Crude oil market structure changing scenario essay

A trading range in crude. Term Structure - bullish. Processing and location spreads - bullish. The long term chart - bullish but there are longs in the market.

Crude oil market structure changing scenario essay

Oil and gasoline prices reached three-month highs last week and the Energy Information Administration EIA increased their forecasts of these prices. There is no doubt that these higher prices will grab the attention of news outlets, policy makers, and the public.

With this increased attention, political rhetoric regarding fantasies of governmental regulations and market manipulations will likely reemerge as catalysts to lower these prices. The less likely scenario is increased awareness on the impacts that central banks, particularly the Federal Reserve, have on these petroleum prices by changes in the money supply.

Over the period of this substantial rise in Crude oil market structure changing scenario essay prices, central banks around the world have taken action from the dismal economic outlook in many global regions.

GDP growth rate of only 1. Although the Dallas Federal Reserve Bank President Richard Fisher opposes these additional measures there there are few marginal benefits versus costsI examine the costs of monetary easing policy based on the relationship between gold and oil prices.

In addition, petroleum prices increased see above and the price of gold is up by 2. If there was a direct relationship between the prices of gold and oil, commodity traders, entrepreneurs, and the Fed could benefit from knowing using this relationship to forecast the future spot price of oil.

A recent article in the Washington Times outlines a direct relationship between these commodity prices and provides a simple calculation to forecast the price of oil with the price of gold. Here is the statistical relationship found by the author of the article: For the last 26 years, the price of gold dictated the price of oil with If no other market fundamentals affected these prices except for the value of the dollar, considering that both commodities are priced in dollars, then these two should fluctuate closely together.

Clearly, these prices do not always move in tandem. Moreover, correlation does not prove causation, as the author of the article seems to suggest. In other words, it is possible that the price of oil causes movements in the price of gold.

Crude oil market structure changing scenario essay

The data indicate there is a relationship between the two, but there are many times when this link is not as strong. Since these prices are measured in dollars and in the long run, however long that may be, they should revert to an average relationship.

Crude oil market structure changing scenario essay

Economic research indicates that the fundamentals of supply and demand in the oil market are important to understand for short run and long run fluctuations. In particular, these fundamental changes allow more pricing information for entrepreneurs to decide which investments are profitable.

Furthermore, this divergence between these two oil prices since early appears to have changed the relationship with these oil prices and the price of gasoline as well. Before when these oil prices typically moved lockstep with one another, either of these oil prices could be used to fairly predict the future gasoline price.

However, the Brent oil price has been the better indicator of the gas price since last spring, which is around the time of the Arab Spring and supply constraints in Cushing began.

In my research, the ability of spot and futures prices of oil prices to forecast the gas price has not predicted the future gasoline price better than the gas futures price during different periods of gas price volatility.

However, my research did not include the Brent oil price and this is a key research that should be explored. Although historically there are several oil price spikes from oil supply disturbances, these disruptions are typically short-lived because of production changes around the globe to profit from price changes.

However, aggregate demand shocks, such as from China and India during the s, last longer. In my research, I find that a global demand for oil shock, represented by a real global economic activity measure that reflects global demand for commodities, has significantly greater U.

In particular, this synchronization of monetary policies would affect the value of the dollar—reflected reflected by the price of gold—and change relative prices, which change U. Simply, the price of oil does not matter much.

The sources of oil price movements are what matters. Nominal commodity prices, like all nominal prices, are subject to wild swings that are dependent on a number of variables. What we should focus on are real prices. Therefore, the price of gold gives a valuation of the value of the dollar and provides an indication of the price of oil, all else constant, but it is not perfect.

WEO Analysis: A sea change in the global oil trade

Oil market fundamentals are helpful in determining what is driving the price of oil. However, these underlying causes of oil price fluctuations may be determined by Fed policies from flows of newly printed dollars into different investments.

The Fed distorts interest rates when their policies do not reflect market fundamentals in the loanable funds market. This creates malinvestments along the production process. When we think about how government policies impact gold and oil prices, we must consider those from the Federal Reserve.OPEC has little control on the oil prices, driven by speculators betting on “worst case scenarios” and has already supplied the market with the oil it needs, members of the producer group said on Wednesday.

Crude oil industry is the largest industry in the world in terms of dollar value.

The Oil Industry Needs To Change Its Strategy And Fast |

Crude oil or petroleum satisfies almost % of the world energy needs. It is also the most traded energy resource in the world. The report is prepared to explain how oligopolistic market model is the best model to relate to the current increase in the price of Oil. The Oil petroleum Organization is analyzed deeply which clearly depicts the oligopoly style of marketing by the members of OPEC.

Essay Crude Oil Words | 3 Pages. CRUDE OIL For the past month and a half I have researched and followed Crude Oil prices in order to gain a better understanding of exactly what this commodity is, how it is traded, how it effects our overall market as well as our everyday lives.

What drives crude oil prices? An analysis of 7 factors that influence oil markets, with chart data updated monthly and quarterly. Crude oil prices react to a variety of geopolitical and economic events January 9, 2 Low spare Money managers tend to be net long in the U.S.

oil futures market 18 Source: Commodity Futures Trading. 2 Data on world crude oil production through November are from the U.S.

Energy Information Administration (EIA). We impute the December and January data points using total oil production data from the International Energy Agency's Oil Market Reports.

Crude Oil – Rewarded Bears