The real reason why oil prices are so low

So he's essentially saying oil is an example of a newer type of market: it's not supply and demand, where the supply curve and the demand curve meet to form the equilibrium price. Instead, it's driven by perception.

Interesting read... wish we could somehow use this insight to improve the price of gas for everyone

 

consumption by CHINA has been a big force, why is it not mentioned?????

 

<div class='quotetop'>QUOTE(JackDodge @ Jan 10 2007, 11:45 AM) [snapback]373626[/snapback]</div>

There is a lot of speculating in what drive the price of oil. If oil drops below $50/barrel it will far much farther as there are many sell orders at $50/barrel. Maybe I am wrong but we will get to see very soon.

 

The entire premise of the linked article is wrong IMO.

A 1% shortfall in supply is not a 1% increase in market price -- it is a LOT more, when the supply/demand ratio is close to 1. Conversely, a 1% excess is a lot more than a 1% drop in market price.

These market prices are tempered by speculation how long the inbalance will last for, and how much money is in the game, but that does not change the economic basis for the pricing.

It IS supply/demand. Conspiracy theorists may take comfort, but are distanced from reality.

 

<div class='quotetop'>QUOTE(EricGo @ Jan 18 2007, 03:43 PM) [snapback]377335[/snapback]</div>

I agree. As far as the article is concerned, commodities buying works on the same principle. If I "think" that supply is going down and demand is going up, I buy now cheap to sell high later. This, in turn, may give rise to a 'run". It is ALL interconnected but follows the basic law of supply and demand.

 

Oh come on you people! :angry:
Do you really have that short term of a memory?
Didn't you learn anything? :huh:

It's all because there is an imminent election here in the USA . . .
. . . and it's just the Republicans dropping gas prices to garner votes.

Just ask MarinJohn. He'll tell you all about it. :lol:
http://priuschat.com/rising-gas-prices-t27645.html

 

<div class='quotetop'>QUOTE(JackDodge @ Jan 10 2007, 12:45 PM) [snapback]373626[/snapback]</div>

I have some other thoughts:

Saudia Arabia increased output significantly -
Also significant gain from oil below %50/barrel:
1. less economic opportunity to develop alternativ sources
2. economic pressure on Iran - the key here

 

I would say it is supply and demand, functioning on the cost of production, distorted by speculation, operating within a quasi-monopoly. In other words, it's all of the above.

If supply significantly exceeds demand, speculators cannot affect price, because no matter how much they buy, there's still plenty available. But when there are a small number of producers, they can artifically control supply, and it's in their interest to see that supply is large enough that they sell lots of oil, but small enough to keep the price up by crowding demand. In that environment, speculators can affect prices as they try to second-guess the market and make money without actually contributing anything useful or beneficial. Of course they risk losing money as well. On top of all this, the largest producers, such as Saudi Arabia may have political reasons for increasing or decreasing production from time to time, thereby affecting prices in a way that may benefit them politically but not economically.

The speculators could be cut out of the equation by a law making futures contracts non-negotiable, so that you could sell a futures contract only if you physically own the commodity, or will produce it, and once you buy a futures contract you would have to take physical delivery. A farmer could sell a wheat futures contract to a grain elevator. But a Wall Street financier could neither buy nor sell it. If you owned an oil well you could sell crude oil futures. If you owned a refinery you could buy crude oil futures and sell gasoline or heating oil futures, etc.

Speculators do nothing but steal money from the market. They produce nothing, and they provide no useful service.

 

Just as well someone has low oil prices....here, in spite of global oil prices being at their lowest for 6 months, our pump prices are still around 15% higher than they should be relative to the global pricing equation.
The oil companies are being condemned by all motoring organisations, the Government, and of course, consumers - but prices remain at around A$1.05 - A$1.15 per litre, when relatively they should be well below $1.00.

Our Government does not want higher prices because of the negative flow-on effect to everyone's cost of living, and particularly that effect on their popularity at our next election (due within 12 months), but the oil companies are putting their profits before anything else.

In our case, it is not political....just greed!