Not all about Supply and Demand: the case of oil prices

It wasn't long ago when we thought oil was a scarce commodity in the US. Now we have more oil in our stock piles than ever before, but oddly enough, sometimes we see conflicting signals. Hypothetically, the excess oil should be leading to lowered prices, but the sometimes the opposite occurs.

For instance, Marketplace's Dan Weissmann (@danweissmann) made a short on fluctuating oil prices where he featured a story on oil prices going up because the inventory went up. According to his interviewee, Walter Zimmerman, prices went up out due to imperfect information. With oil supply in excess, some traders expected prices to crash, but they didn't, and that may have worried some traders, so they bid prices up. As a correction, the oil prices dipped for the next days, but Zimmerman claims that this kind of thing is common in oil trading.

Its one thing to know the factors that shape oil prices over time, but figuring out which of those factors are most important is really hard. Sometimes it is neither about supply or demand, but about debt. But perhaps this is just something common to the world of trading. Sometimes you expect certain outcomes, and the disappointing results remind you every now and then that you aren't a wizard.