Oil’s Pricing Mystery Has Been Solved – Chris Mayer

It’s a new year, but it’s still the same market with the same people in it and the same worries. And the big story is still the collapse of oil prices. As I write, oil just slipped to a new 5½-year low.

Why?

Below I’ll reveal some things you probably don’t know about oil pricing — an explanation from the only guy who seems to get this: Warren Mosler, a former banker and ace hedge fund manager. He is also a pioneer of the school of macroeconomic thought called Modern Monetary Theory, or MMT.

Mosler recently wrote a series of brilliant posts about oil pricing.

First, you have to understand that the Saudis are the world’s swing producer and price setter. They supply the last 9-10 million barrels of crude oil consumed every day. “The Saudis don’t sell at spot price in the marketplace, but instead simply post prices for their customers/refiners and let them buy all they want at those prices,” Mosler wrote. “And most recently, the prices they have posted have been fixed spreads from various benchmarks, like Brent.”

Continue reading at Daily Reckoning