• 4 minutes Energy Armageddon
  • 6 minutes How Far Have We Really Gotten With Alternative Energy
  • 10 minutes Russia Says Europe Will Struggle To Replace Its Oil Products
  • 5 hours GREEN NEW DEAL = BLIZZARD OF LIES
  • 5 hours Reality catching up with EV forecasts
  • 8 days "Natural Gas Price Fundamental Daily Forecast – Grinding Toward Summer Highs Despite Huge Short Interest" by James Hyerczyk & REUTERS on NatGas
  • 2 days 87,000 new IRS agents, higher taxes, and a massive green energy slush fund... "Here Are The Winners And Losers In The 'Inflation Reduction Act'"-ZeroHedge
  • 7 days A Somewhat Realistic View of the Near Future for Electric Vehicles Worldwide
  • 13 days The Federal Reserve and Money...Aspects which are not widely known

Breaking News:

Fitch Expects $95 Oil In 2023

Why Oil Won’t Trade Above $100 This Year

Why Oil Won’t Trade Above $100 This Year

Commodity analysts at Standard Chartered…

Big Oil Reports Record Profits, But There's A Catch

Big Oil Reports Record Profits, But There's A Catch

Big Oil reported record breaking…

James Hamilton

James Hamilton

James is the Editor of Econbrowser – a popular economics blog that Analyses current economic conditions and policy.

More Info

Premium Content

Oil prices and trading mechanics

A report from Reuters attributes the wild commodity price moves last week to algorithmic stop-loss trading.

Jim Brown offered these details on the oil trading:

Those funds interviewed said the massive amount of stop losses that were triggered was beyond comprehension.... When the crash finally came the number of positions liquidated was staggering. As each technical level was broken it triggered more stop losses and more short selling to capture the drop....

ADVERTISEMENT

Credit Suisse analysts said the high frequency and algorithmic trading accounted for about half of all the volume in the oil markets.

Every day, futures prices can and do move in response to how many people want to buy or sell the contracts. As I explained in a recent study in Brookings Papers on Economic Activity, inventory arbitrage forces the spot price to move along with the futures price. But as I also explained there, this does not mean that sentiment or speculation alone can put the price of oil at any arbitrary value. Ultimately, the critical question is whether the spot price is one at which the physical quantity produced is equal to the physical quantity consumed. Whether today's price indeed accomplishes this was the focus of my discussion of these events last weekend.

ADVERTISEMENT

But clearly, there are lots of big traders out there who are thinking not along these lines but rather in terms of Keynes' beauty contest, supposing that all that matters is guessing what other people think the price will be, and fooling themselves into believing that by programming their computers to buy high and sell low they are going to outsmart the other players.

Count me among those who maintain that buying high and selling low is unlikely to be a successful trading strategy. But if enough people believe otherwise, they can wreak a bit of havoc on the rest of us before they themselves go belly up.

By. James Hamilton

Reproduced from Econbrowser


Download The Free Oilprice App Today

Back to homepage


ADVERTISEMENT


ADVERTISEMENT



Leave a comment

Leave a comment




EXXON Mobil -0.35
Open57.81 Trading Vol.6.96M Previous Vol.241.7B
BUY 57.15
Sell 57.00
Oilprice - The No. 1 Source for Oil & Energy News