I happened to have dinner this week with a very dear old friend from my days trading crude oil on the floor of the New York Mercantile Exchange.
Ultimately, our conversation turned on our life of trading oil, and the fascinating experiences we’ve had watching oil prices gyrate over the past nearly 40 years. We’d seen massive spikes together, equally disastrous crashes and years upon years when oil prices barely moved at all.
And, despite the many years we’d been observers and participants, we struggled to make even a few generalizations – even some small ‘unified theory’ of oil trading that could be confidently relied upon.
We both remembered moments in the past when fundamentals meant everything, and an unexpected draw or build in stockpiles would have an enormous impact on prices. At other times, they could have little to no impact on prices at all, and the EIA (or for us old timers, API) reports could be ignored. For example, global markets ran a million and a half barrel surplus in supply for two years from 2012-2014, but that surplus had zero downwards effect at the time on $100+ barrel oil prices.
Geopolitical tensions could be the only thing that mattered for prices at many points in the past 30 years. Few remember the first time Iraqi bombs fell at Kharg Island, an unknown Iranian refining site, but it caused the first three day limit-up price move in oil. The allied command bombs against Libya in 2011 provide…