Re: Oil to Plunge Below $25 Next Year, Merrill Lynch Says
- From: Alan Lichtenstein <arl@xxxxxxxxx>
- Date: Sun, 07 Dec 2008 08:48:54 -0500
mg wrote:
On Dec 6, 8:16 pm, El Castor <No_...@xxxxxxxx> wrote:Interesting response. Obviously, the rhetorical question Jeff asks regarding the costs of obtaining the resource, includes an error in asserting that that somehow the costs of production remain constant despite the price on the open market. They don't. As fields are depleted, the costs of obtaining the resource increase, so since costs increase, obviously, the price should increase. Now the question is the price of oil increasing in proportion to the increased costs of production, or by some exponential number? Clearly, as the price of a barrel of oil is currently, as compared to this past summer, the answer is that the cost increased exponentially, and out of proportion to the costs of production. But that is really irrelevant to the question that Jeff raises, anyway. Fact remains that most sources reach consensus on the previous summer's spike in the price of crude in the future's market as being due to speculation and hedging by large investors who never had any intention of taking delivery of the resource. They were only hedging their bets against the developing financial meltdown. But regulations can preclude similar speculation in the future's markets, now that we know it may occur.
On Fri, 5 Dec 2008 19:12:58 -0800 (PST), mg <mgkel...@xxxxxxxxx>
wrote:
On Dec 5, 11:32 am, El Castor <No_...@xxxxxxxx> wrote:
"Oil to Plunge Below $25 Next Year, Merrill Lynch Says
Friday, December 05, 2008
Crude oil prices may crash below $25 a barrel next year and gas prices
could fall below $1 a gallon if the global recession spreads to China,
an energy analyst and CEO said Thursday."
What happened to peak oil? I'm selling the Prius and buying a Humvee.
According to the Energy Information Administration, recent worldwide
oil demand has been as follows (millions of barrels per day):
2004, 82.41
2005, 83.82
2006, 84.95
2007, 85.81
2008, 1st Qtr, 86.03
2008, 2nd Qtr, 85.23
2008, 3rd Qtr, Not Available
2009, 4th Qtr, Not Available
http://www.eia.doe.gov/ipm/demand.html
It will be interesting to see what the 3rd and 4th quarter consumption
figures are.
I've heard various theories about why it got as high as it did, but I
expect it was part demand and part momentum driven speculation. Maybe
the government of China buying futures contracts to protect themselves
against increases in the price, and hedge funds going along for the
ride. The thing that burst the bubble was probably the perception that
the price was beginning to adversely effect demand, coupled with the
US housing bubble bursting. I think we know by now (I hope we do) that
it was not greedy oil companies driving up the price, nor was it OPEC,
and not even the Bilderberg Group.
Anyhow, the price went up. So here's a question for you. Whether the
price of oil is $40 a barrel or $140, the cost of getting it out of
the ground is the same. Should Exxon be allowed to sell it for the
prevailing world price? Are they crooks if they do? How about BP and
Shell?
That's a good question. In situations where you have a free market
with competition, the answer is simple -- everyone pays the free
market price. In the case of oil, though, you don't have a free market
system.
Say, for example, DeBeers has 90% of all the diamonds in the world and
they regulate the market by controlling production. Also, let's say
that 10% of the diamonds are located in a mine on a US Indian
reservation that has been appropriated by the government and then
leased to a US diamond company and this diamond company can produce
enough diamonds to satisfy the demand of US customers at a mining cost
of $1 per carat. Should US customers pay the DeBeers price of $1000
per carat, or should they pay less?
In the case of oil, given your example, I don't necessarily have any
objections to US oil corporations charging $140. Where I would have
strong feelings, though, is with the terms of the government leasing
contracts and situations where oil companies might be manipulating
price by controlling supply.
My point is that when markets are susceptible to outside speculation, which causes the markets to operate not on any normal variables, the problem is NOT with either the producer or the supplier, or even with the seller of the lease, but with the market. And the problem should be addressed as such. Regulation will prevent any but normal market forces from operating. So that, yes, Exxon can sell it for what the market will pay, but the market will not generate prices on any other than normal and usual market forces with respect to the commodity.
.
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