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Yves here. This post describes some of the too-obvious signs that the notorious Russian oil price cap was not terribly well thought out. I have to confess I had forgotten that I had learned back in 2008, during the debate over the big oil price runup in the first half of that year, that Saudi oil price sales were based not on spot but an average of specified futures prices to impede manipulation. It appears similar mechanisms are widely used now. The article below discusses how pricing is not done at a fixed amount but in reference to floating prices, so participants in a transaction can’t be certain if the price was below the present cap or not.In other words, the idea of a predetermined price level was goofy, but apparently Janet Yellen couldn’t be bothered to understand the market
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Yves here. This post describes some of the too-obvious signs that the notorious Russian oil price cap was not terribly well thought out. I have to confess I had forgotten that I had learned back in 2008, during the debate over the big oil price runup in the first half of that year, that Saudi oil price sales were based not on spot but an average of specified futures prices to impede manipulation. It appears similar mechanisms are widely used now. The article below discusses how pricing is not done at a fixed amount but in reference to floating prices, so participants in a transaction can’t be certain if the price was below the present cap or not.In other words, the idea of a predetermined price level was goofy, but apparently Janet Yellen couldn’t be bothered to understand the market
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Mike Norman considers the following as important:
This could be interesting, too:
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Yves here. This post describes some of the too-obvious signs that the notorious Russian oil price cap was not terribly well thought out. I have to confess I had forgotten that I had learned back in 2008, during the debate over the big oil price runup in the first half of that year, that Saudi oil price sales were based not on spot but an average of specified futures prices to impede manipulation. It appears similar mechanisms are widely used now. The article below discusses how pricing is not done at a fixed amount but in reference to floating prices, so participants in a transaction can’t be certain if the price was below the present $60 cap or not.In other words, the idea of a predetermined price level was goofy, but apparently Janet Yellen couldn’t be bothered to understand the market she planned to meddle with.…
Economists will be economists. Assuming a can opener and all that.
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