February 22, 2008
THERE'S NO SUCH THING AS HOMO ECONOMICUS:
Oil Prices: It's Not About the Oil: Crude oil prices are again breaking records, but not because of real issues with supply and demand (Moira Herbst, 2/22/08, Business Week)
Oil prices have resumed their wild ways. On Feb. 20 crude oil settled at $100.74—the highest ever settlement price—the second consecutive session with a settlement above $100. The spike was produced by a laundry list of news, from cold weather to a refinery explosion in Texas to the (falsely) rumored murder of a Nigerian militant leader. But when government inventories on Feb. 21 showed the nation's crude oil supplies rose more than expected last week, West Texas crude shed $2.51, to close at $98.23.What's driving oil prices? Economics 101 says price is determined by the balance of supply and demand. But when it comes to the oil market, fears and expectations have been trumping economic rules and carrying the day.
Rational markets are as real as Piltdown Man. Posted by Orrin Judd at February 22, 2008 8:07 AM
Comments
I wouldn't say that fear about future supplies is completely irrational. Fearful behavior can be very rational.
Now, whether this amount of fear is rational at this time - that's a good question and one I don't have the answer to.
Posted by: Mikey at February 22, 2008 10:29 AM