Oil Price Fantasy: Bill O'Reilly Remains a Pinhead, and the Mainstream Media Remains Stupid

My brother has access to the Oil Price Information Service.  He is co-owner of a trucking company. See yesterday's entry in this blog labeling Bill O'Reilly (correctly) as a mjaor league pinhead, and the mainstream media as stupid, for paying attention to a fictional move in the price of oil.  No wonder people are willing to buy the fantasy, leftist world where the Federal Government ca solve all of our problems, instead of the real world where reliance on central planning sets us up for disaster. People are being fed fantasy every day.  Here is today's "OPIS Alert (emailed to me from my brother):

 

"To: OPIS Bonus Alerts
Subject: OPIS UPDATE: ***NYMEX FLOOR TRADING OPENS WITH LOSSES AFTER
HISTORIC RISE YESTERDAY

2008-09-23 09:14:34 EDT
***NYMEX FLOOR TRADING OPENS WITH LOSSES AFTER HISTORIC RISE YESTERDAY
   The NYMEX pit opened with losses across the board today after a record-
breaking intraday rise in crude oil yesterday.
   October WTI, which expired Monday, roared higher by some $25/bbl at one
point. That's a new all-time record intraday jump, and was prompting
attention
from federal agencies for further regulation.
   November WTI, which becomes front month today, settled yesterday with
gains
of $6.62/bbl, topping $109/bbl in overnight trading. In the first few
minutes
of activity today, the contract was down about $1.25/gal near the $108/gal

mark"

 

Note that yesterday's price movement in the expiring October contract is confirmed as fictional.  In other words, it is a lie to call it "historic".  It was not real.  It was a fantasy.  It was just a one day short squeeze in an expiring contract.  It had nothing to do with the price at which people are actually buying and selling oil.  It only had to too with a one day market squeeze as to a single expiring contract (where "real" buyers of oil could simply have bought the Novermber contract at a lower price--not to mention that the cash market price of oil did not move).

 

Do you see how far the insanity has gone?  Note the reference to calls for "more regulation" because of a fiction.  It was not real.  It had not real impact on the economy.  It had no real impact on the real price of oil. It had no real impact on the continuing oil futures market.  It was a short squeeze.

 

Now can you make a case that we should do something about the computer program trading, and speculative risk taking, that results in this kind of (immaterial to the rest of us) short squeeze?  Maybe.  However,  O'Reilly, and others, are looking at this exactly wrong.  It has nothing to do with "manipulation" of the price of oil. It has nothing to do with speculators controlling the price we pay for oil and gasoline.  It only has to do with speculators getting caught in a short squeeze. 

 

Wild swings are known to occur on contract expiration days, and option expiration days.   If you want orderly markets, you might want to try to avoid these wild, one day gyrations caused by speculators having to "unwind" positions on the last day of a contract.  However, it is not a major problem--certainly not a problem with the price of oil--and trying to "fix" it could easily create serious problems with the "real" futures trading (not this fictional short squeeze of yesterday). 

 

We should address reality, and not Bill O'Reilly/mainstream media/leftist fantasy.  Yesterday's fictional move in the "price" (really only October contract, expiring) of oil was not "historic".  It was meaningless, except as to speculators involved.  If we act, it should be on the reality (that this is a pretty technical "problem" involving trading on expiration days and not any kind of fundamental problem in oil price or futures trading) rather than act on fantasy (that yesterday was some sort of proof of speculator responsibility for the price of oil and gasoline we pay)..

 

See yesterday's blog entry for the full explanatioin of why yesterday's "move" in the price of oil was fictional, and why this kind of contract "squeeze" is not new (not a result, for example, of "deregulation").