Publications: Notes at the Margin

Greedflation, Speculation, and Stupidity (May 29, 2023)

 

Greedflation is pushing up petroleum product prices and refiner profits. Meanwhile, the OPEC+ members focus not on the refiners’ success in boosting margins but on oil speculators, who they believe are driving oil prices down. We describe the members here as “Oil’s Don Quixotes” because they are tilting at windmills. At the same time, independent oil producers seem to be rushing to boost hedges and lock in forward prices, creating the impression of speculation against oil prices as they insure against the likelihood of oil-exporting countries once again failing to manage markets successfully. We assert that the key players are stupid because they seem incapable of attaining even a basic understanding of the oil market. A May 27 Wall Street Journal article, however, implies that Russia, a country of great chess players, may have thought the matter through.

 

We conclude this report by showing that oil inventories decline substantially when the United States comes close to defaulting on its debt. Argus Media described the consequence perfectly in a commentary that, after explaining that higher interest rates encourage stock liquidations, concluded, “The potential for big stock draws makes it unusually difficult to call the supply-demand balance.”[i]

 

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