the efficient-market hypothesis requires that agents have rational expectations; that on average the population is correct (even if no one person is) and whenever new relevant information appears, the agents update their expectations appropriately. Note that it is not required that the agents be rational. [...] All that is required by the EMH is that investors’ reactions be random and follow a normal distribution pattern so that the net effect on market prices cannot be reliably exploited to make an abnormal profit, especially when considering transaction costs (including commissions and spreads).
It’s unclear to me why these preconditions for the EMH would hold for oil markets. Is Wikipedia wrong about the EMH’s prerequisites? If not I’d infer that the EMH is false for oil markets and as such wouldn’t be very relevant.
Wikipedia is wrong (marginal traders are the ones that exert the most influence, and I don’t even know what they’re thinking bring normality into it). Those are sufficient but not necessary conditions.
In any case, financial markets are almost certainly not literally efficient, but are definitely close to efficient (you are only allowed to doubt this if you are a multi-billionaire or have an exceptionally clever theory). Thus, expectations about future demand and supply should be key determinants of current oil prices.
The Wikipedia article you link asserts that
It’s unclear to me why these preconditions for the EMH would hold for oil markets. Is Wikipedia wrong about the EMH’s prerequisites? If not I’d infer that the EMH is false for oil markets and as such wouldn’t be very relevant.
Wikipedia is wrong (marginal traders are the ones that exert the most influence, and I don’t even know what they’re thinking bring normality into it). Those are sufficient but not necessary conditions.
In any case, financial markets are almost certainly not literally efficient, but are definitely close to efficient (you are only allowed to doubt this if you are a multi-billionaire or have an exceptionally clever theory). Thus, expectations about future demand and supply should be key determinants of current oil prices.
Here’s EY on the topic.
I see! Thanks.