Obama and his Oil Speculation Task Force (apparently not from The Onion), sense a grandstanding opportunity and start looking for shadowy plotting "speculators". 

What about when prices fall?  Either the market manipulators have taken the day off or they are engaged in a too subtle game of subterfuge to throw us off their tracks.

But pity the politicians.  All markets develop spot prices based on demand and supply hunches by participants who try to look at more than the present.  I doubt that there are any acutely myopic market participants who behave any other way.  This is regardless of whether they actively enter into futures contracts.  The option of futures contracts allows side bets for those who want them -- for those who want a portfolio that includes hedges.  This is good for them and good for the rest of us who benefit from better informed prices in our lives.

But side bets and hedges can also go wrong.  Corrections happen all the time.  The wisest traders encounter surpsises.  Prices can always be wrong.  The world we live in is that way.  The good news is that the prospect of corrections is built in.

This is apparently too subtle for the world of politics.  So we get the spectacle of adults seriously touting childish stories.

Here is much more.