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In Surreal Oil Market, Nomura’s McElligott Asks: ‘What Is The Utility Of The Futures Contract Itself?’
It's easy to get mired in the somewhat tedious details of the "technical oddity" that was Monday's e
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Having lived on both sides of that bluff near ’73 , it is interesting to see the “price” over the course of ones life.
We will find out more about the Geopolitics of all this in the next few months when the East /West alliances resolve themselves a bit… Watch for movement of product between stronger players and weaker or distressed producers like Iran , Venezuela ,Libya and Iraq…..Watch the guys siting on the fence like India parts of Europe as well….Watch what they do not what they say……..
If this situation is as bad as it appears, and continues for the next month, it seems that there will be a fair number of Bankruptcies that begin to surface.
What is the utility of the contract? Great question. The spotlight is on oil today. Tomorrow perhaps corn, or something else. And this goes beyond storage and delivery challenges. As a producer of grains, we originally welcomed outside interest in the Chicago or K.C. contracts, as the liquidity was beneficial. With outside interests hold a greater and greater share of the contracts, price actions devolved from the real and benefit of outside participation declined. 3500 open contracts the day before the close is absurd and has nothing to do with the supply and demand of oil. The liquidity has evolved into a liquidity trap through hapless lack of awareness by those involved. Where is risk management? Your first loss is your best loss. Get out.
I wonder if policy makers see this parallel of oil (physical good extracted, transported, stored, etc) with the novel Coronavirus (infects regardless of religion or politics): people have invented clever artificial systems/models but at some point there is a reality you cannot BS or algorithmically front-run.
Will they start making physical changes or instead invent more fictions and fantasy? (Tarrifs? Will the Fed start buying oil too? … electronic bits for virtual barrels?)