Publications: The Petroleum Economics Monthly

Markets Take Over (January 2017)


Oil's new world can be summarized in a modified version of a phrase Bill Clinton made famous in 1972: "It’s the economy, stupid." We say, "It is the market, stupid." The futures market now dominates the world oil market. Over the last two years, more than one billion barrels in opportunistic inventories have been accumulated. The traders, refiners, and market participants acquiring them have hedged. Global stocks have increased by 1.098 billion barrels. The hedged positions of those owning stocks have risen 1.084 billion barrels. There is a 0.13 percent difference in the two numbers. Is this an accident? Certainly not. The market is working. Yet, few market observers and participants recognize that today "it's the market…." Futures and swaps are carnival attractions that have little impact. The consequence of this ignorance will likely be chaos.


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