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View Diary: Alan Grayson Rips the 'Liar' Alan Greenspan a New One (233 comments)

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  •  Sorry, this is completely wrong (2+ / 0-)
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    Sanuk, DarkestHour

    futures prices absolutely do determine spot prices.  Futures are a broad term that also include the current contract and the spot price is directly affected by what is going on in the futures markets.  Look at oil for example, it went to 150/barrel not on current supply/demand, but on future speculation, then went to 30/barrel as speculative positions were unwound and is now back up to 85/barrel without a significant change in current supply/demand from the level it was at when it traded at 30/barrel.

    •  Absolutely right, or I couldn't make a living (5+ / 0-)

      as an energy economist.

      First of all, the spot price of oil has never been $150/bbl. Future prices have been that high, but the sap who took a long position at $150 probably lost his shirt when he had to unload for about half as much.

      Here's a chart of historical spot prices.

      As you can also see in the annotated chart, significant shifts in the spot price are influenced by changes in supply (typically OPEC actions or war) and demand (the world economic picture).

      Please agree with me that there is relatively little storage in the system (a few hundred million bbls, or so) except for keeping oil in the ground. It's going to follow from Econ-101 that price is set by short-term supply and short-term demand. The fact that short-term demand is relatively inelastic accounts for much of the spot price-volatility. Volatility in the futures market, otoh, is a function of the hopes and fears of speculators. It won't affect you, assuming you refrain from buying/selling oil futures.

      There are just 10 kinds of people; those who know binary and those who don't.

      by RudiB on Thu Apr 08, 2010 at 12:36:25 PM PDT

      [ Parent ]

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