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Gold/Mining/Energy : Strictly: Drilling and oil-field services
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To: Sunny who wrote (24340)6/18/1998 1:13:00 PM
From: Chuzzlewit  Read Replies (2) of 95453
 
Demand will decrease by consumers, When oil increases the results will be increase in gasoline, petrochemicals, fertilizers, plastics etc. Each one of those products is either used directly by consumers (me and my world-wide neighbors) or used to manufacture goods and chemicals used by consumers. So ultimately any price increase will meet with a response from the consumer. If we were dealing with a drug like insulin for example, the demand would be relatively inelastic compared to gasoline. Think of it this way: if gas at the pump were to triple don't you think it would have a major impact on consumption habits?

What you are proposing is an artificial shift in the supply curve, not a change in supply. Since aggregate supply remains the same, the nature of the curve is determined by each market participant based on his individual economic considerations. So long as marginal revenues exceed marginal costs there is no economic reason to curtail production. That's why economists keep saying that cartels fall apart, and that's why OPEC member nations cheat.

On the other hand, There were reports out of New Orleans yesterday that some of the independents in the gulf are shutting in production. this represents a real (albeit small) change in supply.

But ulitmately the market will be driven by increased aggregate demand as Asia recovers.

TTFN,
CTC
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