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Fortunately, today spot prices follow front-month futures rather closely

Maybe I'm crazy, or hopelessly naive, but I always thought it was front-month futures which were converging on the current spot price, because futures contracts, by their nature, must ultimately settle at just that price.

I'm not claiming spot traders entirely ignore the futures market, but surely here you have the cart wagging the horse. Or putting the tail before the dog. Whatever.

In equities, the two-way interaction between futures and "spot prices" (ie., actual stock trades) is more complex -- or should I say, more unknowable. In that realm, psychology is everything.

But when dealing with commodities, especially with oil, there is (surely!) a robust connection between the real world situation and the spot price... n'est-ce pas?

by Ralph on Thu Mar 20th, 2008 at 10:48:00 PM EST

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