The Vega Factor: Oil Volatility and the Next Global Crisis

The Vega Factor: Oil Volatility and the Next Global Crisis

by Kent Moors
     
 

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There is a sleeping dragon at the heart of the financial system. Soon the beast will awake and rear its terrible head, and we will look back on the days of the subprime disaster with nostalgia. In this riveting book by oil industry expert Kent Moors, you will meet the dragon he refers to as oil vega, and you'll discover why it poses such a grave threat to world

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Overview

There is a sleeping dragon at the heart of the financial system. Soon the beast will awake and rear its terrible head, and we will look back on the days of the subprime disaster with nostalgia. In this riveting book by oil industry expert Kent Moors, you will meet the dragon he refers to as oil vega, and you'll discover why it poses such a grave threat to world economic and political stability.

Those familiar with the options and currency markets will recognize vega as the term traders use to denote the rate of price volatility. Expanding upon that traditional usage, Moors coined the expression oil vega to describe the dramatic increase of price volatility seen in the oil markets over the past several years. In The Vega Factor, he describes how, contrary to popular belief, the current environment of runaway volatility in the markets is not the work of diminishing reserves, manipulation by oil producing nations, or increased competition among nations. Rather, it is a result of a structural flaw in the trading system itself.

Oil futures contracts, Moors explains, while once a valuable source of liquidity and price stability, have exceeded their historic mandate, leading to an upending of the traditional relationship between "wet barrels" and "paper barrels." With oil now as much a financial asset as a commodity, and an oil derivatives market currently worth thousands of times more than the world's combined oil reserves, a perverse dynamic has evolved in which the price of crude chases the price of paper barrels in a race it can never win. In some of the most gripping passages of the book, Moors considers the global mayhem and destruction that will likely result from an ongoing failure by policymakers and industry to peg the value of oil—literally the fuel that drives industrialized economies—to anything more tangible than the greed, fear, and superstition of financial speculators.

In the closing chapters of The Vega Factor, Moors explores ways in which oil companies, governments, and traders must revise their priorities vis-à-vis oil, as well as the radically new strategic understanding of energy that will be required if we are to meet market realities in an age of oil vega. He also suggests steps consumers and investors can take to protect themselves against the depredations of oil price volatility.

We live in a world where the quality of everyone's life and the economic stability of every nation are directly tied to the price of oil. Read The Vega Factor and get to know the face of the dragon that even now is beginning to stir at the heart of global financial systems.

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Editorial Reviews

Publishers Weekly
On the basis of his expertise as an oil and gas consultant, Moors, a professor at Duquesne University, warns that we may be on the verge of another financial crisis even more serious than the real estate bubble. He explains that we are in the midst of a new round of speculation based on the manipulation of energy markets. According to Moors, the cause of this is not related to events in the Middle East or a putative shortage in oil. He shows that the price of oil and oil products in commodity markets has little to do with oil as a commodity. Given oil's massive function in the world economy, the result of this structural flaw could potentially be much more devastating than that of the sub-prime mortgage crisis. Oil futures contracts have become financial assets in their own right, and no longer serve the primary function as a means for oil producers dealing with short term fluctuations in demand. Moor offers original research on the relationship between pricing of crude oil and gasoline products in the US. He is deeply concerned that governments will not be able to solve the problems he believes are looming, but nevertheless purposes solutions of his own.
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Product Details

ISBN-13:
9780470602089
Publisher:
Wiley
Publication date:
05/31/2011
Pages:
448
Sales rank:
1,412,632
Product dimensions:
6.20(w) x 9.00(h) x 1.60(d)

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