[PLUG-TALK] Crude Oil Approaching 11-year Low

[Keith Lofstrom]

On Mon, Dec 14, 2015 at 06:06:10AM -0800, Rich Shepard wrote:
>   Two news reports today: one notes that crude oil is at a
> 7-year low, the other that it's approaching an 11-year low
> since it's now trading at $37/bbl.

If you look at many market indicators (price of gold, price of
commodities, currency exhange rates) the takeaway is that the
dollar has become stronger relative to other currencies.

That does not affect domestic prices quickly, because dollars are
what we pay other Americans, as part of established relationships
and contracts.  It takes a while for those to adjust. 
Specifically, oil futures market trading stabilizes the retail
price of fuel, flattening out the biggest spikes, and I'm glad
for that. 

Retail panic buying is probably more responsible for retail price
spikes - if the public is buying much more than average, delays
in the supply system will lag, and rational retailers will raise
prices, because panicked consumers will pay it.  So - don't panic,
walk and cycle and ride the bus.   Fill those back yard shed gas
cans after the price drops a bit, not when it is high.

Months ago, oil refineries bought futures from traders at prices
higher than $37, hedging against turmoil in the middle east that
/might/ drive prices to $200/bbl.  If it had, the option traders
would have gotten hammered, contactually obligated to buy high
and sell low.  As it is, the refiners are paying off those high
price contracts and the option traders are farting through silk.
Other buffering and delay mechanisms involve transport,
production, and distribution - it can take months for the oil
at the wellhead to reach your gas tank.

The more interesting question is why crude oil price turmoil
didn't happen, why (besides a strong dollar) the prices still
went down.  I'm guessing it is because we are still buying a
lot of oil from ISIS, through various cutouts.  The Russians
tell us that Turkey is moving a lot of ISIS oil; I believe
they are correct.  The West is probably collaborating with
our so-called ISIS enemies.  It wouldn't be the first time,
and we aren't the only hypocrites.

Keith


-- 
Keith Lofstrom          keithl at keithl.com