Monday, June 16, 2008

Crude Oil Futures: Trading is Down, But Prices Up?

The chart above shows that open interest (volume) for crude oil futures contracts declined by more than 16% since last November, and yet oil prices kept going up. Less oil futures trading, less speculation, but higher oil prices? Isn't is supposed to be the other way around?


At 6/16/2008 3:02 PM, Anonymous Anonymous said...

A better reading of that plot is that there was an immediate drop followed by essentially flat interest levels while the price has gone up. Flat interest levels in the face of rising prices indicates an inelastic demand.

At 6/16/2008 4:20 PM, Blogger Matt Young said...

If the market is cyclic then transaction rates are smallest when price is highest, and visa versa. Most markets would be "Hamiltonian", which is a shift between kinetic and potential value.

If oil is acting this way, then it is cyclic, showing signs of an incompete market and getting ready to fall in price.

At 6/16/2008 5:40 PM, Anonymous Anonymous said...

Think Jatropha as the next bio fuel source.

Better than corn, better than cellulose, better even than oranges!

At 6/16/2008 8:22 PM, Anonymous Anonymous said...

Obviously the relationship is inverse, if you look across the range of the X-axis. Are you talking about futures contracts, or futures options? A boatload of contracts would imply a rise in future supply, since a futures contract carries an obligation to make or take delivery of the commodity. This must be what the graph represents.

OTOH, if you were talking about futures options, which carry no consequent obligation or requirement to deliver a damned thing, that's something entirely different. In the PDF that I sent you a while back, a hedge fund manager detailed exactly why speculation in the futures options markets is disruptive and self-perpetuating...until it isn't and the bubble bursts.

My point is that there is nothing contradictory in the graph as presented.


At 6/19/2008 2:47 PM, Blogger Celal Birader said...

This comment has been removed by the author.

At 6/19/2008 2:49 PM, Blogger Celal Birader said...

Oil trading is not a transparent business. You might not have all the information you need to make an informed assessment. Have a read of how it really is HERE


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