Four hand stock market game

What determines oil prices? What will be more significant in this regard - the results of the regular OPEC conference held on September 15 in Vienna or the decision of the US Federal Reserve, which raised its rate by 0.25% on September 21? Vladimir Kirillov and Ekaterina Tumanova tried to answer this question .

Oil prices have stabilized at $44 per barrel Light Sweet over the past month, after the oil futures market set another record on August 20, falling 72 cents short of the psychologically important level of $50, and suddenly began to roll back. Where will the market go next? To $30, as World Bank economists and most stock analysts expect, or to $50, as OPEC predicts?
The situation in this market is characterized by a trend, the line of which for Light Sweet oil can be written as: Y ($/barrel) = 33 + 0.064 X, where X is the trading day since the beginning of 2004 (Fig. 1). Having gone beyond the upper limit of the OPEC corridor in early February (for Light Swet oil - $33/barrel), oil prices are rising, fluctuating around the trend line with a period of two to three months until August 20.
But on the US stock markets, since the beginning of February, on the contrary, a downward trend has been observed. For the NASDAQ index, the trend line can be written as follows: Z = 2100 - 1.5 X. Fluctuations are also observed in this market, which until mid-August occurred in antiphase with fluctuations in the oil market. The correlation coefficient between the values of oil prices and the NASDAQ index for the entire trading period from the beginning of this year to mid-August is 0.893, which indicates a linear functional relationship between the markets during this period of time: Y = 107 - 0.035 Z (Fig. 2).
Such a connection is possible if investors play in both markets at once - both up and down, transferring capital from one market to another. This gives stability to the mood on them. Bullish sentiment is more present in the oil market, where there were many opportunities for bullish play. This is primarily due to a reduction in commercial oil reserves in the United States, the threat of interruptions in its supplies due to instability in oil-producing countries - Iraq, Venezuela, Russia (due to the Yukos affair), hurricanes in the Gulf of Mexico, as well as a noticeable increase in demand for oil in China. Given the continuous rise in oil prices, bearish sentiment naturally arises in stock markets.
Typically, the situation in the oil sector plays a major role in changing moods. However, recent changes in the markets are generated by events in the securities market. The American stock markets are currently battling two trends associated with an increase in the refinancing rate in the United States. One is downward, due to the weakening of the stimulating effect of increased rates on the economy. The other is upward, associated with the expectation of the arrival of capital from European stock markets with an accelerated increase in rates in the United States compared to the euro area.
With their speeches in mid-August, Alan Greenspan and other Fed officials were able to convince investors that the decline in business activity in the United States in the second quarter was seasonal and was not caused by high oil prices. As a result, on August 16, a rally began on the NASDAQ market, which led to the fact that on August 20, the oil market moved backward, falling just short of the level of $50/barrel. This is despite the fact that for six weeks in a row there was information about a decrease in commercial oil reserves in the United States and a reduction in oil exports from Iraq due to explosions on oil pipelines. It is possible that this is just another change in the direction of the investment swing in the oil and NASDAQ markets. However, this may also be a break in the trend in the stock market, due to the reversal of financial flows to America after the US Federal Reserve set a rate of 1.5% on August 10, which caused a break in the previous connection between the markets. If the first is true, oil prices, after a relative decline, will begin to rise again, so that by the end of the year, around the 250th trading day, the trend price will be $49/barrel, and the actual price will be in the range of $44-54/barrel. If there is a break in the trend on the NASDAQ market, as happened in early 2003, when the stock market began to show growth after a three-year decline, then very soon oil prices will return to the OPEC corridor, since supply on the world oil market is still at 1 .5-2 million barrels per day exceeds demand.
By the way, it is this last circumstance that is one of the motives for playing with oil futures. The fact is that the premium that the investor receives is the difference between the current (spot) price of oil on the day of delivery under the futures contract and the price of this contract. The excess of supply over demand in the long term leads to the establishment of a backwardation state in the market, when spot prices exceed futures prices. To maximize profits, the player needs to create uncertainty among market participants about the reliability of current oil supplies, combined with complete confidence that in the end there will be enough oil for everyone.
It is possible that one of the measures to reduce the price of oil in such conditions would be not an increase, but a reduction in oil production by OPEC countries. The possibility of making such a decision at the upcoming OPEC meeting on December 10 in Cairo was discussed by its members on September 15 at a conference in Vienna. Another measure is a moderate increase in rates in the United States. It is possible that the latest rate increase by the US Federal Reserve on September 21 by 0.25 percentage points will answer the question of where oil prices will go in the near future.

Magazine "Kommersant Money" No. 38 dated September 27, 2004, p. 22