[DE88]

Demand has not dropped 47% by any stretch of the imagination.

[ChicagoConservative27]

I don’t get it. Oil per barrel is under 40 bucks, and gas is still over 2 bucks for middle and premium gas?

[Mikey_1962]

Deliveries I believe the Saudis said.

You are free to correlate deliveries to demand as you see fit. However if you would deliver without a purchase order I doubt you would be in business long.

[Smokin' Joe]

It is the difference between multiple buyers bidding on a small surplus capacity in order to make sure they can keep the refineries going and bidding on a few million BOPD more surplus capacity. When supplies are tight, price is up, a proportionally small increase in surplus capacity often means much lower prices.

Consider, if food were auctioned (which it is, really), what the prices would be if there was clearly enough to go around versus a supply which may or may not be enough.

The latter situation means prices would go higher as people assured themselves they had enough. Add in geopolitical uncertainties, and uncertain supplies, and situations when the marginal capacity (the amount of 'extra' oil out there) is low will lead to much higher prices.

[scepticalbanker]

As I posted on several other oil threads nearly two years ago, when oil demand approaches around 98% of production capacity oil prices start to rise hyperbolically due to the relative inelastic demand/supply curve. This was seen in the late 1970’s when crude prices went from a few dollars a barrel to around $30 (this occured with almost no oil trading or supposed speculation) followed by the collapse in oil prices in the 1980’s to around $10 to $15 a barrel when the demand/supply ratio dropped to around 95%. As I discussed in these posts two years ago, all you needed to do to drop oil prices rapidly was to reduce the demand/supply ratio by about 3% or about 2.5 MMBOPD.

This is why when the Democrats talk about the fact that we might only get 1 million barrels a day from ANWR and that this is only 1.2% of world supply so it will have little or no effect on price is bogus. Oil prices are greatly affected by small changes in the demand/supply ratio when that ratio approaches around 98%. In addition if you were to add oil production from offshore the U.S. now currently off limits you might increase world production by up to 2 million barrels a day or 2.5%.

The floor for oil prices is typically set by two things, usually the cost to develop and operate a field to produce a barrel of oil at the last marginal barrel of demand (I would estimate this to be around $50 to $70 per barrel at current demand rates), though it can sometimes drop to the cost of producing (operating costs only) the last barrel of demand (I would estimate this cost at between $20 and $25 per barrel). If oil should drop to the latter floor almost no new production will be brought onstream.