Quote:
Originally Posted by aceventura3
Oil is a commodity. A drop of oil is a drop of oil in the world market for oil. There are a few subtleties, for example some types of oil require a specific type of refining capacity that may be concentrated in certain areas. but outside of that fact, like I said above we need a consistent policy regardless of the current price. When demand is peaking any issue with supply can trigger an "explosion" in price. When the market is on that margin, smaller amounts of marginal production can prevent that "explosion" in price.
Keep in mind that I am not talking about financial speculators, but for example if you are an industry that needs 100 million barrels of oil, and you fear that the supply is going to be disrupted in the future or that prices will be 50% higher in the future, what do you do? You try to lock in your supply. How much over current real market price are you willing to spend for that "insurance"? If the market is stable and you anticipate stability, the premium you would pay for that "insurance" would be less or zero.
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The price may factor in the contracts that big consumers (airlines/power companies, etc...) will lock their rates in at and will pay a known price today if they are afraid of it going up higher next month.
But, I see no real fluctuation in demand to warrant the price swing over the last few months and the profits the oil companies made because of it. I don't see 20 million electric cars or 5 million bicyclists out there not using gas now to cause demand to fall. There are just as many airlines in the sky now as last summer, and people haven't started to take mass transit and carpool in big enough numbers to justify the 'lower demand' the media is talking about. Maybe the lower demand from big banks because they aren't investing in oil anymore is causing it...
I'm sure all the free market people will get upset, but if oil was a product sold at a set price that rarely changed, but attempted to match real world demand and actual supply, it would work out better for consumers. You would cut out the middle man who doesn't do anything but wants the price to go up, and if they buy up most of the oil and aren't willing to sell unless the price goes up higher, it's not a good deal for the consumer or other businesses. The thing is that there may be gas shortages if the gas companies set the price instead of the market and the people who are willing to pay 5, 6, 7 dollars a gallon might not be able to get it.