What's It All About, Oil Patch?
This explanation is Economics 101 and is probably too simplistic, but that's my story and I'm sticking to it. <G> It is two part.
1. The world is in a very slow growth, low inflation mode. Especially the world's growth engine, the USA. Traders are forecasting a similar economic environment into the future.
2. We have had little drilling in the Gulf since BP blew up the rig, so any new discoveries have been offset by a Gulf flow becoming a drip. So, supply seems like it should be weak. It is not, really, but a surface look makes folks believe that it is.
I think 1 and 2 will change, drastically. With Joe Barton as head of the Energy Committee, companies will be allowed to drill under Day Care Centers and nuclear power plants and take no safety precautions, whatsoever. Supply will expand. However, the economy should be humming by 2017, increasing demand. Not to make everything political, but there is no chance that we will have either conservation or alternative fuel initiatives with a GOP majority. They are likely to kill the country's future to support oil companies now.
Demand always trumps supply, so I think low futures prices out to 2017 are a mistake.
Longer term, I think sanity will rule again and oil will be toast. But for the next few years, I see $4 per gallon gasoline as a layup and $10 as a possible blowoff top to the run. Remember, Bush was the guy who took gasoline from 87 cents per gallon to over $4. He didn't know he had done it, as he didn't know the price of gasoline. And he wasn't even trying. The new Congress will be trying as hard as they can. |
