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Technology Stocks : Cisco Systems, Inc. (CSCO) -- Ignore unavailable to you. Want to Upgrade?

To: Elroy who wrote (68051)	6/16/2005 9:59:39 AM
From: RetiredNow	Read Replies (3) \| Respond to of 77400

My own view is that prices are high because refining capacity is tapped out. I've read several papers that claim that this is the real root cause. I'm not an oil expert, but it does seem to me to be the case, since OPEC's increasing supply quotas has no impact on the oil price.

To: Elroy who wrote (68051)	6/18/2005 7:09:47 AM
From: RetiredNow	Respond to of 77400

Elroy, I think your gut feeling on speculators not being the root cause of high oil prices was right on. Check out this link to a presentation on the root causes of high oil prices. The Energy Information Administration (U.S. gov't agency) did a scatter plot and best fit line, as well as a regression to determine what were the major root causes. They determined that 1) oil surplus capacity and 2) inventories were the two biggest contributors to gasoline prices, explaining 90%+ of the price fluctuations. See slides 12-14, in particular. eia.doe.gov In addition, we know that crude oil accounts for as much as 49% of the price of gasoline (http://tonto.eia.doe.gov/oog/info/gdu/gasdiesel.asp). In 2002, it accounted for 43%. In 2003, it accounted for 44%. Crude oil has been increasingly the source of gasoline price fluctuations over the last few years. We know that, in the U.S., inventories have been steadily rising (http://tonto.eia.doe.gov/oog/info/twip/twip.asp). But we also know that oil capacity surpluses are very tight and that OPEC has lost control of the prices as a result (see slide 12 of presentation above). So everything boils down to new exploration and pumping capacity as well as slowing down demand. So again, this analysis shows that surplus oil production capacity drives oil prices, which in turn drive gas prices. If oil prices come down, gas prices come down. If oil and gas prices come down, the stock market goes up. If stock market goes up, large caps benefit, which benefit Cisco. Ergo, if oil prices come down, then Cisco goes up along with the broader market. Alot of the stock market's fortunes in the upcoming years depends on oil now.