Saturday, January 31, 2015
Economy: How The Oil Price Is Rigged
Friday afternoon the oil futures (Brent Crude & WTI Crude) jumped suddenly 8%. According to MarketWatch and other media the market responded to the news that the "number of U.S. oil-drilling rigs dropped by 94 in the past week (7% of the existing rigs), representing the largest one-week decrease since at least 1987" (marketwatch bloomberg).
It seems, that the media and the market focus now on the number of oil rigs in the US. Falling rig counts are interpreted as signs that the oil price drop in the recent months is reducing oil production in the US sharply which should lead to higher oil prices.
The strange thing is: Nobody cared about the rising number of oil rigs from around 2006 until autumn 2014. Did the oil price drop any time 7% because the count of US oil rigs rose? Nope. The media didn´t tell us then that the rising oil rig count will lead to a rising oil supply.
Why is the number of oil rigs important when it is falling and unimportant when it is rising? There is a bias in the news which could be deliberate. Maybe the media are following hedge funds and other speculators who want us to believe that the oil price has to rise because they are betting on that?
In the recent years the oil speculation - and the media - ignored the relationship between oil prices and oil supply. Instead they focused on military conflicts in Iraq, Syria and other problem regions which could could cause a severe disruption of the oil production and justify higher oil prices. Now oil production in Iraq and other middle east countries is coming back because the political situation is less severe. But the media don`t report much about more oil from Iraq & Co.
Conclusion: We are constantly feed with "reasons" for rising oil prices - like dropping oil rig counts - but news which show otherwise are downplayed and faded out. It seems that there is strong lobby for high oil prices.
PS. For illustration I used a painting by Wouters Pietersz Crabeth D. J.. "Die Falschspieler" (The Cardsharper) found @ Gemäldegalerie, Berlin