Cormac and economics

Cormac Hollingsworth ? @CormacHolly


@worstall Stocks are high at Cushing? Perhaps hoarders delivered WTI while switching to Brent? Hmmm, why don\’t you ask the #BNP Tim?

Oh dear. How does someone deliver while hoarding?

And really, an ex-investment banker turned union funded journalist really ought to be able to investigate the WTI/Brent divergence rather better than this don\’t you think?

Maybe read the FT? The WTI/Brent spread is purely about the transport routes in and out of Cushing OK. It is a physical problem, nothing to do with futures, hoarding or speculation.

And we get this from Cormac:

CormacHolly Cormac Hollingsworth
@worstall your delineation of what\’s physical and what\’s not remains as unusual as ever. Hoarding & futures are both physical.

Futures are now physical are they? Not financial speculation off on some ethereal plane? So how can the original point, that financial futures speculation, rather than actual physical supply and demand, be driving oil prices be supported then?

9 thoughts on “Cormac and economics”

  1. As an oil man, I have a theory as to why so much is said about oil speculation.

    The public hates the oil industry and blames us for high oil prices. We realised that a better bogeyman was needed and it had to be someone more hated than us.

    Step forward the financial sector.

    I regularly argue with my colleagues who seem to truly believe that paper trading is the cause of the high oil price. Yet if you regularly bet against market fundamentals you will certainly lose your shirt.

    Watch how markets react to industry news (refinery utilisation rates, physical stocks) and you can see very clearly that speculation is about information gathering not manipulation.

  2. I think he’s just strung a random sequence of words together in an attempt at making a sentence. 😉 That’s the only explanation I can think of about why the statements are so contradictory.

  3. Futures are physical

    To switch Tim’s point around slightly.

    How can a contract for oil which probably hasn’t yet been extracted and certainly hasn’t been refined, and the contract itself is almost certainly electronic rather than on a piece of paper, be considered “physical”?

  4. @SE, because at some date in the future, the oil represented by the future contract will have to delivered or taken delivery of. Actual physical stuff that you will have to pay for.

    Try it.

  5. First, the Commodity Indexes the article was talking about never let futures contracts run to expiry. And second, on the ICE (what used to be the IPE) the Brent futures contract has an option to settle in cash, and the WTI contract is always cash settled. It is not true that oil has to be delivered.

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