Aug

23

One of the most popular pieces of #BullCrap is that when crude prices go down its good for economies like India that are dependent on large imports to fulfill majority of the crude consumption domestically.

Fundamentals are not funny'mentals, but the over-reach of intellect to fit things anyhow even if erring in fitting square pegs in round holes or putting the cart before the horse make it funny! The urge to find a reason for explaining a regularity in markets ends up reaching an extreme of imagination.

The popular opinion that crude down so India or similar economies will do well and our Sensex or Nifty Index should fly suffers from:

1.    Imagination that a critical commodity as energy is traded by Governments and large down stream marketing companies the same way as a trader in Chicago is trading futures.

2.    All expected demand for downstream products that forms the cracking hedge must be long for several months ahead to cause a zero disruption economy. So when a short term down move in crude futures at NYMEX happens actually these companies doing the cracking & marketing gig suffer that consumer is perceiving profiteering. Majority of oil products marketing companies are state owned and the Government comes under flak that Nymex Crude has come off 50% in 3 months and consumers on the street level gas stations are still buying at highest ever prices. So its neither good for the people on the street level gas stations, nor the people running the Oil Marketing companies, nor the people running the Government and the imaginary idea that significantly down crude prices are saving India money is a baloney of a high order.

3.    No one wants to talk about the oft present spurious correlation that prices of equities and prices of crude are both measured in Dollars and it is often the big moves in Dollar, as broadly reflected in the Dollar Index, or the selective beating down of emerging market currencies that are connected often to the downtrend in crude prices or uptrend in crude prices. An optical illusion in simpler words if the hoi polloi do not wish to encumber them to google up what the chair meant by spurious correlations.

4.    The bigger point most are missing is a conjecture I wish to place on the table before this august list of speculators. The futures price of crude is the speculatively contested price for delivery at Nymex. It doesn't reflect the real physical demand or supply worldwide on a day to day basis. So is a sustained down move (I didn't use the word trend!!) in crude a canary from the mines that risk-off bump is ahead on the road?


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1 Comment so far

  1. Olav Aspheim on August 27, 2019 8:28 am

    So do you think high oil prices helps and economy like India’s? Or are you saying there is no effect?

    At the end of the day, if Crude goes down, someone is paying less for oil.

    You say it’s not:

    1. The consumers
    2. The oil marketing companies
    3. The gov’t

    Who is it then? Isn’t it one of those three? If one or more of those three benefits isn’t it a benefit to the Indian economy?

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