Oil prices slide, and the search for an explanation is on

Adriene Hill Sep 18, 2012
Share Now on:
HTML EMBED:
COPY
Oil traders work on the floor of the New York Mercantile Exchange on May 11, 2012 in New York City. Justin Sullivan/Getty Images

Oil prices slide, and the search for an explanation is on

Adriene Hill Sep 18, 2012
Oil traders work on the floor of the New York Mercantile Exchange on May 11, 2012 in New York City. Justin Sullivan/Getty Images
Share Now on:
HTML EMBED:
COPY

Oil prices plunged yesterday; they fell more than $3 a barrel in just minutes. And, almost as quickly, the hunt for an explanation started. Was it the rumor that the president might release strategic oil reserves? A fat-fingered trade, a mistake? Maybe Rosh Hashanah had something to do with it? Or the fact that options contracts were expiring? How much was it really about the stock market? The dollar? QE3? It seems like there were as many explanations out there as there were people who get paid to figure these things out.

Predicting oil markets hasn’t always been so mysterious and complicated. PRICE Futures Group analyst Phil Flynn said in the past that “you could just count the barrels of oil coming out of OPEC and you look at demand in the United States.”

“If it’s going to be up, oil prices are going to be up and if it’s going to be down, oil prices are going to be down,” he sums up. But now, it’s a whole different thing. “There are so many factors driving this market, I guess you could say it’s not your grandfather’s oil market anymore.”

All those factors have today’s whipper-snapper traders looking for answers. United Energy analyst Walter Zimmer was flooded with calls yesterday when the market fell.

“What’s happening in energy? What did I miss?” he recalls. “We must have gotten 20 phone calls.” Everyone was scrambling to figure it out.

It’s not just academic curiosity driving these questions; there’s a lot of money at stake. A trader will lose big if he’s the last one to know what’s going on. And, said Zimmerman, today’s traders are more than a little traumatized by the last few years.

“Trust has been beaten out of the investor, by the sharp up-and-downs,” he says, “really since the bursting of the Internet bubble.”

It’s not just investors that have reason to watch these big swings. Market jolts are probably worth a little attention from all of us (even if we don’t know exactly what caused them). Zimmerman says these ups-and-downs serve as reminders “that the markets are not stable, they are fragile. That this recovery is not solid, it is hope-based.”

And that that means things can turn very, very quickly.

If you’re a member of your local public radio station, we thank you — because your support helps those stations keep programs like Marketplace on the air.  But for Marketplace to continue to grow, we need additional investment from those who care most about what we do: superfans like you.

Your donation — as little as $5 — helps us create more content that matters to you and your community, and to reach more people where they are – whether that’s radio, podcasts or online.

When you contribute directly to Marketplace, you become a partner in that mission: someone who understands that when we all get smarter, everybody wins.

We’re here for you.

As COVID-19 reshapes our economy, our newsletter will help you unpack the news from the day.