Publications: Notes at the Margin

AI Rules Oil Markets; Frackers Risk Antitrust Investigation (February 7, 2022)

 

(I) One of the better quotes of last year came from Saudi oil minister Prince Abdulaziz bin Salman as he responded to the end-November 2021 oil price decline:

 

“Thanksgiving was a Thanksgiving day for the speculators,” the minister said. “But let them dare to do another Thanksgiving. They will be ouching like hell.”[1]

 

The minister’s threat followed a nearly $13-per-barrel price drop from the end of November to early December. He was likely thinking of himself as a central banker speaking to human speculators.

 

The hard data, though, suggest his target should have been computers that communicate in zeros and ones rather than a spoken language. The computers paid the minister no heed. Instead, they did as they were told or, possibly, had learned as artificial intelligence (AI) spreads across the globe: they bought when prices rose and sold when prices fell. AI-driven computers also monitor the underlying price volatility and the change in that volatility (the gamma). They sell or buy more when volatility rises.

 

(II) Some fracking executives have chosen to throw caution to the wind and risk being fitted for the orange jumpsuits of federal prisoners.

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