Interesting times: Who do you trust first? Your government, or OPEC?

Discussion in 'Economics' started by scriabinop23, Jul 22, 2008.

  1. The government says supply/demand fundamentals are guiding oil.

    OPEC says it is speculation.

    Who do you believe? Strange times, where I'm more likely to trust OPEC than our government (whose track record is lousy: they said the California energy crisis was fundamentals driven, enabled the Enron loophole, and have lied about almost everything of any importance lately: Iraq WMD, Gitmo, Torture, etc).

    I'd rather believe the 'terrorists' (who the liars declare should be our sworn bogeyman).

    (My Opinion:) Regardless, inventories of US crude are down y/y, but products have equally offset that reduction. Long term fundamentals point to falling production, yet inelasticity of the market is enabling price to move freely in both directions. Long term habit changes as well as a -global- deflationary economic environment should point to reduced aggregate demand, and thus likely reduced energy demand. So we're finding the price the market will bear. Just as easily as it can be $150, I believe it can be $48 (just 20 months or so ago). Such is the story of items with low elasticity, and lends credibility to the point that price *volatility*, not level, is the only thing tied to the fundamentals of this market. Any credible economist can easily conclude that without a good global aggregrate demand analysis, the CFTC or US govt has no basis to conclude the validity of price, since that is what is necessary.

    I highly doubt their (CFTC/govt) models are sophisticated enough to factor in falling Chinese and Indian demand (due to both reduced subsidies and their decreased competitiveness due to high shipping rates), European and US falling demand, analysis of global and changing monetary supply aggregates, and the complementary production story.

    Most intelligent conclusion: It's anyone's guess, and anyone saying anything with absolute conviction from a place of power likely has an agenda.
  2. Let's look at it this way.....

    What would the price of oil be if there was nothing but a cash contract market with a $1,000,000 per contract minimum, no margin?

    What would the price of oil be if there was no interest by the US in Iraq/Iran oil....No Iraq war.....?

    What would be the price of oil if the individuals in highest offices of the US Government were not from or have never been associated with the oil business or oil based special interest groups ....?

    What would the price of oil be if interest rates were normalized at 7% for 90 day tbills ?

    What would the price of oil be if the US had a strong trade surplus ?

    What would the price of oil be if the US were not a debtor nation and people ?

    What would the price of oil be if the US truly developed alternatives with a 10 year mandate via new proven technologies?

    As you can see the Xi's to the equation are many, but just these alone are significant.

    Who would I trust ? Neither OPEC, nor the US Government....
  3. I am providing some information for your edification, but you really should some research, especially when you side with OPEC. Oh and the democrats in congress say that this price rise is due to speculation too.

    World Oil Demand
    World Oil Production

    Demand at 85.375 mbpd in 07 while production at 84.518 mbpd, so demand higher than supply, price goes up.

    Also note that 2005 was the high year in production and has declined for the last two years. This is why the oil market is going up, speculators are just telling you what the market value is, they don't drive it.

  4. BTW, I think the high price of oil is good, it is the only way to affect change in our way of life. If we had an entirely renewable energy infrastructure, we would not have to worry about the middle-east, global warming and the destruction of the of the environment due to oil exploration.