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Strategies & Market Trends : ahhaha's ahs -- Ignore unavailable to you. Want to Upgrade?

To: Lhn5 who wrote (7608)	3/10/2006 11:52:16 AM
From: GraceZ	Read Replies (3) \| Respond to of 24758

Hysteresis is an interesting word. It's used in a lot of different fields to explain the phenomenon of why things that react directly to a certain stimulus don't return to the prior state when that stimulus is removed. Now why do you think ahhaha would use it in regards to oil? Well if you've been following along in the play book, another one of his favorite theories originated with Don Patinkin. Basically it is this (and I'm sure ahhahha will correct me if I butcher this), that the price of oil (energy) is such a basic factor of production that it is contained in everything, in all other prices. When a shock or situation occurs that causes the price of oil to rise (in this case fears of instability in the Middle East) it takes a while for that increase in cost to show up everywhere else, in all other prices and I mean all other prices, like wages, food, housing, shipping, etc. Meanwhile the oil producer receives a windfall, as in the huge profits that the big integrated oil companies received and even in the profits that your oil sands guys who didn't have a snowball's chance in Hell of being profitable at $10 a barrel. But as the Patinkin adjustment proceeds and reaches equilibrium those windfalls disappear. They disappear because the higher cost of oil acts just like a revaluation of currency. If the government declared that a dollar was worth two dollars tomorrow it is easy to see that all prices would be adjusted to the new value overnight. In terms of oil, this price adjustment takes a little more time but it after the adjustment occurs prices don't return to previous levels when the crisis that created the original rise abates (hysteresis). If you are a producer you now need that higher price (even when before the shock you were doing just fine at $10), it is no longer a windfall but a necessity because all your other costs have made the adjustment. The oil sands guys are only profitable in-between the shock and the adjustment, after the adjustment they find out that the costs to convert are now at around the same percentage they were before the price jumped up unless they've become more efficient in how they convert sands to oil. Efficiency gains almost never occur in a rising price environment, they are wrung out in a declining price environment as producers claw and fight for their very existence. Commodities are always priced from the richest source never what the poorest needs to brake even. We're a long way from exhausting the richest sources of oil.

To: Lhn5 who wrote (7608)	3/10/2006 12:12:31 PM
From: ahhaha	Read Replies (1) \| Respond to of 24758

That was a joke. Ditto. SU and COSWF don't make profits on sand? It's your call. From what geographical locations do you think all the incremental oil will come from? All over the globe. Offshore California, Sahara Desert, GOM, Canada, ALaska, Gobi Desert, Offshore India, Offshore Mozambique. Central Arabia, Offshore China, etc. Your opinion here that there is tons of oil seems so contra to anything you can find or hear anywhere publically. True. I'm a total genius with oil. In 1958 in the 5th grade I wrote a report predicting that oil would run out in 1973. At least you have added some excitement and made the future price of oil arguable again. Thanks for the complement. It's difficult to understand at times what I think is developing in the price game because WS and their pundits make such contradictory and arbitrary statements that everyone world wide is kept continually confused. WS is obsessed with the short run and then projects their expectations out over the long run only to completely flip-flop due to something as variable as the weather. They're loose cannons. By WS I'm referring to many oil analysts. The pseudo scientist environmentalists don't help. They're all incompetent amateurs who start out with a prejudice and then form their science around that prejudice. It's anti-science in the worst way because it influences people to make all the wrong choices.