Matters That Matter Not Bambi
Crude oil! Dropping like a rock! Maybe.
My own assessment is that this is not a suppy/demand equation, but a gremlin in the free market. At 60 dollars a barrel for the most expensive extraction now going on, but with oil at 140 a barrel, and supply only 500 thousand barrels a day short of world demand, it makes no sense that somebody isn't spending a hundred dollars to extract a barrel of oil for a forty dollar profit.
There can only be two reasons that's not happening: that the people who extract oil believe this is just a bubble, and so don't think the immediate extra expense to bring up low producing wells is worth the risk; or that there's just a gremlin inflating prices. That prices fell this week by nearly twenty bucks, just on the president's rescinding the Executive Order prohibiting off shore exploration, tells me it's a gremlin.
Just what the name of the gremlin is I don't know. It could be some sort of world wide hysteria, a belief that from now on and forevermore demand will always outstrip supply... This could be like a global warming scare, not believed with much reason but believed by everybody nevertheless.
Or it could be a resource nationalism, again a sort of global mind set, so many producing nations now content with the revenue they're getting, and content as well to draw things out so that their resources last longer. If this is true it would act like a restrictive collusion, though in fact just a shared mindset.
It could be the strangulation of environmentalism, such that oil shale and tar sands can't be developed. They certainly can't be developed just now on any large scale, and there's no present hope that environmental religiosity is going to pass anytime soon.
It could have something to do with fears of instabilities, but I doubt it, because it seems to me such fears produce spikes, not a steady climb. Same with "disruptions", that always happen here and there. Or it could have to do with...Speculators!
Actually, I'm inclined toward this idea, because of the vast sums new investors --institutional pension funds, that sort-- have put into the market. My reasoning on that is that pension fund money managers don't speculate, they invest in things that are secure. If that's true, then if they do "speculate" in oil futures, it's because they've come to see them not as high risk/high yield, but as secure. If they see oil futures as secure perhaps they see something most others don't, and what they see might be that if they can put in enough money, they can keep prices high, so that what had been risky become a sure bet. It certainly has been a sure bet for several years now. But Bush made an unexpected move when he removed executive objection to off shore drilling (He had been saying the congress had to act first, and no one would expect that a Democrat congress would act). But the worm begins to turn, the American people now support more exploration. If we could start drilling, that half million barrel per day deficit would disappear lickety-split. This becomes something of a fly in the ointment if you happen to be one of those with a lot of money tied up in futures. Maybe time to get out?
I haven't read any article were any analyst accepts that it was merely Bush's words that caused the downturn (many other reasons given), and certainly no professional analysts concerned for his reputation is going to suggest that speculators have anything to do with driving prices higher. But these people, after all, have their own pieties, just as well as anybody else: speculators are sacrosanct, presidents insignificant. But I have no such pieties, not pretending to expertise, I just note:
--Prices are way out of line with the cost of production, &
--If there is a gremlin, "speculators" --who "buy but don't sell"-- are certainly one possible villain.
-------------
In other matters not Bambi I wonder if there's going to be a floor fight at Denver... 'Course, I guess that is sort of Bambi too.
-------------
Note:
This is a link to the more standard explanations for the price drop. I'll note the drop started Tuesday, and continued Wenesday, Thursday, and Friday. Bush lifted the off shore drilling ban on Monday.
------------
Update, July 20.
Nice little post from something called American Sentinel, nicely written, making the argument that Bush rescinding the Executive Order prohibiting off shore drilling did make a difference:
Always enjoy finding a man who agrees with me, at least on part of the argument. --Note: it was on Tuesday, not Monday, that Bush rescinded the order, and that was immediately when the drop started.
My own assessment is that this is not a suppy/demand equation, but a gremlin in the free market. At 60 dollars a barrel for the most expensive extraction now going on, but with oil at 140 a barrel, and supply only 500 thousand barrels a day short of world demand, it makes no sense that somebody isn't spending a hundred dollars to extract a barrel of oil for a forty dollar profit.
There can only be two reasons that's not happening: that the people who extract oil believe this is just a bubble, and so don't think the immediate extra expense to bring up low producing wells is worth the risk; or that there's just a gremlin inflating prices. That prices fell this week by nearly twenty bucks, just on the president's rescinding the Executive Order prohibiting off shore exploration, tells me it's a gremlin.
Just what the name of the gremlin is I don't know. It could be some sort of world wide hysteria, a belief that from now on and forevermore demand will always outstrip supply... This could be like a global warming scare, not believed with much reason but believed by everybody nevertheless.
Or it could be a resource nationalism, again a sort of global mind set, so many producing nations now content with the revenue they're getting, and content as well to draw things out so that their resources last longer. If this is true it would act like a restrictive collusion, though in fact just a shared mindset.
It could be the strangulation of environmentalism, such that oil shale and tar sands can't be developed. They certainly can't be developed just now on any large scale, and there's no present hope that environmental religiosity is going to pass anytime soon.
It could have something to do with fears of instabilities, but I doubt it, because it seems to me such fears produce spikes, not a steady climb. Same with "disruptions", that always happen here and there. Or it could have to do with...Speculators!
Actually, I'm inclined toward this idea, because of the vast sums new investors --institutional pension funds, that sort-- have put into the market. My reasoning on that is that pension fund money managers don't speculate, they invest in things that are secure. If that's true, then if they do "speculate" in oil futures, it's because they've come to see them not as high risk/high yield, but as secure. If they see oil futures as secure perhaps they see something most others don't, and what they see might be that if they can put in enough money, they can keep prices high, so that what had been risky become a sure bet. It certainly has been a sure bet for several years now. But Bush made an unexpected move when he removed executive objection to off shore drilling (He had been saying the congress had to act first, and no one would expect that a Democrat congress would act). But the worm begins to turn, the American people now support more exploration. If we could start drilling, that half million barrel per day deficit would disappear lickety-split. This becomes something of a fly in the ointment if you happen to be one of those with a lot of money tied up in futures. Maybe time to get out?
I haven't read any article were any analyst accepts that it was merely Bush's words that caused the downturn (many other reasons given), and certainly no professional analysts concerned for his reputation is going to suggest that speculators have anything to do with driving prices higher. But these people, after all, have their own pieties, just as well as anybody else: speculators are sacrosanct, presidents insignificant. But I have no such pieties, not pretending to expertise, I just note:
--Prices are way out of line with the cost of production, &
--If there is a gremlin, "speculators" --who "buy but don't sell"-- are certainly one possible villain.
-------------
In other matters not Bambi I wonder if there's going to be a floor fight at Denver... 'Course, I guess that is sort of Bambi too.
-------------
Note:
This is a link to the more standard explanations for the price drop. I'll note the drop started Tuesday, and continued Wenesday, Thursday, and Friday. Bush lifted the off shore drilling ban on Monday.
------------
Update, July 20.
Nice little post from something called American Sentinel, nicely written, making the argument that Bush rescinding the Executive Order prohibiting off shore drilling did make a difference:
Yes, yes, I know; as reported, the Bush43 order is mainly “symbolic.” But immediately following that announcement, the price of petroleum took a steep drop. Locally, we went from $4.05 per gallon to $3.90 per gallon in two days. Yes, yes, I know, there may be additional reasons why the price of petroleum plunged; but those reasons seem to be insufficient by themselves. According to Bloomberg, the factors at play were reduced tension between the U.S. and Iran; a slowing global economy; lower U.S. fuel demand; and rising supplies. But the lower domestic demand and the rise in supplies was not something major - - and even if the short term outlook has improved, why the steep drop in the oil futures market?
After all, the long term outlook for supply and demand hasn't improved, has it?
Actually, yes it has, and President Bushe's order on June 15 is an important part of why the futures market fell.
Always enjoy finding a man who agrees with me, at least on part of the argument. --Note: it was on Tuesday, not Monday, that Bush rescinded the order, and that was immediately when the drop started.
posted by mouse at 7:22 PM
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