Quote:
Originally Posted by NoRegrets
Good and valid points VTSteve. Do you think there is a 20% swing caused by the market where the base price is set by supply and demand?
The barrel price just increased by 10% but the supply and demand level has not changed.
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I think speculation, both investment speculation and economic speculation, has played a large part in this year's run. The world's economic outlook has gotten much better (although fragile), since Q3-Q4 2009. Opec has made some behind the scenes moves to increase supply a little bit, which will probably help moderate the swings.
I watch oil go up and down. People completely missed the speculative trading that drove oil to unbelievably low prices after record highs. But in large part, that drove the dive. The recession was a huge reason demand slowed so much, and continues to be moderate to low. Common stocks also followed this pattern. When any investment or commodity is viewed as too low, speculators move in to correct the market forces. They usually overshoot to the highs or lows, but they eventually stabilize. Refineries closed left and right last year as they continually lost money. My "guess" is that oil will hit a high this year of possibly $100, but only briefly. While demand is increasing from last year, it's still not near the 2007 levels.
I also think that conservation, more fuel efficient vehicles, and fear of high prices will be the dominant market force controlling demand. Opec in particular understands the risk/reward relationship between too high and too low, possibly better than anyone does. They understand full well that too high hurts global activity, which lowers demand, and causes huge fluctuations in their steady flow of capital. I think oil is already at their high comfort price, and they will further increase supply if warranted. Speculators just got burned badly, and they know full well that pigs get slaughtered
I'd be surprised if gas went much over $3 a gal this summer in our region, and very surprised if it stayed there for any length of time.