Perki

Oil Price Lower on Inventory Numbers, But It Can't Go Much Lower

The demand forecast is interesting. If demand holds up, of course the price will have to go up. However improbable it may sound now, world-wide demand COULD drop by a large amount. What would happen to oil prices if we have month to month demand collapse, for an extended period, on the order of 2-3% per month?

The first warning sign will be defaults on delivery obligations for crude oil futures contracts. Given the current economic situation, any thing can happen.

Crude Reality: How Long Can Oil Stay Down?

The most interesting point of this article is pointing out the falicy of predicting increased GDP and predicting lower oil demand. At the moment ( adn for the next several years, GDP is a function of oil demand and vice-versa. Witness the recent correlation of s&p 500 increases or decreases and the instantanous increase or decrease in oil prices. This coupling in a very new phenomenon. The market "gets it". However, this will link will likely desolve over a longer time frame as the economy "learns" to grow without using as much petroleum through innovation focused on that result ie alternative energy and especially conservation. Japan in the '70s is still a good model for the later.

OPEC Cuts, Oil Falls: Something's Not Sustainable

This is a naive simplistic viewpoint of both world affairs, supply and demand, and alternative energy. What are our colleges teaching these students?

Hint: Research the investment required to produce one megawatt of "alternative energy". How much capital would be required to meet just 10% of the US electricity needs ? What is the internal rate of return assuming various interest rates and a range of non-renewable ( natural gas or coal ) energy prices?

The amount of capital needed will astound you. This amount of capital invested in energy production may raise interest rates to levels that will eliminate any possibility of a return. So, who will make this investment?

That is the heart of the issue. That is why we have no choice but to use military means at this time.

Conservation through human behavioral change offers the hope of reducing the cost of energy by reducing demand. However, any reductions here are more that offset by growth in other developing nations.