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Strategies & Market Trends : Booms, Busts, and Recoveries
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To: TobagoJack who wrote (16673)3/9/2002 1:06:18 PM
From: carranza2  Read Replies (1) of 74559
 
(c) Collapse of oil due to demand implosion

This is the fly in the soup of your plan, Jay. Therein the canker lies. It should have been at the top of your list. The price of oil will remain low and may go substantially lower.

Tiny Trinidad will be nothing but a microscopic particle in an elephantine market which will no longer be controlled by the Saudis. Their control has been exercised through unused capacity and the low costs they have in pumping out that capacity. If the Saudis want the price to go down to discipline non-compliant OPEC members, they flood the market with cheap oil. If the need cash, they tighten up until the greedy non-compliant ones exceed their quotas and the Saudis have to again impose discipline by flooding the market with their low-cost excess capacity.

The system has worked marvelously for many years--and we all know the result: energy prices have been low.

Factor in the Caspian oil which the Russians will be soon exporting, and the possibility that the Saudi excess capacity will no longer be able to control prices and production becomes a very real one. We will probably see a fragmented oil market in which the Middle Easterners and the Russians will be tripping over themselves to sell oil. The result will be low energy prices for the foreseeable future.

You might want to read the latest Foreign Affairs which has an absolutely brilliant article on the issue.

Tiny Trinidad will not get soaked with oil wealth unless, of course, its reserves are in the same league as Brunei's.
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