Markets and Trading

Explaining Oil Prices

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[update 2009-06-12 10:00am: Please keep in mind that this post is about how people’s economic intuition goes awry when thinking about oil. The features internal to the oil industry are not as important as the differences between the oil industry and all other industries. It is these difference that cause people to misunderstand oil pricing.  ]

Oil prices are headed up even though the world economy is headed down. [h/t Instapundit] What gives? Shouldn’t a declining economy lead to  decreased  demand which keeps down prices?  

Well, yes and no. Oil is a strange commodity. It doesn’t change price and  availability  in the same pattern as other commodities that are based on natural resources. This  strangeness  arises out of the technology of oil production, distribution and refining.  

Several factors give oil an unusual economic profile:

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People in the Northeast are Economically Insane

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In a stunning display of economic  illiteracy  Connecticut is mulling a bill to force all gasoline  wholesalers  to sell gas at the same price to all retailers in the state. [More here] This is a form of price fixing that will drive down prices for rich people, drive up prices for poor people, cause shortages for everyone and not alter the wholesale price structure in the long run. Why do the people of Connecticut think such an idea can possibly work?  

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Legalizing Sports Betting

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For a long time I have wondered here and elsewhere why there is no state sanctioned sports betting. It isn’t like gamblers aren’t betting on sports in areas where there is no legal way to do so.

From what I have heard, you can simply walk into pretty much any bar and get “parlay cards“, or bet on games online.

Since these activities are already going on, why have states been so anguished about setting up organized betting for them? We all pretty much have lotteries where we can bet on RANDOM numbers, so why not on sports games? Vegas has dialed in the sports betting ratios and how to run a sports book long ago; there aren’t any real secrets in that realm. Set the spread so you get half the bets on one side, half on the other and collect the “juice” or “vig“. Simple as that.

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“Uncertainty Management”

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A discussion about the financial crisis, Wall Street, management and accountability at Neptunus Lex. The initial post is merely the starting point for some insightful comments by readers. Worth reading in full.

There seems to be a trend toward diminished accountability for top members of our political and business elites. People who should resign don’t. Leaders who should fire those people don’t. The military still seems pretty good (perhaps it’s no accident that the discussion I linked is on a blog written and frequented by military people). Accountability standards in small business and many professions, where failure tends to be immediate and personal, still seem OK. But things appear to be on the decline in big institutions and government. I don’t know if that’s because government has grown so big and intrusive that it drags down standards everywhere, or because our society has deteriorated, or both. It’s a bad trend either way.

Four Bad Bears

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…sounds like the title of a children’s book.

It’s not, though.