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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: coachbobknight who wrote (125126)5/24/2008 9:36:47 AM
From: Think4YourselfRead Replies (1) of 306849
 
I think you may be looking at the oil/gas situation without taking into account some critical aspects.

The stocks of product (i.e. gasoline) are dropping for two reasons. One is the refiners estimate of how much is needed, which already takes into account their estimates of American consumer consumption. If Americans consume less the refiners want to process less, and if the refiners expect product price hikes are temporary they will sell as much stock as they can and rebuild later when prices are lower. The other factor is the price of inputs. Because the price of oil is so high now they don't want to buy any more than they have to. The net result is that refiners WANT their stocks to be as low as possible right now, for economic reasons. They sell off any non-critical stocks at high prices, stocks they produced at lower prices. They hope to rebuild those stocks later when oil is hopefully cheaper. It's the smart thing to do.

The stocks of inputs (i.e. oil) are dropping because nobody who expects the price to fall wants to hold any more of the stuff now than they have to. Unfortunately the rest of the world still IS increasing demand at the moment, although this appears to be changing right now. A large part of that reason is the energy subsidies of China and India. Our consuming less does not necessarily mean the world is suddenly oversupplied, so oil prices will not necessarily come down just because Americans are consuming less.

Net result is that further drawdowns in inventory should not surprise anyone, even though Americans are FINALLY starting to become a little intelligent about their consumption. It should also be no surprise if oil prices continue to climb despite reduced consumption in America.

One definite effect of high energy prices will be a huge drag on the economy. $4 gas, and the associated prices for other forms of energy, will do do to our economy what a thug with a baseball bat would do to a car.
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