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Gold/Mining/Energy : Strictly: Drilling and oil-field services
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To: Chuzzlewit who wrote (24548)6/22/1998 9:59:00 PM
From: Jess Beltz  Read Replies (1) of 95453
 
I agree that anything that dampens consumption is bad for drillers, simply because as far as supply/demand equilibrium of oil prices is concerned, an inward shift in the demand curve

(a) immediately lowers the price of oil, but more importantly in terms of your hypothesis

(b) an increase of supply relative to demand. Interestingly, given an inward (decrease) shift in demand, if the price of oil is restored to its pre-shift equilibrium level, it can only be because of a shrinkage in supply, which would imply (1) rising oil prices and simultaneously (2) less work for the drillers, which on the surface, one would think would translate into rising oil prices and falling driller prices. We don't see that however, because that analysis is backward looking, and what the market, with its forward looking bias will see is (a) rising oil prices means that any increase in demand will have a skyrocket effect on the prices of the drillers.

jess.
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