If you think oil’s going to hit $300 a barrel, there’s apparently money to be made. And someone thinks that is a real possibility:
Nymex statistics show that investors for the first time placed a small bet this week that West Texas Intermediate oil futures would hit $300 a barrel – more than double yesterday’s price of about $142.50 a barrel – by December.
Only if the US/Israel bomb/invade Iran. Read the New Yorker.
Or The Oil Drum, which has better charts and graphs than the New Yorker.
Now, having said that, the propspect of doubling per barrel price in six months should finally put to death the weasly excuse given by the “market place” that prise rise is a function of “supply and demand”. What? You say demand can double in six months!
Econ 101 is not to blame. Abject greed among the speculators is.
Help us. We are at the mercy of the free market run by a cabalof libertarians.
John, the demand does not need to have doubled. The price elasticity of demand is low, which means that high prices make only a small dent in demand. Indeed this is Econ101. I am surprised at the blame attached to speculators, as there seems no evidence to support this (eg no stockpiling). I smell wishful thinking.
I suspect James means the *short-term* price elasticity is low.
Fortunately the longer-term elasticity is higher, especially when people start realizing that effective world crude oil production:
– is unlikely to ever get even 10% higher
– may well not even get 2% higher
– and almost certainly within next decade, will start declining
Right now, we have demand shock on top of a flat supply.
Later, we get to have demand shock + supply shock together.
Certainly I agree that the short-term elasticity is low. I am not convinced that the long term elasticity is much higher – depending how you look at it, oil can still seem pretty cheap in terms of what we get from it.
Actually, perhaps I should clarify – I was not aiming for a discussion as to what the elasticity is over any particular time scale (still less what people mean by the terms “low” and “high”) but merely pointing out that a doubling in the price of oil in no way implies anything close to a doubling of demand.
I agree that oil is still way cheap.
I’m assuming long-term elasticity is higher from:
a) The history with the earlier oil shocks, in which efficiencies actually did improve over time.
b) Observations of policy differences among countries/states.
By the way, besides TheOilDrum, I’d recommend http://www.econbrowser.com/ for useful commentary by economists on oil-related topics.