Matt is more bullish than I (to say the least). I found his 20 points as to how and why Oil prices have been all over the place interesting; consider it a bit of counterprogramming.
Here's Matt's 20 point chrononlogy:
- Oil is cheap in 2002, there is no investment, oil infrastructure decays
- Everybody "knows" oil is an inherently cheap commodity
- Oil producers fail to forecast robust global growth and oil demand
- Prices rise as market signals its needs to producers
- Oil execs still reluctant after being burned in the last bust
- Prices rise more as global growth continues
- Oil companies begin to invest, but increasing supply takes years
- Oil prices rise some more
- Oil companies are now scrambling to meet demand
- SUVs still selling as drivers expect gasoline prices to fall after Katrina
- Speculation picks up
- The new boom induces oil-investing mania
- Everybody "knows" that oil always goes up
- Capitalism works after all, and supply finally meets demand in 2006
- But the speculation-turbo-charged price of oil induces a demand shift
- Drivers capitulate and switch from Detroit SUVs to Toyotas
- The demise of the Hummer H1 in June marks the top of oil prices
- The huge oil inventory built up by speculators cascades onto the market
- Prices plunge as the economy signals "that's enough" to producers
- Lower energy costs feed back into continued global growth
I have 4 primary differences with Matt:
- Notably missing is the impact of the Fed cutting rates to half century lows, and how that impacts any dollar denominated commodity (oil, gold, real estate, etc). I believe that was quite a significant event;
- What? No terror premium?
- The switching process from SUVs to more fuel efficient vehicles takes much longer, as drivers are stuck in leases, ownership, etc.
- Oil only goes up? I thought it was Real Estate that only went up!
Anyway, its a thought provoking scenario regardless . . .
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