The increase in oil prices today doesn't make any sense. to me.

It went over $2 a barrel to over $131.04 and the media is blaming tropical storm Dolly. The real threat is with Dolly interrupting refinery and port operations along the Texas coast, not drilling and production. Yeah, there might be some production lost in the Gulf of Mexico, but a stoppage at the refineries would cause a backup of oil in the supply line to be processed. This backup of inventory should lower the per barrel price, but increase the price at the gas stations as less rfined product is available.

Please, someone explain to me why my thinking is flawed. I don't pretend to understand everything. And I'd appreciate enlightenment.

I don't see what the speculators are getting on about. Not like they won't do it again.

(you know that sly smile on Dolly means she's hidin' a secret. Of the nature that even Cindy Brady would blush in embarrassment about...)

means interrupting the flow of contract oil, forcing refiners to buy oil on the spot market.

That's where spot market futures come in. Some fools pumped the price up two bucks on oil that won't be pumped or delivered until 3 months from now on the chance that the regular supply will be decreased next week.

It's just good money chasing bad.

price break of 30 cents since last week is about to go bye-bye too, I bet.

that puts them out of production. Otherwise, you might see an opportunistic bump of a few pennies, but it won't last long.

Fast buck artists are always unattractive.

elections...

before bottoming in the winter like they almost always do.

The biggest decline in recent years leading up to an "election" (well the first week of November anyway) was in 2005 when it went from $2.92 to $2.23, but of course there was no national election that year.

In 2004 (last presidential election year) gas prices went down until September and then rose from then until the election, then fell after that to bottom in the winter.

http://tonto.eia.doe.gov/oog/ftparea/wogirs/xls/pswrgvwall.xls

When they blame Dolly, they are just saying stuff because people expect an answer. They would look pretty foolish if they said "The price went up today. Nobody knows why." So they infer causation when they truly do not know because they cannot know.

There were millions of trades in oil and oil futures. In order to know why all the trades were made they have to ask the people who made the trades why they made the trades and why the reason changed over the day.

Do not listen to the business press. They do not know what they are talking about.

For the same reason a government set oil price does not work either. The government cannot gather all the information necessary to determine when the supply and demand will be at equilibrium.

Market decisions are just as much a matter of psychology and human vagary as they are cold calculation. Maybe the explanation has something to do with GI Joe With the Kung Fu Grip. Who knows?

What you're seeing today is market froth (or more precisely, "noise").

Markets nearing the end of a bull run become highly volatile. Prices jag up and down seemingly on whim. This bull still has a few laps to run, but the biggest part of the run-up is likely behind us.

This is exactly the same market activity seen recently in 2000 at the end of the tech-stock run-up and in 2006 at the end of the real-estate run-up. For that matter, exactly the same activity seen 350 years ago at the end of the tulip bubble in Netherlands.

http://en.wikipedia.org/wiki/Tulip_craze

Read this and you'll understand things much better than if you listen to all the market "expertise" you get on a political forum.

http://www.amazon.com/Irrational-Exuberance-Robert-J-Shiller/dp/0767923634/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1216672762&sr=8-1

The less of it is extractable per day per dollar, the more expensive it will get. Wake up...

Unless you prefer to imagine that stocks and real estate, like you assert with oil, will return to their real value circa 1900 as a matter of course, ignoring the rise in population relative to a relatively fixed concentration of (oil/land/wealth) that ges up in price as a result. When everybody has access to something, the price goes down because it becomes less attractive to trade for.

and the entertainers (calling it news is laughable) at CNBC, Bloomberg, etc. don't help...

Oil is a two way auction market. Price action is fractal, and trends develop on different time frames based on supply/demand inbalance.

But to try, ESPECIALLY on such a short time frame, "logical reasons" why oil (or ANY market) didn't do what you expect it to do is ridiculous. Markets don't work that way.

There is only ONE thing that makes a market go up. At the most basic level. When demand exceeds supply at a price level.

EVERY order only occurs when either the buyer or seller pays the spread and removes liquidity. It can't happen any other way. If nobody is willing to pay up or down, no trade is facilitated. But somebody ALWAYS is.

When sellers start hitting the bid, either they exhaust the orders at the bid and price drops to the next bid level OR new bidders step in and absorb demand OR bidders start pulling their bids, and that cascades price even lower.

No trader can ever make money if they sit and there and say "well, in texas bla bla but in the gulf bla bla but bla bla bla" and deny the price action

The market is ultimately (in the long term) rational and somewhat efficient. In the long term - we're dead :)

Seriously, the market can remain irrational for longer than any "rationalizing" market participant can remain solvent when they try to deny what is happening in front of their faces.

Spend several years looking at the market for hours a day and this becomes obvious. It's an auction process. Stop orders, panic, fear, euphoria, greed, etc. rule in the short term

I don't know how many oil rigs are in the Bay of Campeche, so I don't know what effect this may have on them but it won't touch the bulk of the oil rigs which are in the northern Gulf. I am sure the interruption, if any, will be short-lived.

They shut down production, chopper everyone out, and wait until the storm has passed.

The refineries shut down if it looks like the hurricane is coming anywhere close.

Those events interrupt supply like a speed bump slows down traffic. There's an immediate up tick in price per barrel. The price of oil is based upon market expectations, and when the market expects a crinkle in the supply hose, it bids the price up.

Oil purchases are made to ensure buyers a stream of oil months into the future. It's assuring that supply stream that drives the price up and allows speculators/traders to push the price up.

kidding. The speculative market only works to drive prices up.

Bubbles are great for them, because prices to up for a long time then go down for a long time. As long as they can time the bubble pop reasonable well, they can make money while something like oil is increasing in price, then make more when it starts to decline by "shorting" it.

It's harder for them to make money in markets where there is little price fluctuation.

The market on oil closed down .63, at 127.32.