Oil: A market that knows no bounds


The oil market knows no bounds: Its price, for now about $70, lurches back and forth, seemingly disconnected from fundamentals, driven more by "paper barrels" than "wet barrels."

"Paper barrels" are the futures contracts that hedge funds, investment funds, pension funds and others trade. They set the tone for the market, which shifts almost as quickly as the sands in a Middle Eastern desert.

"Wet barrels" are the actual production and inventory totals - the real oil that's out in the world. And right now, the world is awash in oil, with inventories at five-year highs and storage facilities straining to find additional land-based facilities to store crude. There's so much surplus oil that oil producers and others have taken to storing large amounts of oil in very large oil tankers at sea.

Originally published