Arbitrage by piracy
When the Sirius Star oil tanker was captured by pirates on 15 November, the crude oil price was around $55 a barrel. It contains about 2 million barrels of oil, now worth $40 each, so its value has fallen from $110 million to $80 million in the intervening period. Thus, aside from the rumoured $3 million ransom payment, the owners have lost $30 million in value of the commodity - plus whatever it costs to borrow $80 million for two months (not much these days). Yesterday, with oil getting close to its lowest point in a couple of years, the tanker was released. What possible economic explanations are there for this behaviour? And what does it tell us about oil prices? The owners may expect that prices are going to fall further, and decided that now is the time to get their oil back and sell it. Therefore they were motivated to deal now rather than putting it off. The pirates may expect that prices are going to fall further, and decided that their likely ransom would diminish. Therefore...