Publications: Notes at the Margin

Speculation and Anticipatory Hedging (August 22, 2016)


Some market observers still view Saudi Arabia as the central bank of oil and believe the words of Saudi officials can affect oil prices. As we explained in an appendix to the January-February 2016 Petroleum Economics Monthly distributed on March 15, 2016, Saudi Arabia has never been the central bank of oil. Regarding the price rise, the significant question is why did prices rise on the Saudi minister’s statement? Furthermore, why has the Dated Brent price gone up twenty percent since August 1? The answers are important because participation in the market is limited to traders who purchase whole or partial commitments for cargos of crude. This is the physical market. These participants normally do not respond to vague statements by oil ministers, especially ones inadvertently released to the media as we pointed out in our August 15 report. Surely there must be more to the story. In fact, there is much more to it.


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