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04/23/2011

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BS

Dave:

Don't discontinue this discussion. It is as important, or more so than your economic discussions.

Both WTI and Brent markets are complete BS. Is anyone suggesting production prices have increased 25% in a month? There are lots of "reasons" suggested for this price spike, but production costs are not one of them. So all the producers are making billions, and the gov will collect a nice sum in taxes from that. So where is the other side of the market in buying crude? It is like the doctor. There is no real choice, so they can charge you infinity for an aspirin.

River Gibeaut

We need you David.

Eric Thurston

Dave, I don't think the speculation-driving-prices theory is all that solid. Seems like the price is what the market will bear, since, theoretically, buyers are free not to buy at a given price. Jonathan Callahan says some sensible things on this:
http://www.theoildrum.com/node/7837#comment-795711

PS. time to sell silver & gold, I think I heard the shoeshine boy talking about getting into this mania.

Dave Cohen

Eric --

I warn everybody about bullshit explanations, and then you point me to a bullshit explanation. The comment by Callahan goes through some spurious logic, and then ends with "Supply is not keeping up with increasing demand!" This is just the sort of garbage I would expect to see on The Oil Drum, which is why I never read it.

Now, let's learn something, shall we? Are you ready?

Demand is notoriously hard to pin down, and there are NO reliable statistics telling us what it is. So we can use this rough formula:

Demand(t) = Supply(t) - Inventories(t)

Over time t, if inventories are decreasing, demand is increasing. If inventories are increasing, demand is decreasing.

If we look at the EIA and IEA data, we do see that inventories have been decreasing from very, very high levels. This trend started in the 2nd half of 2010. Does this mean supply is not keeping up with demand? NO! It means that demand is increasing. It means that OECD inventories are now in the MIDDLE of their normal 5-year seasonal average range. In the U.S, inventories are at the TOP of their 5-year average range. It DOES NOT mean that supply can not keep up with demand. In other words, OECD countries are liquidating some of the unusually high inventories they were carrying.

If that trend were to continue, and the draws on inventories were to continue without a supply-side response, we should start to worry. But there is not indication that this is a danger at present.

I have no patience with people who don't know what they are talking about. Don't refer me to people who think they can infer the current supply & demand situation from a futures curve.

You have been warned, Eric.

Alexander Ač

Home prices are falling (almost everywhere, even in China), so crude oil prices and commodity prices are going to follow. (2008 again anyone?)

There will be "flight to safety" of the capital, possibly into the US treasuries... crude oil could collapse as low as 20 dollars per barrel, which will eradicate huge amount of investments into future productive capacity. By that time the plato phase of oil production is over...

Dan

I always have a problem with the economists' definition of demand. Oil @ $100+ is not in short supply; oil at $35 would be, I believe, because there would be -as the "deicider" W. Bush might say- more "demanders" in the market. So where does that leave us in a debate about supply and demand?

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