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.

Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: elmatador who wrote (101883)	5/31/2008 9:55:35 PM
From: Fiscally Conservative	Read Replies (1) \| Respond to of 206323

I'm not so sure Washington will be able to do much outside a short lived temporary easing in prices. Why I believe this to be the case is simply because of the nature of the supply and demand side of the equation. There are two tenants that I believe are connected to the price problem: Supply/Demand and Control. It is not a given that supply constraints alone led recent Oil Pricing above $130/brl. Surely there must be other contributing factors in varying degrees effecting price. Whatever they are what is a given is the nature high prices have on economies of scale. The argument that high prices will ease demand can not be ignored. However how long this might take and by what price variable ? No one can predict how any marginalized easing in demand will offset future demand outside a temporary time frame; economies must still function and demand is not a constant. Today we live in a truly global environment where nations compete and trade for resources on an expanding scale. The demand for natural resources is growing. Be that as it may when economies too grow in a natural progression their demand for resources also become part of an interwoven fabric within which all facets of are inter-dependent and at times independant on each other for success or failure. Higher Oil pricing alone may not be enough to offset the demand side of the equation simply many other pieces of an economic fabric are holding it all together too. Throughout the 1960s OPEC kept oil prices stable. Back in 1973, in order to punish the United States for supporting Israel in the war against Egypt and Syria, OPEC decided to cut off oil supplies to the US. Whatever the reasoning the effect on Oil that prices quadrupled. Could the motivation behind OPEC's embargo of 1973 be suspect? Maybe Arab solidarity was only a ruse for a greedy attempt to raise prices? Who knows... However,the impact of that embargo sent oil prices soaring, from $ 3 to $ 12 a barrel and economies plunged into recession. But, just as the world thought oil could not paint a bleaker picture, the market took yet another spill. Iran and Iraq went to war in 1980 and the consequence were again felt in the oil markets. Oil prices shot to $ 14 a barrel. In less than 10 years prices rose nearly 5 fold. But as if that were not enough other political realities and concerns rose sending Oil even higher. Then when all hope seem to be lost forever economies started to become more energy-efficient and also turned to non-OPEC producers to help ease supply constraints. Oil prices fell from $36 to $24 in 1984-some 11 years after the saga began. Right now one could argue that we are only 8 years into this continued evolving saga. Maybe prices could continue higher for another 3 years or more ? Getting back to the early ‘70’s when OPEC cut production. Could they in fact be easing future production creating a speculative guessing game with traders ? Why on earth would any nation dealing one of their most precious sources or even their only source of revenue want to see prices fall after getting a mouthful of revenue ? The reason to ease future production to market grow as the price of that commodity moves higher. Then again taking the other side of the equation maybe economic practicality dictates that in a high price environment every ounce of such commodity be mustard to market for fear that price may be a temporary phenomenum.(where oh where is that increased production up till now been?)