Would you put a GoPro on an accountant? The problem with energy reporting

Imagine that you are responsible for the content of a big news site, with a large readership and paying subscribers, and your job is to make sure eyeballs are glued to your site every day.

When a certain type of person is nervous and in front of an audience, they jabber away without really saying anything just to fill the unbearably quiet void. Editors of news publications are no different; similarly filling their web pages with endless jabber that doesn’t really say anything. That would be harmless, except that we tend to believe these sources and assume a level of credibility that is jaw-droppingly silly.

It’s hard to blame the editors who want to keep their job and therefore resort to fanciful flights of imagination over the most pointless and statistically insignificant events. In cold hard reality, things move really slowly in the energy world, in the absence of bombs, so an appropriate header under the energy section might be “Nothing Happened Today”.

Editors seldom bark out that sort of headline regardless of how true it is, but they don’t just give up. They wander over to the trading pits where something is always changing even if just a little, and then all that’s needed is some sort of random story that might possibly explain the action they see.
It is possible that a world event can cause a swing in commodity prices, but the effect is negligible except to the extent that traders goose the story to make big bucks. Sometimes they originate the story, or fan the flames, just to provoke the market. Traders make money through price swings, so promote anything that will get a reaction.

An example: “Oil down 3% today on increased drilling rig activity”…hmmm US active drilling rigs increase by 10 rigs from 800 to 810. Globally 1,100 rigs are busy drilling. So the change in the number of rigs that are actually busy is 20 out of about 2,000.

And what is the impact of all this? Well the world consumes 90 million barrels per day. If the price of oil changed by 3 percent from say $42 per barrel to $43.26, the value of oil and gas reserves in the world changed by hundreds of billions, all because those 20 out of 2,000 rigs went to work. And they might have gone back to work for totally random reasons that have more to do with the weather than anything.

Does this make any sense? Of course it doesn’t. The whole reporting and media process is to monitor and report on an extremely boring process and make it entertaining, on an hourly basis. As Nassim Taleb points out in at least one of his books, for any given topic on some days there should be no news, and on others lots.

Instead they have the GoPro on the accountant, and any movement at all becomes news to fill the void, and the inevitable cheese sandwich lunch becomes big news, relatively speaking.