One potential takeaway could be that we may want to set up the financial products we’d like to use for hedging ourselves – e.g., by setting up prediction markets for the quantity of oil consumption. (Perhaps FTX would be up for it, though it won’t be easy to get liquidity.)
Historically it has been hard to get similar products off the ground. Virtually every human has native exposures to housing prices and the overall level of GDP in their country, but for some reason virtually no-one is interested in actually trading them. According to bloomberg on most days literally zero contracts trade for even the front-month Case-Shiller housing composite future.
It’s possible there might be some natural short interest for oil quantity contracts from e.g. pipelines, whose revenue is determined by the volume of oil sent through them? But this would likely be quite local, and I think you would struggle to find interest in the global quantity.
Great points, thanks for raising them!
One potential takeaway could be that we may want to set up the financial products we’d like to use for hedging ourselves – e.g., by setting up prediction markets for the quantity of oil consumption. (Perhaps FTX would be up for it, though it won’t be easy to get liquidity.)
Historically it has been hard to get similar products off the ground. Virtually every human has native exposures to housing prices and the overall level of GDP in their country, but for some reason virtually no-one is interested in actually trading them. According to bloomberg on most days literally zero contracts trade for even the front-month Case-Shiller housing composite future.
It’s possible there might be some natural short interest for oil quantity contracts from e.g. pipelines, whose revenue is determined by the volume of oil sent through them? But this would likely be quite local, and I think you would struggle to find interest in the global quantity.