FT Alphaville » Blog Archive » RIP oil fundamentals?
And what’s to blame for all this united cross-asset momentum? Jakob hints it might be down to the world’s newest financial scape goat: high frequency trading.
It is true, after all, that thanks to specialist firms like Madison Tyler and others, HFT is no longer just found in the realm of the equity markets. Indeed, it’s firms like these that might very well be contributing to oil price inflation against the fundamental odds. The sort of inflation that the likes of Opec have long been keen to blame on speculators.
Which is why it’s interesting that Jakob should conclude that Saudi Arabia, which recently decided to protect itself from WTI anomalies by not pricing oil off the WTI Platts benchmark, would better have been served by a campaign to see the Nymex return to open outcry (non-electronic) trading:
Saudi Arabia will start in January to price its OSP for US destination on the Argus sour Gulf quote and the CME was quick to react by announcing that it would launch a Futures contract on the same Argus quote. That move from the CME might kill the benefit for the Saudis of changing the reference quote as automatic electronic arbitrage will likely spill the disconnect of WTI into the gulf quote. In our opinion, the only alternative for a crude oil future to regain some diversification benefit would be to return to full open outcry.