Strangely, The Spectator thinks this is “Market Failure”
watch the oil tankers bobbing about the Gulf. A popular flutter among the gambling rich recently has been to hire a tanker, fill it with oil (it will hold two million barrels) and park it in front of a refinery. Watch the price; if you lose your nerve, you can quickly dock and sell your cargo; but a $1 rise means you’ve netted $1.5 million. During the 1979–80 oil shock, 30 tankers were famously moored off Manhattan. Their owners spied on each other for any sign of movement until market spirits fell abruptly, and all 30 simultaneously raced to dock. the spectator
Tony Curzon Price writes a bit about oil prices and how the high price of oil is likely due to speculation. He takes The Economist to task on the basis that the “free market” is not working.
Mr. Price seems to be incapable of understanding the critical role speculators play in discovering price. He quotes George Soros “Oil prices are high because of a series of self-feeding beliefs, which, as George Soros says, are ‘intellectually unsound, potentially destabilising and distinctly harmful’. Soros has it about right and I have to bet he is short in the oil market.
Markets correct, often violently. The oil market is no different. Sometime in the next few days, weeks or months, the tankers will rush to port. When they do the price will fall and the shorts will make perhaps the biggest killing ever seen on the planet. And what they are being paid for is providing the needed correction to a market in which real supply and real demand are in rough balance but there is a perceived gap. That is the value of the short seller in any market.
Written by jay on June 22nd, 2008 with
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