Hopefully Firms are locking in Future Oil Prices
From WSJ, low oil prices can be locked in for a year… (link)
Remember, it also depends on what currency you buy the oil with… The US dollar is getting strong, while some emerging market currencies are getting weak. Comparative advantage suddenly increased for US firms?
it’s a zero sum game….someone has to sell that contract to the companies that intend to lock in current prices…so whoever is selling that contract, be it a bank, oil company or speculator, will take an equivalent loss if prices rise in the interim…
Either way, those prices can be locked in, for good or for bad.
“someone has to sell that contract to the companies that intend to lock in current prices…so whoever is selling that contract, be it a bank, oil company or speculator”
This is a problem how? These three categories of market participants have on the whole been screwing over the 99% for over 30 years now. I understand that their might be second order victims here (say pension funds that have no social responsibility ethos in their investments but are not necessarily bastards per se), but as far as “banks” “oil companies” and “speculators” are concerned my response to them coming out on the wrong side of a contract is “cry me a trickle”. Particularly as they would be betting on a price reset in oil that would remove billions of dollars from consumer pockets in the way of gasoline and fuel oil price increases over the period of the contract.
Live the life of a “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money” and die impaled on the trident of fundamental supply and demand. Fuck their arbitrage/rent seeking.
Bruce, my comment was not meant to convey a moral judgement about who wins and loses from lower futures prices for oil or energy…it was just that i felt Edward’s post conveyed the impression that low futures prices implied free lunch for everyone, and i hence felt it would be useful to clarify that over the lifetime of each contract there may be several winners and losers and that on net they all add up to zero…much more paper swaps hands than any real energy; BP, for instance, has been said to buy and sell 10 times more paper petroleum than the real stuff that comes out of the ground…i’m not so sure that we can be confident about beating the Goldman et al at the game that they created…ie, when oil crashed from over $140 in 2008, there were probably many who might have thought it would be a good idea to lock in future prices at $95…and that would be the price they would have paid when oil subsequently fell all the way to $35 in 2009…