Watching oil prices change is very entertaining. Oil prices
over the last few months have declined sharply. It almost looks odd when we
look at the data. I for one cannot help wonder why oil prices decline so
sharply over such a short period of time.
Another interesting aspect is that there are large standard
deviations and the mass of the distribution seems to be around $100
(this is only from 2007 and is not the growth in oil prices).
James Hamilton at Econbrowser argues that a fall in the
demand for oil is partly to blame for the lower oil prices. The US Energy
information agency also shows that US oil production has increased quite
sharply.
Despite various assertions I am still a bit sceptical that
oil prices would plummet that quick because a few countries have economic
problems. For one, the world economy has not recovered to pre financial crises
levels and two we have not discovered a major oil resource in the last three
months where production has increased. Sure demand for oil might be weakening
due to slower world economic growth - but the major consumers of oil (mainly
the Western and Northern hemispheres) are in their winter months. This means
that the demand for gas will surely increase. On top of that, US economic
growth has improved quite a bit - suggesting that the demand for oil should
increase.
I tried to get an update on oil consumption and production,
but the latest available (and free) data that I could found was until October.
The interesting months were November and December. Another interesting
observation is the increased volatility in the NYMEX oil open interest
contracts. Now it seems that even traders are trying to profit from these
swings (when haven't they?).
Finally, one might be tempted to see a correlation between
oil prices and the debt problems in Venezuela and the sanctions against Russia
- something for the conspiracy theorists. A Bloomberg and a FT story discuss
the debt agreement between Venezuela and the Dominican Republic (has to do with
oil). The intermediary is Goldman Sachs (the same guys that once upon a time
announced that there was a real likelihood that oil prices will hit $200 per
barrel). Basically with the fall in oil prices the debt swap is done at a
massive discount (not good for Venezuela). Furthermore, oil is one of Russia's
biggest export commodities - the fall in oil prices will surely hit their
economy hard. But of course all of this might be simple coincidence...
Sources:
http://blogs.ft.com/beyond-brics/2014/12/03/venezuelas-new-best-friend-goldman-sachs/
http://www.bloomberg.com/news/2014-12-04/venezuela-said-to-discuss-swapping-dominican-oil-debt-for-cash.html
http://econbrowser.com/archives/2014/12/supply-demand-and-the-price-of-oil
https://www.quandl.com/
