Does the ‘truth’ ever matter?


The momentum of opinion might be about to shift in favour of the belief that this year’s crude-oil price surge is more to do with speculation than fundamentals.

No less than 15 bills targeting speculators are circulating around Washington at the moment.

This same article details an investigation of allegations that Optiver, the oil trader, manipulated the market. In the public’s perception “manipulators” seem to be confused with the legitimate role of speculators and companies who need to hedge their raw-material costs.

The danger is that politicians will latch on to this idea and introduce harmful legislation in order to win votes.

Does the objective external truth – if there ever such a thing and you believe in following what others say rather than making your own internal reality – really matter in such a debate? Or is it all a question of perception. Me pretentious? No, come on….

Referring to my post yesterday, how much does perception shape both short and long term price movements? Should we abandon equilibrium economics for new sentiment-based methods of quantifying how markets behave?

Listen out for the stampede of sheep in Prada shoes as the analysts and journalists jump on the “speculation” bandwagon. Standing out from the crowd can make you feel al little lonely.

Let’s assume that supply is hugely challenged as this excellent blog constantly argues.

If prices fall to – or there is a significant fear that they might fall to – $70-80 a barrel, interest in exploiting hard-to-get at reserves such as the Alberta Oil Sands could diminish. Prices need to be at a minimum of these levels to justify costly investment in oil and tar sands and deep-sea reserves. Exploiting marginal reserves is essential for a secure energy future.

The end-result could be that we are storing up an even bigger supply crisis for ourselves in years to come – by believing that the speculators are to blame and thus driving prices down.

Companies might then be forced to draw back from the heavy expenditure and innovation necessary to get at difficult sources of oil and gas.


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