ROCKMAN wrote:Outcast - You're certainly not stupid. You just don't sell oil for a living. LOL.
“Cog's comment is an accurate reflection of the fact that a major grade of oil…just hit a price not seen in about four years.” Incorrect. WTI is a minor component of global oil production representing only 30%.
I didn't say "the major", I said a major. To me, the top ones are the major ones. As I know has been mentioned in this thread, WTI and Brent are both major futures contracts that are frequently cited in conjunction with discussing the relative price of oil.
And though I was just chastised for stating the “obvious” here it is again: “…just hit a price not seen in about four years.” So again was that the price WTI was sold by US producers this week or the recent closing price of 30-day WTI futures contracts? A price that might significantly increase or decrease in a matter of a few days. A price that has ZERO EFFECT on the price that the Rockman received for his oil this week. IOW those bids are not effecting what consumers are paying for refinery products. Refinery products made from blended oil. Blended oil which contains very little WTI. Blended oils containing a significant volume of heavier oils whose prices do not move in lock step to changes in the price of physical WTI oil sales. And have no relationship to WTI CONTRACTS currently being written.
Rockman, I respect you, but we seem to be talking past each other. It seems like we're talking about semantics issues more than fundamentals here (to me).
I think folks like Cog and I (in the context of Cog's quote I referenced) and the press DON'T REALLY KNOW OR CARE what the actual price of the oil physically bought and sold is down at the detailed level. We are using WTI (or Brent) as a PROXY for the approximate value business and speculators are paying for oil. Look, airlines (as an example) don't run around and hedge future oil needs by buying some minor grade directly from Barney's discount oil emporium. They buy major futures contracts which are liquid, anticipating that this will (for the most part) hedge their future oil needs.
Why this redundant post? "Because the context isn't about some detailed issue with buying some special grade of oil at location X -- but the overall price of oil and its (implied economic) consequences.” Within the “context” of that post the recent closing bids on those contracts: “…the overall price of and its (implied economic) consequences.” Those bids have no consequences because they represent the prices of “paper bbls” and little if any physical bbls of oil being sold today. So I’ll ask one more time: who can tell us what the average weighted oil price oil being currently sold in the US? In the world? Those are the numbers that will EVENTUALLY impact economies.
Yeah, I get it. But again, it's my belief that over time, the price of Brent and WTI (they do widely diverge at times) are a decent PROXY for the price of oil, and to reflect the markets' attitude about likely future oil prices. To me, that information has value for things like whether I should buy or sell oil stocks and the likely impact on the global economy over time, even though they're paper barrels. I believe that the value of those paper barrels will strongly correlate over time to the actual price of the blended oil that is physically sold.
Now if that's not true, then I think there's a big problem with the oil futures market, because being that proxy is what futures are designed for, whether they be gold futures, pork barrel futures, sugar futures or Brent or WTI futures.
Being an insider, you have far more insight and expertise on the details. That's great.
Dumb outsiders like me will just have to be content to limp along and use proxies like WTI and Brent, because people can't be experts at everything and their time is finite.
In my 35+ years experience in trading various markets, the proxies provided have been plenty good enough to get the job done. And they certainly have correlated with the price of the gas I put in my car over time, very closely.
I'm reminded of a comment in a book about trading futures that most of the guys (professional traders) in the soybean pit probably wouldn't know an actual soybean plant if they saw it. And yet, soybean futures do say something significant about the likely price of soy products in the grocery store.
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.