Meandering Prices
Prices rise and prices fall. So, too, they fall and rise. This is how the supply and demand sweet spot is continually discovered – and rediscovered. When supply exceeds demand for a good or service, prices fall. Conversely, when demand exceeds supply, prices rise.
Supply and demand (the curves usually shown in such charts are unrealistic, as bids and offers in the market are arranged in discrete steps). [PT]
Producers use the information communicated by changing prices to make business decisions. High demand and rising prices inform them to increase output. Excess supply and falling prices inform them to taper back production.
This, in basic terms, is how markets work to efficiently bring products and services to market. Five year plans, command and control pricing systems, and government price edicts cannot hold a candle to open market pricing. But not all markets are created equal. The market for gumballs or garbage bags, for instance, is much simpler than the market for solar panels or jet engines.
What we mean is some markets are subject to more government intervention than others; especially, if there’s a large money stream that can be extracted by government coercion. Sometimes governments nationalize an entire market – for the good of the people, of course.
Strange and peculiar price movements can indicate there’s something else besides natural supply and demand mechanics going on. On April 6, a barrel of West Texas Intermediate (WTI) grade crude oil cost about $62. Ten months ago, that same barrel of WTI oil cost about $43. About 24 months ago, it was only about $30 a barrel. Yesterday, April 26, WTI oil was about $68 a barrel. What’s going on?
The ups and downs of crude oil prices. A large share of global oil production is performed by government-owned entities. This may explain why oil is pretty much the only major commodity that is not in a persistent downtrend against real money (i.e., gold) over the past 70 years or so, but is instead going sideways in a fairly broad channel. It is astonishing that despite the inefficiency attending such a large share of oil production most types of “alternative energy” production are still not economically viable without government subsidies! [PT]
Price Fixing Accidents
Indeed, the oil market is subject to mass government interventions the world over. The push and pull of these hindrances to regular market determined price discovery can prompt wild price distortions. We don’t pretend to understand the many variables at play that influence the price of oil. Still, today, we scratch for clarity and edification, nonetheless.
To begin, the oil and gas business is notoriously cyclical. Oil investors have wild swings in production and consumption to contend with. But what makes it an especially difficult market is the extreme intervention by the Organization of Petroleum Exporting Countries (OPEC) – a 14 nation cartel, which often works in concert with Russia – for the purpose of fixing the price of oil to their liking.
Part of the reason the oil price collapse …read more
Source:: Acting Man
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