Re: well, D.D.

[Daniel Davies <dsquared@xxxxxxxxxxxxxxxx>]

the issue here is one of the difference between oil and oil futures.  If the
refineries are closed, then it makes a lot more sense to own oil futures
rather than oil (because the advantages of owning oil rather than futures
(the "convenience yield" in the jargon) is much less.  Hence a refinery
shutdown is good for futures versus spot and since the reported price of oil
is the futures price, drives the price up.  no offence obviously and what
Michael has spotted here is the "involved and slightly weird" argument that
I claimed to have in my original post on the subject.

best

dd

-----Original Message-----
From: PEN-L list [mailto:PEN-L@xxxxxxxxxxxxxxxx]On Behalf Of Michael
Perelman
Sent: 12 August 2005 19:44
To: PEN-L@xxxxxxxxxxxxxxxx
Subject: well, D.D.


The Wall St. Journal also reports that the refinery problems are -- as
the paper says "counterintuitively" sparking rises in oil prices.  So,
the "noise traders" are pushing oil prices higher for no good reason.

Acutally, to the extent that the refinery problems reduce the
consumption of petroleum they should actually lower oil prices, albeit
very slightly.
 --
Michael Perelman
Economics Department
California State University
Chico, CA 95929

Tel. 530-898-5321
E-Mail michael at ecst.csuchico.edu