When you have a supply crunch for the most important commodity in the world, the price goes through the roof. The demand is almost inelastic. How are you going to get to work? Ride a bike? Hope you train like Lance Armstrong. I hear the talking heads say that oil's fair value is $50-60/ barrel. Those people are living in fantasy land where supply always increases to meet demand. Well, one big problem with oil: there is a limited supply, and the maximum rate at which oil can be withdrawn has strict limits. As I stated before, demand might go down by 1% or 2% if oil goes to $120-130/barrel, that's nothing considering the Chinese are taking up all the slack. Until you get to $250-300/barrel on oil, you aren't going to get significant demand reduction for such an essential commodity. Oil has been so cheap for so many years, people lost sight of the finite supply and how demand has continuously increased. There will be almost no pullbacks in this uptrend, there are too many people waiting to buy oil cheaper.
Only if there is a cheap alternative energy source or a global depression. Or if there is a global pandemic and 1/3 of the world population dies off. Those are the only scenarios where I see demand going down irrespective of price. Grim energy future. People will have to readjust their lifestyles. Cheap oil is behind us and it isn't coming back.
Just take a look at Iceland: http://news.bbc.co.uk/1/hi/sci/tech/1727312.stm When you (more the government, the automakers in fact) really want oil independancy, it can be done. Oopsie, I just forgot the big oil Companies who are bribing the politicians. tsktsktsk
Iceland is sitting on a geothermal mine which provides them plenty of energy. Most places are not so fortunate
Absolutely, but auto makers like Daimler already have developed the fuel cell technology and how much would it really cost to produce one gallon of hydrogen? Btw, doesn't GM plan to produce an electrical motorized car (and I don't mean a hybrid)?
i disagree. I think oil IS elastic. People will carpool, telecommute, move closer to work. Plus alternate forms of energy become viable. On top of that. gov'ts will be forced to create better public transportation. Maybe we could outlaw hummers
Probably, but I think its far more psychological. Its the pain at the pump, I always over emphasize how much it is costing me.. maybe an extra $500 or $1000 not much, but it seems like its far more when your pumping gas
It is relatively inelastic, but not completely. People curb vacations, trips, consume less goods as the price of energy filters through to all of their goods. Don't think that the price of oil now is correct. It's inflated speculatively. It launched when the Fed cut 50bps, and you cannot tell me that the Fed cutting rates caused more oil consumption. It's speculative in nature, not demand related. I'm not saying that demand is light, but it does not warrant this price, and it will come down to earth. The only question is when.