More oil price nonsense

Crude prices stay above $53

Crude futures held steady above US$53 a barrel Thursday on traders’ worries that refinery outages in the United States would strain supplies.

This makes no sense whatsoever. If oil refineries close in the US that means a reduction in demand for crude. Now I don’t have any idea what actually caused prices to climb and stay high, but the threat that the US won’t be buying as much crude is certainly not the cause. It might cause an increase in the price of refined petroleum products internationally, if importing refined products is even an option, but even in that case it doesn’t represent any increase in demand for crude.

Something is broken in oil markets. My hunch is that what’s broken is the high level of government intervention from the producer’s nationalization of production to the domestic addition of oil to the strategic reserve at any price without regard to how much it’s costing taxpayers. When a major buyer will buy a set quantity no matter what the price, it turns supply and demand on its head. Well, okay, actually it just makes the demand curve less elastic, but you get the point. Bottom line, an administration that has made increasing human freedom its mantra needs to look at reducing government intervention, increasing freedom, in such an important market.

“BILL: I can’t understand why the price of gas suddenly rises when oil goes up…
ROLLINS: …but takes months to go down long after oil falls!” (William Shatner and Henry Rollins “I Can’t Get Behind That” from Has Been )

Has Been

More on oil on my site Financial Options including The Secret Way to Play Oil.

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