Prices are set by market makers, NOT market takers. In modern market pricing mechanisms, rarely does supply or demand set prices.
Most markets are dominated by 3 or 4 high volume traders that trade 80 to 90% of the typical daily volume. These high volume traders set daily prices by manipulating and pushing prices to where they want them to end up. There are many strategies to achieve desired pricing through high volume trading – but the typical go to strategy includes overwhelming markets with orders during typically low volume periods to achieve desired price moves. If you do not understand this then you should not be trading. We must accept typical investors are just a non-active participant riding a direction preordained. As Confucius said, if you think you know something…. True knowledge is admitting you don’t actually know this.
As prices move based on these few high volume traders, media and investors back fill the attribution – China demand, war, budget negotiations… and on and on. Sounds good until it doesn’t. Other oldies but goodies - it represents supply and demand conditions in the future. We don’t know what tomorrow will bring never mind the future.
And the future is always self-correcting. Higher oil prices brings more drilling and wells so which brings lower prices in the future. With future as your logic, prices should never move if markets are efficient.
High volume traders take the path to least resistance. When Biden took office, the headlines were a 100% probability that regulations and rhetoric attacking the oil and gas industry would be extreme. Turn the buy programs on and up, up and away – Oil at 100 with little resistance.
When Trump was in office, it was 100% certain that the rhetoric was going to be drill, drill baby and regulations would be stripped away. Prices went to 40 and lower during that period – lower than what it costs to get oil out of the ground and to market!
Now that the election coming up in November is a toss up with either candidate having a realistic chance to win, prices have to be at 70. High volume traders - price setters – no one else – have put the market back into equilibrium for a coin toss bet. Prices will not be at 70 after the election. This is a bimodal distribution – either a Trump 40 price or a Harris 100 price – these will be the new averages at which all the price takers will have to transact.
This is not a statement on which is better – 40 helps easing suffering on the lower and middle class – but has an obvious negative impact on health and environment. 100 a barrel creates suffering and crime – those on low end of society are faced with choices on how to live. But it accelerates advancement in more fuel efficient and more environmentally technologies.
I guess what I’m saying is what every child knows – you get what you get and you don’t get upset. It’s up to us to put elected officials in office that work together. Maybe then we get oil at a more reasonable, long term, less volatile and balanced average, fostering advancements in clean technologies. Otherwise brace yourself for a disruptive environment. We have no one but ourselves to blame.
Michael Carino, CEO of Greenwich Endeavors, is a finance specialist with over 30 years of experience. He has owned financial firms with roles including portfolio manager, trader, accountant, risk manager and treasury manager. He typically has positions that benefit from a normalized bond market, higher yields and value investments.
