It's the speculators!!! (yup, oil again)

I didn't see this analyst, so I can only respond to what you typed. You just addressed demand for oil, not supply.

Pastor just addressed the elasticity of demand for oil and that is a whole discussion I will stay away from, but he is correct. The fact that the guy used a linear ratio is an obvious flaw for an even greater reason.

You can't make a comparison like that. The world economy is not the same as it was five years ago. The dominant currency in the world, the dollar, is weak, which drives up prices worldwide--not just for oil, but for food, metals and almost every natural resource. It means that $1 five years ago is a worth a fraction of itself today. Which means you need more money to purchase the same amount of anything, including oil. That has been the case in practice, looking at inflation worldwide. Inflation is spiraling worldwide--especially in some of the places most responsible for soaring demand, such as China. Inflation is out of control there, and it is already a problem in the U.S., although the Fed is trying to minimize it and hide the true extent of what we are looking at with its rhetoric and bad monetary policy.

So comparing $1 five years ago to $1 today is a flawed way to view things--if some analyst really did that with a straight ratio. We went from low inflation worldwide five years ago, to an inflationary environment whose scope we don't quite even know yet. $1 five year ago might really equal .80 or .70 or .60 today. In an inflationary environment, everything gets more expensive.

So let's say what you are saying is correct (and I don't know it to be true) and given the elasticity of demand for oil, given how much demand has increased, relative to the price five years ago using a straight ratio the way you did, oil should cost $100 a barrel (again, I have doubts about these numbers).

Even if it that is true, it ignores that in that ratio oil should be $100 a barrel in 2003 dollars, not 2008 dollars. Having gone from almost no inflation, to spiraling inflation, though, and having gone from a stronger dollar to an incredibly weak dollar, $100 2003 dollars might be the equivalent of $120 or $130 or $145 2008 dollars.

It's just too simplistic an analysis that isn't comparing apples to apples. And it is making a wrong conclusion.

 

I'm not talking about subsidies (which drive demand).

Either way, China hasn't ended its subsidies. It increased prices, which are government fixed, about two weeks ago, but it kind of had to. The price the government is paying went up--the price of oil has been going through the roof. The government is still subsidizing the price, though. If it hadn't increased prices, they would have been increasing their subsidies. All they did was continue to subsidize fuel and pass along the rise in cost of the commodity, while maintaining the same subsidy level.

So many government's subsidize the price of fuel. If they all stopped it would taper demand and the worldwide price would come down. It also isn't happening, least of all in India and China.

There is an irony that these governments bitching about the high price contribute to the high price.

 

Pretty clear? Maybe to you. Not to me. Show me some evidence of a worldwide market being manipulated. You never have. And you can't. It hasn't happened.

The evidence for how supply and demand work is what IS pretty clear.

We have seen an economic slowdown for the ages, predicated by events that weren't out in the open when I posted what you just drudged up. That post is from July. Jeez.

OF COURSE THE PRICE OF OIL IS BEING DETERMINED BY DEMAND.

We are very clearly in a worldwide recession that is getting more entrenched by the day. Worldwide economic activity has come to a standstill, meaning energy and fuel consumption has dipped precipitously over the last two months. i.e. --demand for oil has dropped off.

And guess what? The price of oil has dropped precipitously.

Amazing!

If that doesn't demonstrate how the demand side of a supply & demand model can affect prices, I am not sure what will demonstrate it to you.

I don't know how to short oil. I do know how to sell contracts, though. And yes, I have dipped in and out of the oil market when I have had the time to play on the side, although I have much preferred playing that game with copper lately (which has also dropped off a cliff) and with currency fluctuations, which I understand better.

Oh, and the world's credit markets drying up is something I obviously didn't foresee in July. Neither did you or anyone else. So I'm not sure what the point of drudging up that post is. Unless you want to call me out for not being clairvoyant.

But since you did, show me your "clear manipulation" and explain how a drop in worldwide demand during the current economic crisis WOULDN'T BE the reason that the price of oil has fallen off a cliff.