Publications: Notes at the Margin

Dated Brent Is Artificial; Looking for Speculation in All the Wrong Places (March 22, 2021)


The March 22 Notes at the Margin reviews two issues. We begin by asserting that the widely quoted price of the crude known as “Dated Brent” has become an artificial price, meaning the quote does not measure the impact of supply or demand. Instead, it is rather like the faces on a die. Roll a die, and a number comes up. That number, though, reflects nothing. The published price of Dated Brent is the same.


We hope the world will soon turn to the quoted price of Murban crude, which is not artificial.


The second part of the report turns to the impact of speculative trade on oil prices. Fourteen years ago, politicians and the public ferociously attacked oil traders for driving up prices. Careful economic research published long after public interest died showed that speculators had not moved prices. However, the academics looked in the wrong place. Borrowing from the song title “Looking for Love in All the Wrong Places,” we argue that speculators affect the shape of the price curve, not the outright prices.


We also note that financial institutions selling to speculators and writing hedges for oil producers help lift oil prices during periods of exuberance. The combined effect has benefited producers since November 2020. The game, though, might be coming to an end unless more speculators enter the fray. The seven-percent drop in prices on March 18, 2020, indicates the departure of many of them from the market.


To receive the full report along with futures issues of Notes at the Margin, please Contact Us or send us aInformation Request for subscription information.