So here it is. Inventories were stable to declining when oil prices spiked. When the financial crisis hit in October 2008, growth prospects fell through the floor immediately, and then inventories started to grow. This looks like textbook commodity prices to my eyes. No telltale sign of a bubble anywhere.
If it were a bubble we'd need inventories building somewhere. That might have been in other countries or withheld supplies by producers with excess capacity. But I haven't seen any evidence of that either. And if speculators were driving things, wouldn't we expect to see that in inventories in the good ol' USA? After all, deliveries to Cushing are the most actively traded futures contracts in the world.
The data can be downloaded from the Energy Information Administration (http://www.eia.gov/).
Update: Same data, better plot.
I'm far from an expert on this subject, but there might be one step you're missing, at least with regard to your comments on speculators and inventory.
ReplyDeleteMost futures don't actually involve taking physical delivery of the underlying commodity, and this is particularly true with oil. Further, it takes only a tiny amount of collateral/initial margin to buy or sell oil futures.
That might be part of the reason we saw a "superspike" in the price of oil without a concomitant increase in inventories.
Dan @ Casual Kitchen
Dan: WTI futures are for physical delivery of the product to Cushing, OK.
ReplyDeleteIn any case, note that I have plotted the spot price, not the futures price.
If inventories are not going up, then people must be buying ALL the physical stuff coming to market, and people are willing and able to pay the posted price. In other words, it's just supply and demand.
A speculative bubble would have to have product being physically withheld from the market in expectation of even higher future prices. We just don't see that. Or, at least I've seen no evidence that that occurred during or since the 2008 spike.