Posted on 02/20/2015 11:15:48 AM PST by george76
Since economies drive commodity prices, not the other way around, the collapse in oil is more of a demand issue than it appears, said Stephen Schork, founder and editor of The Schork Report newsletter.
The influential oil analyst told CNBC on Friday that there's an "absolute glut" in crude, but the demand side of the equation can't be overlooked. "When you have such a sharp fall in commodity prices, that's because of economic demand. And I think that's a very worrisome telltale."
"Oil prices are the canary in the coal mine," Schork said in a "Squawk Box" interview. "I don't think the global economy, especially in the United States, is all rainbows and unicorns right now."
The current, robust pace of oil production has been going on for two years now, he said. What has changed over the summer? "The supply picture has not changed. So the drop in price, to me, is an indication, I think, of worrying global demand," he said.
Schork predicted crude prices could fall to $40 a barrel, and go even lower, before demand increases in the summer driving season.
(Excerpt) Read more at cnbc.com ...
An increase is supply has the same effect as a dip in demand. I think the author is too fixated on the demand side of the equation.
I don’t know he specifically wrote: “The current, robust pace of oil production has been going on for two years now” to indicate that this had been thought of as well and seems to be saying that the level of recent price fall cannot alone be attributed to the supply side as they it did not have an impact the first 18 months.
You need to go back and look at inventory numbers. My guess is he used the same info oil traders use. The recent rail incident in WV that involved three million gallons of oil being transported from North Dakota to Virginia would seem to support his theory. Why wasn’t that oil moved to the area with the most refineries, Gulf Coast, instead of one in Virginia?
Exactly. The price of oil was priced in at peak production with unconstrained demand. The markets assumed that supply had nowhere to grow while consumption would continue growing. That's why the price was so high to begin with. Instead, last year supply grew faster than consumption (mostly due to the increase in US production). Consumption didn't fall... just didn't grow as quickly as supply.
The peak oil assumption was shattered and the price plummeted. Easy story to tell.
Maybe it had something to do with the current union situation with the West Coast refineries?
These derivatives and the associated gambling and speculation make prices much more volatile than they would be otherwise.
“An increase is supply has the same effect as a dip in demand. I think the author is too fixated on the demand side of the equation.”
Is it possible that both supply and demand have played a role?
You could be right. I think it would more sense to haul it south to Texas or Louisiana. I’d like to know who bought it and for how much.
Let’s increase supply even more. The ones who will get hurt are the Russians, the Iranians, and the Venezuelans.
The supply of oil is not determined by the free market. It’s determined by the head of the OPEC cartel who is the king of Saudi Arabia. If global demand for oil increases, the king can simply open his country’s oil spigots larger to meet the demand and thereby keep the price of oil the same.
It’s different with other commodities, since the price of oil alone is fixed by an evil, selfish dictator who doesn’t care about the economic consequences of his policies for his own citizens, let alone the citizens of other countries.
On the other hand, the leader of the greatest coffee-producing country in the world, Colombia, is a democratically elected prime minister who would be thrown out of office if he interfered with Colombia’s coffee producers by manipulating coffee prices at their expense, as the king of Saudi Arabia is doing by manipulating oil producers in his country.
None of the experts predicted the recent 50 percent drop in oil prices because they didn’t know what the king of Saudi Arabia was planning. And they still don’t. So why continue to pay attention to the experts’ predictions any more than to the predictions of a gypsy fortune teller?
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