Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Pastimes : Clown-Free Zone... sorry, no clowns allowed -- Ignore unavailable to you. Want to Upgrade?

To: Ilaine who wrote (562)	6/23/2000 5:41:00 PM
From: patron_anejo_por_favor	Read Replies (1) \| Respond to of 436258

Floyd "the barber" Norris on how we grew vulnerable to high crude oil prices in todays NY Times: June 23, 2000 FLOYD NORRIS Crude Error: How We Grew Vulnerable to High Oil Prices HY are gasoline prices so high? It's the demand, stupid. For those who remember the 1970's, there is something very familiar about oil ministers meeting in Vienna to decide whether to open the production taps a bit further as analysts debate whether 700,000 barrels a day of additional production will make much difference. The answer is, it won't. Because if that extra supply would change things very much, that supply would vanish. The oil crisis, circa 2000, is not a supply-side phenomenon. That is because the oil market is nothing like a normal market. In a normal market, the marginal producer, the one who provides the last bit of supply, is the high-cost producer. If prices rise a lot, that producer can finally make a profit and he starts to increase supply. That supply meets rising demand and helps to hold down prices. In oil, however, that situation is turned on its head. The marginal suppliers in that market are the gulf states, principally Saudi Arabia and Kuwait. They are also the lowest- cost producers, and the ones with reserves that will last for decades. The high-cost producers, including many wells in this country, are pumping all out and will not add production anytime soon no matter how high the price goes. When demand is weak, oil prices can collapse because many oil producers need revenue and will pump all they can. That happened most recently in 1998, when Asian economies went in the tank. But when demand is strong, as it is now, it is futile to rely on oil producers to start cheating and driving the price down, or to hope that diplomacy can have much of an effect. What would lead the Saudis to start pumping enough oil to lower prices? In a word, fear. If they feared that a worldwide recession was imminent and knew that would cause demand to plummet, they might act. There is no such fear now. But the other fear is a longer-range one. A trend away from oil would be a scary phenomenon to the oil-rich Saudis, and they would hate to see a renewal of the 1970's trends toward better fuel economy and alternative energy sources. They are no doubt thrilled that the American law mandating high fuel economy for cars has a huge loophole classifying gas-guzzling sport utility vehicles as trucks. Gas prices have entered the political debate this year, but not in any way that should scare the Saudis. Republicans blast pollution rules for driving up the cost of gasoline in the Midwest. Democrats suspect oil companies are seizing an opportunity to increase profit margins. Both are right, at least to some extent, but both are beside the point. The real mistake in Washington came in the years after the last oil crisis, when oil prices were weak and Americans lost interest in energy conservation. Higher gas taxes and less loophole-laden fuel-economy rules would have helped avert the current problem. Such actions were not taken because no effective lobbying groups were backing them and because they didn't sound like vote winners. The last president to really push energy conservation was Jimmy Carter -- remember the sweaters he wore as he urged us to turn down the heat in our homes -- and everyone knows what happened to him. So now oil prices are high, and they are likely to remain above $25 a barrel until growth slows significantly in an important region of the world -- or until the Saudis grow worried that this country will again get serious about energy conservation and research into alternative energy sources. It's the demand that counts.