Publications: Notes at the Margin

Noise Trading and the Direction of Oil Prices (November 25, 2019)


Last week, we witnessed a sharp decline in crude prices Tuesday followed by sharp increases on Wednesday and Thursday. Most writers associated the swings with the up and down expectations for a US/China trade war resolution. Earlier this year, they cited other factors. Recently, reporters have also associated the unexpected shortfalls in oil consumption with falling prices. In a few months, we may read that sunspots are causing these fluctuations. While these explanations, excluding the sunspots, may be correct, for oil, the primary determinant of price movements seems to be the buying and selling of futures contracts.


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