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January 05, 2006


Jon Husband

I like this logic and explanation. I think many people, very often, assume that all (or all of the really important) variables in a given area (in this example, oil discovery, production and distribution) remain essentially the same ove r time.

This example might be considered (at least for those not looking at this possibility) as discontinuous political innovation.

Earl Mardle

I should also bhgave added tyhat it represents a roll-over of the from the benefits of oil fungibility in anoiversupplied market, to the downside of fungibility in a short market.

In the pre peak days, if someone wanted to charge more than the market decided was OK, someone else could step in to fill the demand and stabilise the proices (think Saudi Arabia for the most part)

But in a short market,. every move, by every player shifts the whole market. Putin cuts off gas to one country and the global market shifts as everyone tries to hedge their bets against the reality that there isn't enough to meet demand. Now he is in a pissing match with Bulgaria; I think he is testing the model.

If he pushes up the price for Bulgaria, they respond by interfering with the pipelines, that causes the European, and everyone else to scream and pressure gets applied. Right now it gets applied to Russia to back off, but at some point it will get applied to Bulgaria to pay up so that EU supplies aren't damaged. Maybe they even subsidise the Bulgarians.

But once he gets the lever in, his ability to make consumers jump will become very attractive.

Its very high risk and totally selfish; which means it will probably be the guiding principle.

Jon Husband

Couldn't agree more .. I suspect that the United Snakes of America are in for some disruptive surprises in the next decade.

Juan de la O

Checking in after all these years to remind that

my comment was not at all 'a slapdown on futures trading' but simply pointing out that crude oil price formation had become centered in the futures markets and - as should have by now become perfectly obvious - spec activity in these markets was quite able to drive price beyond, far beyond, fundamentals.

and in so doing provide rationale to peak oil enthusiasts [who also helped generate propaganda to drive price].

Yah, we can say with some satisfaction that mainstream economists and their believers have once again proven their true worth.

Su Amigo

Juan de la O

Earl Mardle

Juan, I'd add another factor. The peak in oil price last year broke so many people that the long term demand fell off a cliff.

We are just now starting to see that.

Did PO's help fuel the price rise, probably. In fact most POs would probably have gone for a steep tax on fuels to drive down the demand anyway, they just didn't have to, the barking dogs of the free market did that for them.

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