re: 2.7% output cut and inelastic demand:
Demand is elastic, but only on a time-line of years to decades. The U.S. electric industry switched from oil to gas/coal, because of high oil prices, but it took them so long to do it, that by the time the transition was accomplished, oil was cheap.
I just bought a Ford Expediton. It's one of those monster SUVs, V8, 4WD, 2 1/2 tons, go anywhere and haul anything. A few years ago, I would have been embarrased to admit the gas mileage it gets. Now, I don't care. I'll probably keep the car 15 years, and I'll buy the same amount of gas whether it costs me 1$ or 3$ a gallon. Having made the decision to buy a gas-guzzler, what choice do I have? Wjhat else am I going to use to haul my boat to Prince William Sound?
I also just bought a house. It has a natural gas heating system, as do almost all the new houses in Anchorage, if they can. 30 years ago, it probably would have had an fuel-oil system. No matter what the price of fuel oil does relative to natural gas, and no matter what it costs, what I buy won't change much. What am I going to do, buy a wood-burning stove?
And it's not just an anticipation of lower supply that's boosting the sector. East Asia, aside from Japan, seems to have hit bottom, and be bouncing up. That's where the marginal global demand is. |
