Oil Glut Watch #2--the curious case of rising prices

I happen to think oil markets are more exciting than opera, soap operas, Iron Chef, and high speed car chases combined. But even if I didn't, I'd probably still love reading Tom Kloza of the Oil Price Information Service for his hilarious analysis of myth and market in domestic gasoline prices.

This week Tom talks about the cognitive disconnect of the Glut. The US now has more than a billion barrels of oil in storage, gasoline demand is flat, and diesel demand (the real economic indicator) is off by twenty percent. Meanwhile, oil prices have risen by $8.33 a barrel in the last week. "A stew of investment, speculation, and actual commerce," is the way he describes today's oil market, (after he gets in some digs at Star Wars fans and oven mitts.) He's getting at something bigger, though: We really don't understand how the oil market works now.

Perhaps at one time the market was about trading the commodity, but it has now become something more meta: a currency hedge, a place to put money while waiting for other opportunities, a place for speculation (of course. But that's not necessarily a bad thing though it would help if the trades were more transparent) and an hugely influential global index based upon an increasingly anachronistic flavor of oil called West Texas Intermediate. After crude prices went up last year there were many calls for better regulation of the futures market, but in the meantime the market has continued morphing day by day into a new creature.

Much much better than opera.