It's simpler: people who were long oil make money (on paper) and those who were short oil lose money (on paper).
You were long oil if you are an oil producer, or, e.g., if you owned oil futures. You were short oil if you are an oil consumer, or, e.g., if you had sold oil futures. If you are both (e.g., airlines might hedge future oil consumption by buying futures, and producers might hedge future production by selling away their future production), then you need to net it out across the futures curve.
Price responses to supply shocks in theory serve to allocate resources appropriately (e.g., if your consumption did not matter that much, you might curtail it); if another person's consumption is more productive (i.e. profitable), then they're likely to eat the input cost and still buy it. In the long run, you might hope that high prices lead to more investment in producing the scarce good, or in more hedging activity to prevent future harms. The net effect of (long) hedging activity is generally to slightly increase the future price because folks buy futures / futures options, and market makers, in addition to selling the option, buy the underlying to remain market neutral. This potentially increases future supply because it can, in theory, push up the futures price, or estimates of future price, which can make new resource extraction economical.
Unfortunately, today, given the degree of inequality, it is mostly poor people whose consumption is curtailed when there are supply shocks. This is consistent with the above interpretation: the implication of wealth inequality is that the poor people matter less and are less productive to the capitalist machine. As a real example of this, the oil price would likely be higher even, if the oil consumption of Southeast Asian countries had not decreased because they could not afford the higher prices. This is the great thing about inflation in a highly unequal society: it is partially tempered because demand goes away as prices rise.
Or, in another world, the official US CPI definition (<a href="https://www.bls.gov/cpi/" rel="nofollow">https://www.bls.gov/cpi/) is 16.3% based on energy prices.
I strongly suspect this definition strongly correlates with what most people call inflation (my fuel bill went up! and strangely, not heading to work wasn't really an option).
If everything has an oil component to its price i.e. energy to produce it or transportation to move it, a (large) price increase in one commodity would produce a general price increase.
> a (large) price increase in one commodity would produce a general price increase.
Nope. Because if you spend more on one commodity, you necessarily spend less on other items. Spending less means less demand, and corresponding price reductions.
This is the Law of Supply and Demand at work.
Which also explains inflation - more money dumped into the economy, without a corresponding increase in the goods & services in the economy, devalues the money (see Law of Supply and Demand), which we call "inflation".
Money is not "special", and is subject to the LoSaD just like everything else.
Look what happened to Beanie Babies' prices when Tyco flooded the market with them. What do you think would happen to the price of Ferraris if Ferrari quadrupled production?
Why do you think Argentina's inflation is way down? It's the reduction in deficit spending. Do you think the Weimar Republic's trillion-to-one was caused by oil prices?
jsrozner · · focus · HN ↗
You were long oil if you are an oil producer, or, e.g., if you owned oil futures. You were short oil if you are an oil consumer, or, e.g., if you had sold oil futures. If you are both (e.g., airlines might hedge future oil consumption by buying futures, and producers might hedge future production by selling away their future production), then you need to net it out across the futures curve.
Price responses to supply shocks in theory serve to allocate resources appropriately (e.g., if your consumption did not matter that much, you might curtail it); if another person's consumption is more productive (i.e. profitable), then they're likely to eat the input cost and still buy it. In the long run, you might hope that high prices lead to more investment in producing the scarce good, or in more hedging activity to prevent future harms. The net effect of (long) hedging activity is generally to slightly increase the future price because folks buy futures / futures options, and market makers, in addition to selling the option, buy the underlying to remain market neutral. This potentially increases future supply because it can, in theory, push up the futures price, or estimates of future price, which can make new resource extraction economical.
Unfortunately, today, given the degree of inequality, it is mostly poor people whose consumption is curtailed when there are supply shocks. This is consistent with the above interpretation: the implication of wealth inequality is that the poor people matter less and are less productive to the capitalist machine. As a real example of this, the oil price would likely be higher even, if the oil consumption of Southeast Asian countries had not decreased because they could not afford the higher prices. This is the great thing about inflation in a highly unequal society: it is partially tempered because demand goes away as prices rise.
WalterBright · · focus · HN ↗
Inflation is the result of devaluing the currency by creating money (i.e. deficit spending).
Oil prices do not cause inflation. Increases in the price of X cause the demand for X to drop, as people shift their spending elsewhere.
davidgay · · focus · HN ↗
I strongly suspect this definition strongly correlates with what most people call inflation (my fuel bill went up! and strangely, not heading to work wasn't really an option).
WalterBright · · focus · HN ↗
blitzar · · focus · HN ↗
WalterBright · · focus · HN ↗
Nope. Because if you spend more on one commodity, you necessarily spend less on other items. Spending less means less demand, and corresponding price reductions.
This is the Law of Supply and Demand at work.
Which also explains inflation - more money dumped into the economy, without a corresponding increase in the goods & services in the economy, devalues the money (see Law of Supply and Demand), which we call "inflation".
Money is not "special", and is subject to the LoSaD just like everything else.
Look what happened to Beanie Babies' prices when Tyco flooded the market with them. What do you think would happen to the price of Ferraris if Ferrari quadrupled production?
Why do you think Argentina's inflation is way down? It's the reduction in deficit spending. Do you think the Weimar Republic's trillion-to-one was caused by oil prices?