Alan, re: "Supplies of oil are equal to demand. There is no great imbalance that would explain the doubling of crude prices in one year."
I've followed some of your discussion with Bob on this subject. As I understand it you're assuming that the price of oil is heavily influenced by speculators manipulating the market and Bob seems to be assuming that the price is largely being set by market forces.
It's hard to give a great deal of credence to either of those metrics, however, when the oil market is so skewed by the actions of OPEC and big oil.
In a free market environment every producer of oil would compete in price with every other producer and the price of oil would be set by the available supply and the current demand. (There would be a small reduction of supply from long term suppliers who believed that they'd maximize total profits by withholding their oil into the future so that they could capitalize on the expected future limitations in supply.)
In that "free market" the price of oil would be the cost of production plus a return on investment and as the price rose and fell more or less marginally profitable oil would come in and out of production. For as long as there existed sufficient reserves of oil to satisfy world demand that process would balance the supply to the price.
With an artificially controlled market, however, the supply can be regulated to create an artificial level geared to achieving a targeted price. That is what we have now and the price the Opec producers have set, undoubtedly with the tacit approval and complicity of big oil, is much higher than the free market price would be.
So I think Bob is in error in suggesting that the market is fairly setting the price...the supply is artificially set and the price follows.
But I think it's also erroneous to lay the blame for the high price on speculators. It's true that speculators are influencing the price but Bob's right in suggesting that they can't set either supply or demand. I think speculators are simply attempting to project price based on the artificial constraints of supply and the greed of OPEC and big oil producers.
What's interesting about the current price rise is how inflexible demand seems to be in response to high prices. Oil is such an essential part of our work, our production, our leisure and our lifestyle that when it comes to doing without, or even with less, we will first pay a much higher price. Paying even 20 dollars a gallon for gasoline still beats riding a bike if you have to go miles to and from the place where you make your living.
The price will come down only if the alliance of Opec and, or, big oil comes undone or if alternative sources of energy get plentiful and cheap enough to actually compete with oil.
Not a pretty near term future.
I apologize if I've misstated either your or Bob's position. Ed |
