Tuesday, 10 June 2008

Oil - How High Can You Go?

A collection of news headline clippings from two weeks:

Spot a trend?

The world is hurting: producers and finance banks are saying the price is going up.

The users and addicts are saying the price must go down.

In theoretical supply-demand economics with sufficient available alternatives and price elasticity of demand, prices do react accordingly.

However, in the real world of ever dwindling resources, geopolitical resource grab, rising demand and high price inelasticity, things are not so clear cut.

Who will win?

Supply wins. If supply isn't fixed or demand isn't reduced, the prices will rise.

The poor countries importing oil are already beyond hurt.

Now the rich OECD countries are being hit.

Analysts are saying that if oil doesn't fall to $75-$80 by end of 2009, we will see a much bigger wave of bankruptcies in the airline industry.

Oil probably still has a ways to go, before it crashes. And when it does, take a deep breath, as it will only go higher the next time.