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britmaveric

$16 a barrel in 3days. Rumor has it once the Olympics starts - oil will tumble. Chinese were buying more oil recently, wanted to make sure no supply concerns to mess with transportation during the olympics.

- I'd go short on oil, seems Zoros, and Buffet are thinking the same.

Butterfly

^ damn, didn't they get the memo ? China and India is buying all the oil

Spin

Oil at 130 a barrel is inflationary but more importantly, a symptom of inflation. There is more to this that just supply and demand.
Loose monetary policy in the US has created this catch22 situation.

Begbie

The Chinese have a history of manipulating oil supplies. I wouldn't be surprise if they halted oil imports for a few weeks after the olympics to push the price down.

britmaveric

Sounds logical that Chinese were hording due to supply concerns during the Olympics. Oh well guess we will see.

Butterfly

what a strange comment, could you be more specific ? how is a commodity supply shock a symptom of inflation ?

bkkandrew

Envious that others have a social life now? Oh dear. Hope the wank was nice.

bkkandrew

Right, as Butterfly is unable or unwilling to look at the supply side, I will assist:

Global Oil Production: (MBPD)


1990 - 66,425.64
1991 - 66,399.10
1992 - 66,563.94
1993 - 67,091.32
1994 - 68,588.09
1995 - 70,271.87
1996 - 71,916.75
1997 - 74,157.59
1998 - 75,654.07
1999 - 74,839.56
2000 - 77,762.11
2001 - 77,684.02
2002 - 76,994.98
2003 - 79,615.43
2004 - 83,124.28
2005 - 84,631.48
2006 - 84,597.11
2007 - 84,600.64

Now, as you can easily see, production rose steadily (once you account for economic conditions) from 1990 to 2004. There was a slight rise to 2005, but thereafter production has dropped. Despite this, demand has grown sigificantly, not least from China and India, which is why I drew earlier reference to the increase in cars in China from 1990 to 2007, from 1 million to 56 million cars.

Why anyone should not expect prices to rise significantly during the period 2005 to date, given lower actual production (supply) and higher use (demand) is beyond me, but seemingly not clear to Butterfly.

Butterfly's simpleton guide:

When supply is lower and demand is higher, prices rise.

Data extracted from:

http://www.eia.doe.gov/emeu/internat...relsperDay.xls

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Butterfly

^ ok somewhere in this thread or another related thread, someone provided those numbers already and also worldwide consumption numbers, and I had answered already. The 2% shortfall doesn't justify a rise of 200%, not in a real Demand and Supply model.

of course you choose to ignore arguments that question your biased opinion, and keep pointing the finger like a 10yr old to those that "seem" to support your silly assumptions,

yeah 20 years in the business, wonder what you were doing really

darksider

Energy has massive price elasticity from the very low prices it has previously been at.

In the UK, we have always had very expensive petroleum products and have not been subject to the tripling of pump prices that the rest of the world has suffered from.

China and, I think, India are still subsidising the price at the pump so the 2 markets with the greatest increase in demand have been to some extent out of the supply demand loop, they cannot continue to sell at the pump at a loss for much longer and when they pass the rises on to the populous the demand will ease and we will get some elasticity back into the demand side.

Spin

I'm confused here, one one hand you claim its speculation and the other its supply shock.
You seem to be shouting down everybody elses ideas without having a clear stance on the situation yourself.
No point discussing it if thats the case.

Spin

India and Malaysia did recently cut fuel subsidies....linky

Butterfly

Ah, ok I see where your confusion is coming from, typical mistake. Future Oil price are speculative by nature and used as an excuse by oil companies to jack up the price at the pump. The term supply shock might be misleading because you are thinking oil supply, but I am referring to Aggregate Supply, the sum of production by all companies, the Short Term AS if you will, that is in other words the curve that determines real GDP. When production costs increase, with everything else equals, companies will see lower margin, and will slow production, shutdown production line, layoff workers etc... overall, we produce less. But because we produce less, and Aggregate Demand is still the same (at least for now), the price level goes up. Eventually AD will also shift, lowering the price level, but not as much as it went up.

It's very clear. See above. Like most people, you assume too many things, or oversimplify the pass through effect of costs. A mistake done by most who do not understand how demand and supply works. I understand that most members here don't have a degree in economics, which is fine, but hurling false statements and claiming to know better because they read some blogs or some financial news is ridiculous.

Then stick to day trading, as my explanation might be lost into you. I note you still didn't answer my question, which let me think that you don't really know what you meant. I would be interested to know how you came to that conclusion about that comment. Maybe you meant something else.

Butterfly

to illustrate the effect of AS shock, see this:

BBC NEWS | Africa | Zimbabwe introduces Z$100bn note

the reason their inflation is going crazy, is not because they have too much demand, or printing too much money (which they do afterwards), is because everyone is leaving, GDP is tumbling, nobody is producing anything, and with a constant demand in the beginning, the price level goes to the roof. They need to print notes to adjust to that reality, and stimulating demand by increasing wages is feeding even more the inflation, which force them to produce more new notes etc...

the problem can't be solved, as the violence and the running inflation disrupt production, and the AS curve keep moving to the left, forcing the price level to greater jump in prices

today inflation is 2,200,000%

it's a perfect academic case of a supply shock combined with stimulating demand,

Spin

Predictably, Butterfly has redded me already. We all know hes a bit childish like that but there you go. Thats his way of debating a topic.

There are many factors determining the current price levels of oil and it is unwise just to point at one single factor. High oil is inflationary and also a symptom of inflation itself as a result of the debasement of the US dollar due to wild fiscal policies and interest rate reduction. Uncertainty in the middle East, the threat of war, attacks by pirates on offshore facilities in the Niger delta, they all play their part.
Be better if you had made that clear at the time.
Not sure where I claimed to know better, maybe you can point this out for me.
Ah yes, this old chestnut and the tag line of the red I recieved, you know, down the years I've seen you roll out this line as your chosen put down quite a few times. The arrogance of people who make comments like this astounds me. Its like the ultimate phrase used by narrow minded people who believe somehow that they have a greater right or ability than those who choose to use the bourses to make their money in a different way. Total nonsense.

lannarebirth

The price of oil is high, not due to supply/demand issues for the oil, but due to supply demand issues centering on oil's pricing mechanism, ie: oil futures. The public seems to think that commodities are a new investment class (which it's not) and allocate investment resources every month to buy the futures at the ask. there's been a constant bid under these commodities devoid of the underlying supply/demand dynamic. Consequently many "commodities funds" have built larger positions than is allowed by law. That's all going to get unwound at some point.

I'm not saying oil and other commodities will fall through the floor, or that in the future it might not go still higher based on real supplier/customer hedging activity. I'm only saying that isn't extant now and it's gonna get undone.

Butterfly

I redded you for being lazy and avoiding the question

that comment wasn't for you,

Ok, completely non-sense. That's what I thought when I was reading that comment. You are referring to financial markets and try to link those "speculative" non-sense in real economic terms. You are making a circular argument. High oil price is not an inflationary symptom. It's the other way around. High oil price fuels inflation (no pun). The lower USD is a symptom of a lose monetary policy, which has nothing to do with oil, and happened before oil was the new bubble. The two happening now is "coincidental". Some speculators have been trying to link the two. They do relate in the short term only because everyone is following that self-proclaiming prophecy. Eventually with no long term merit of such a strategy, speculators will look for a new link and abandon their speculative move between the oil price and the USD. Things will be back to normal.

Yes, my bad. I was assuming that everyone knew about "supply shock", in economic terms, aggregate supply in the AS/AD framework is often referred as "supply", and since we are talking inflation and GDP, I was referring to the AS/AD supply shock, actually the only one referred as the "Supply Shock" in Macro-Economics.

bkkandrew

Taking the average increase in production to 2004, the 2007 figure respresents a 4.3% shortfall, not 2%. Maths not your strong point I guess. As pointed out, given massive price elasticity (obvious to most, but of course, not you), this can quite easliy produce price rises of 1000's of percent. A good example of this would be Zimbabwe and food. Oh yes, you cited them, but didn't think to consider how you were undoing your case. Unsurprising for someone unable to compute a simple percentage, I suppose.

No, you're the child, as pointed out by both Spin and I now, by firing off reds just because you are intellectually impared and thus doomed to lose an argument.

bkkandrew