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Thursday, August 24, 2021

Analyst Ben P. Dell’s unconventional theory of a commodities-trading bubble fueling today’s inflated gas prices is gaining some traction. In what serves as a follow-up and fleshing-out of the concept, Hal Varian invokes storage arbitrage and spot pricing to give backbone to Dell’s analysis:

Mr. Dell’s report specifically cited the rush of new and inexperienced traders into commodities markets as the cause of the current problems. [In 1953, Milton] Friedman’s argument was a long-run argument: speculators who bought high and sold low would be driven out of business.

But there is no reason speculators cannot lose money in the short run, particularly if they are inexperienced. Mr. Dell says that storage facilities are now close to capacity, which will make it more difficult to play the arbitrage game in the future. Indeed, crude oil prices have declined nearly 8 percent in the last two weeks.

If speculators start to worry that the price of oil could soon be significantly lower, some of that stored oil would come back on the market, pushing spot prices down, and offering welcome relief to consumers.

It’s not an outright endorsement of a bubble theory accounting for gasoline’s price rise, but it certainly verifies the contributing factors. Looks like Varian’s on board.

The amateurs are to blame for price inflation at the pumps. It looks like they’ll be responsible for the expectant pop.

by Costa Tsiokos, Thu 08/24/2006 11:37:39 PM
Category: Business
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  1. A PRICE-PRESSURIZED OIL DROP…

    Last year, analyst Ben Dell’s controversial assessment that oil prices were being artificially inflated via market speculation instead of supply shortages seemed to bear out when pump prices dropped toward the end of 2006.
    Since then, of course, …

    Trackback by Population Statistic — 12/17/2007 @ 10:44:51 PM

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