Why has the price of oil fallen so sharply?
Over the last three days the price of oil has fallen by nearly 10%. Given the sudden nature of this change it seems impractical to state that it is fundamental supply and demand factors driving the shift in prices.
Tyler Cowen at Marginal Revolution states two reasons why we might get such significant changes to the current price, even if contemporaneous supply and demand conditions have not changed – both explanations avoid implying that there has been a “speculative bubble” in oil (where a speculative bubble would occur when traders have been holding inventories, which they have not been – however this does not rule out a general bubble, where future price expectations are out of whack). These reasons are: Read more