What a $200/Barrel World Looks Like

People make the markets. Ergo, the markets can be VERY wrong.

In 1999, there were 457 IPOs, most of which were internet and technology related. Of those 457 IPOs, 117 doubled in price on the first day of trading. I don't know exactly when it happened, but a short time later many of these companies became worthless and went out of business.

 

OK, this today from the AP, as oil prices continue to fall:

"Light, sweet crude for July delivery fell $3 to $124.76 a barrel on the New York Mercantile Exchange after earlier falling as low as $124.50, the lowest trading level since May 16. Prices peaked at a record $135.09 on May 22.

Concerns about falling demand for oil and gasoline are also weighing on prices, analysts said. The latest MasterCard SpendingPulse survey found that demand for gasoline fell by 4.7 percent last week - which included the long Memorial Day holiday weekend - compared to the same week last year. Averaged over the last four weeks, demand was down 6 percent last week compared to last year.

That dovetails with recent data from the Energy Department and Federal Highway Administration and several other surveys suggesting high prices are cutting American's appetite for fuel. A new survey by RBC Capital Markets finds about 90 percent of Americans have made changes in their daily lives to counter high energy prices, including driving less and taking public transportation more often."

So, we're using significantly less gas. The price of crude has dropped by more than $11 a barrel in less than two weeks. Yet my local station raised prices by $.16 a gallon last week.

You can't win. Unless you're OPEC.

 

That statement shows you are still living in the 80s.

Global demand is much higher now, not to mention we are 20+ years closer to ultimate peak production (if not at or past it already).

 

What you forgot to add is that the market is aways right in the long term.

The other way it is said is that in the short term the market is never logical but in the long term it is.

The saying perfectly explains the dot com boom bust and for that matter any Wall st Boom / Bust.

Traders have very short term horizons and just try to exploit whatever market they can make money.

 

We are beyond the point the market can ever again be "flooded" with oil.

 

The market does not determine the exact value something SHOULD have; it only shows what a buyer and seller have agreed to pay. Sometimes that figure is in no way an accurate portrayal. People make mistakes every second of every trading day, and as a result there are stocks that are wildly overpriced and stocks that are tremendously undervalued. It's generally only a matter of time before the true value emerges.

 

Seriously, this isn't even a conversation. This is two guys talking about completely different aspects of the same subject. I'm talking geology and physics; you're talking about economics and how OPEC operates. Beside the fact that I'm not interested, I don't need to go read up on OPEC, cartels, quotas and George Bush's trip to Saudi Arabia because that's all completely irrelevant to my argument.

I'm telling you there is a PHYSICAL LIMIT to how much oil can be taken out of the ground in a 24 hour period. If you really want to continue the discussion, give me the numbers of how much oil you think the Saudis can pump every day and how much less than that they are actually producing.

I'll probably tell you your first number is crazy, but I'll reserve judgment until you actually give me those numbers.

 

In Ragu Econ model he fails to factor in the capicity to refine oil into gasoline.

OPEC could pump more but it does not mean we can refine it right away.

As far as Bush going to Saudi Arabia his request was just window dressing. I'm sure he already knew the answer but was asking question anyway for the folks back home.

 

I was really concerned when I saw this thread title and thought it was about beer hitting $200 a barrel. Now that I see it's just about oil, I'm relieved.