This post does not even mentionefficient markets. You cannot discuss oil markets or oil supply without discussing financial market economics.
Also, a couple of your ‘points’ seem dubious (11,12, 14, 15). They also seem like they are part of a timeline which is confusing. Also specific scenarios are not conducive to accurate forecasting.
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.
I think we are in trouble even if the markets are very efficient (although inefficient markets would be even worse). If all forms of energy were to increase in cost the markets can’t do much to save us. So the real questions to me are still unchanged.
Oops, there’s the illusion of transparency. I meant that efficient markets take into account the expected future price of oil (if oil becomes very scarce the price will be high). Thus, current prices (which are not astronomical) strongly suggest that oil will not be super scarce in the medium term future. Any good discussion of future oil scarcity should take this seriously. Perhaps there are reasons why this doesn’t quite apply, but you would have to introduce and discuss those reasons.
Oil does not need to become super scare to cause major problems. Right now the total supply and demand are quite closely matched. Reduce the supply just 10% and big problems happen.
Again the illusion of transparency, I meant that not in the sense of a set quantity of oil but in the traditional economic sense of becoming more limited in supply relative to demand for it.
This post does not even mention efficient markets. You cannot discuss oil markets or oil supply without discussing financial market economics.
Also, a couple of your ‘points’ seem dubious (11,12, 14, 15). They also seem like they are part of a timeline which is confusing. Also specific scenarios are not conducive to accurate forecasting.
Not 9, 10, and 13, and to a lesser extent 5 and 6 for their ignoring markets?
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.
I think we are in trouble even if the markets are very efficient (although inefficient markets would be even worse). If all forms of energy were to increase in cost the markets can’t do much to save us. So the real questions to me are still unchanged.
Oops, there’s the illusion of transparency. I meant that efficient markets take into account the expected future price of oil (if oil becomes very scarce the price will be high). Thus, current prices (which are not astronomical) strongly suggest that oil will not be super scarce in the medium term future. Any good discussion of future oil scarcity should take this seriously. Perhaps there are reasons why this doesn’t quite apply, but you would have to introduce and discuss those reasons.
Oil does not need to become super scare to cause major problems. Right now the total supply and demand are quite closely matched. Reduce the supply just 10% and big problems happen.
Again the illusion of transparency, I meant that not in the sense of a set quantity of oil but in the traditional economic sense of becoming more limited in supply relative to demand for it.