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November 16, 2008

Oil Trading with a 5 Handle…

By Wade Rousse

Are oil speculators now the good guys? It seems like only yesterday the price of oil was north of $140 a barrel and many people were blaming oil traders for these sky-rocketing prices. So now that oil is trading in the mid-$50 range (the trader term for this is a “5 handle,” thus my headline), shouldn’t all of those who blamed the oil traders for high prices now be giving them credit for these lower ones?

Are they no longer greedy capitalists but now benevolent philanthropists? During these harsh economic times, have they decided to lower the cost of living for families around the world by reducing the price of oil? Of course not! Obviously, I’m just being facetious.

As I wrote in a previous post, traders simply evaluate supply-and-demand conditions. They take “future” positions, with the intent of making a profit. This speculation results in liquidity and price discovery and benefits the market by allowing investors to manage their risk.

Just as speculators were not the villains when oil prices were rising, they are not the saviors as they fall. They are simply market makers, and some of you may be surprised to learn that many are very nice, family-oriented people.

World oil supply is very inelastic. Therefore, as global demand fell during this economic slow-down, prices fell dramatically. This is very logical. But here’s the key question: If world oil supply does not magically become more elastic, and if alternate sources of energy are not brought to the marketplace, what will happen to oil prices when this decrease in global demand reverses?


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Posted by Wade at 9:17 PM | Comments (2) | TrackBack

November 4, 2008

Poll Watching

In September, I posted an entry regarding the election and economic indicators. My point was perhaps since elections are won and lost by state in our Electoral College, we could look at each state’s economy and use it as a proxy for polls. You can take a peek at the last map of the United States in my previous entry and note which states are listed as “Expansion,” "At Risk," or “Recession.” And now, compare what you saw to this map that is updated live on Dismal Scientist today.

In two months, the following changes have been noted:

Moving from “ Expansion” to “At Risk”
Montana
Wyoming
Colorado
New Mexico
Texas

Moving from “At Risk” to “Recession”
Minnesota
Iowa
Arkansas
West Virginia

The only state remaining classified as “Expansion” is Alaska. Our map has changed a lot according to the economic indicators; we’ll be looking tonight to see how it has changed in the Electoral College. For all you who follow the political pundits closely and have scribbled down all states to watch tonight -- maybe add the ones above and gauge how important the local economy really is to elections. Are there any other states that you think are important to look at for economic reasons?


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Posted by Cindy at 5:24 PM | Comments (0) | TrackBack