by Chris Black
Wall Street loves speculation and driving contracts higher to make a profit.
There isn’t a trading house on Earth that takes delivery of physical product to actually use.
If they have no use for a product, then the only way to make a profit is to sell a contract off for more than you paid, unless you are shorting the contracts.
None of it has anything to do with the underlying supply and demand.
That is why all energy products have skyrocketed after HFTs took over the market.
We had much tighter supplies twenty years ago, but gas rarely went above $3.
Oil was range bound between $12 and $25 for twenty years.
The only thing different today is the massive million times over expansion of contract churn.
There is more daily volume in oil contracts today, than the entire decade of the 1980s.
Back then we had hundreds of independent refineries and oil companies, all vying for the best price, keeping a lid on obscene price moves. Today, everything is disconnected and nothing is working like it should.
The price moves of the last two years require at least a doubling of the average earnings.
Right now the equivalent salary of $50k in 1995 is $175k. Those $50k jobs in 1995 are still paying $50k today, in fact some dropped closer to $40k.
As by design the middle class lifestyle is rapidly approaching 16th century serf.