<Xmas Open Thread The Oil Drum I'm sure it will be just a friendly chat!!!>

79 comments on Monday's Open Thread

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sola on December 26, 2005 - 2:16pm Permalink | Subthread | Parent | Comments top
Peronally, I don't expect to see oil quite that low.   I am thinking that crude won't dip very far below the $45 mark.  I expect OPEC will most likely defend crude somewhere between $50-$53 barrel.  What is the possible high water mark for crude in 2006?  Difficult to gauge really.  I think we might still have several years to  go before we start seeing ramifications of PO hit the markets.  If we don't see any natural disasters or Geo-political events of major import, then I don't think that we will see crude much higher than $65 a barrel this upcoming year.  If oil remains relatively cheap ( $45-$65 ) then perhaps there won't be enough incentive to conserve and thus no real demand destruction will occur and thus perhaps global demand will remain relatively robust.  If demand remains strong throughout 2006 then perhaps we will see some issues going forward into 2007 or 2008.  I do expect however that OPEC and Non OPEC producers will be trying to produce everything possible  and they might just be able to produce enough to satisfy demand ...  barely ... for a little while longer ....
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bonanza on December 26, 2005 - 2:34pm Permalink | Subthread | Parent | Comments top
Again, I don't think estimates of $45 are realistic, the price is set now around 60 because there is no additonaly production or refining capacity.  Predictions of dropping prices can only happen if there is steadily increasing supply, which hasn't happened since May, and Saudi Arabia has all but flat out admitted to not being able to produce more. What if along with US and UK depletion rates of 8-13 percent, Gawar, and other major saudi giants go into rapid depletion?  If that happens, I would think that Goldman Sachs' prediction of well over 100 per barrel is more realistic.  Just the fact that Goldman Sachs', which vehemently denied "Peak Oil" a year ago, is now saying that it is possible, is extremely significant. And this scenario doesn't even take into account disruptions due to geopolitical events like terrorist attacks by either Islamic fundamentalists, or US, UK, and Israeli fundamentalist.
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jkissing on December 27, 2005 - 2:35am Permalink | Subthread | Parent | Comments top
Production will always satisfy demand - today, tomorrow, a hundred years from now, whether we are talking about black gold, yellow gold, or golden grain. Prices may vary.
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xuewen on December 27, 2005 - 5:29am Permalink | Subthread | Parent | Comments top
Umm... this "supply = demand" thing has been botherin me for a while now. I understand that, in the technical use of the words, supply is defined as the ammount of stuff that is sold and demand is the amount of stuff bought, so doesn't this just mean that:

amount of stuff sold = amount of stuff bought?

Is there more to it? Have I got the definitions wrong?

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pbrewer on December 27, 2005 - 10:39am Permalink | Subthread | Parent | Comments top
Economists use "quantity supplied" and "quantity demanded" for the values you're equating.  In a free market, those will be equal (by definition).

When an economist uses "supply" or "demand," they're usually talking about the whole curve--the whole range of quantities that would be supplied (or demanded) at the whole range of possible prices.  Normally, those functions a graphed, and the two graph lines cross at a single point--the market clearing price--and give you the quantity supplied and the quantity demanded.

If there's a lack of a free market (such as, if there are price supports or import restrictions), you can get into a situation where you don't clear the market.  For example, if there's a price ceiling making it illegal to sell gasoline for more than $2 a gallon, but the market clearing price would be $2.50, you'll see shortages.  Contrariwise, if the market clearing price of corn was $4 a bushel, but price supports hold the price at $5 a bushel, you'll see surpluses.

All of which is a bit off the point the previous poster was making, which I read the same way you did:  in a free market, the price will move as high as necessary to prevent there from being a "shortage" of some good.  Of course, that's what most people call a shortage--when there's so little of a widely used good that the price moves so high that ordinary people can't afford to use as much as they're used to using.

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79 comments on Monday's Open Thread

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