predictions

gerrymander.

Posted to Diary on Wed Apr 30, 2008 at 02:03:25 AM EST. RSS.

The Wired car blog has an entry which opens with:

Both Qatar's oil minister and the head of OPEC can see oil hitting $200 a barrel before the end of the year and one analyst says gas could reach $7 a gallon within four years. That could mean cataclysm for the global economy.

I'm not saying that absolutely can't happen, but I can also see serious indicators of a worldwide recession starting with gas at $3.50/gallon. And if that copy of Dow 36,000 taught me anything, its that when people start to make outrageous pricing claims which don't take into account slowing economic indicators, it means the end of the bull market is close at hand.

So if I had to bet, I'd put money on US gas prices being in the $2.25-2.50 range by summer, 2009.

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2	Re: predictions T Slothrop. Wed Apr 30, 2008 at 03:36:45 PM EST 5.00 (informative, informative)

I'm in the retail petroleum business, now. A couple of friends of mine and I started a retail/wholesale propane company a couple of years ago. (Please, I've already heard any Hank Hill jokes you could possibly dream up.)

Mid-level players in the distillate futures markets are telling us that the crude markets are well on their way toward "completely de-coupling from fundamentals". In English, what they mean is of course that the price of oil is no longer being controlled or even all that much influenced by such mundane concerns as supply and demand.

IANAE(conomist), but that sounds to me like famous last words before a crash, whether it be in tulip bulbs, silver, dot com stocks, exotic derivatives backed by sub-prime mortgages, ...or oil.

The guys I trust the most are calling crude below $90/bbl by years end, which would, all other factors being equal, translate into $2.25-$2.50/gal. regular unleaded.

I hope they are right. If they aren't, I could be looking at losing my house.

{Insert amusing quotation here}

3 2	Re: predictions Steve Urkel. Wed Apr 30, 2008 at 11:14:25 PM EST 5.00 (astute, interesting)

I think you're right, but I don't think it's a speculative bubble, the run-up in price of oil (and other commodities, note the price of gold) is driven by inflation. Commodities are being used as hedges and stores of value, and in a way commodity derivatives can be thought of as substitute currency, which is commodity backed. This is why the increased price of oil hasn't resulted in increased output of oil. Because the oil is serving as a store of value, and the oil in the ground (where it is, after all, cheapest to store) is backing increasing volumes of oil derivatives.

4 3	Re: predictions thefadd. Thu May 01, 2008 at 01:20:17 AM EST 5.00 (interesting)

It's an interesting argument but it assumes its own conclusion--that the inflationary features of the last six months of the economy are here to stay. If, in a year's time, there's somewhere more attractive to put the money--a recovering real estate market?--those commodity markets aren't really used to quite so much speculative investment since probably the mid-80s.

It is easy to buy small plaster models of what you think life is like.

5 4	Re: predictions port1080. Thu May 01, 2008 at 11:50:39 AM EST none

Astute comment, considering the fed's rate actions (which seem to indicate that they're done cutting rates, which should slow inflation and stabilize the value of the dollar).

6 4	Re: predictions Steve Urkel. Thu May 01, 2008 at 04:29:06 PM EST none

I'm not assuming anything about the duration of inflation. If inflation gets under control commodity prices wil go back down. I don't know for sure this isn't a speculative bubble, but it appears to me to be not that but a rational reaction to inflation.

7 6	Re: predictions thefadd. Thu May 01, 2008 at 06:05:55 PM EST none

But aren't energy commodities the main drive behind the current inflation?

It is easy to buy small plaster models of what you think life is like.

8 7	Re: predictions Steve Urkel. Thu May 01, 2008 at 06:21:06 PM EST none

Inflation is a monetary phenomenon. If oil prices were being driven solely by supply/demand, you wouldn't see the parallel movement in gold and other commodities.

9 8	Re: predictions thefadd. Thu May 01, 2008 at 06:28:40 PM EST none

Again, is the current inflation not being driven by energy commodities?

It is easy to buy small plaster models of what you think life is like.

10 9	Re: predictions Steve Urkel. Thu May 01, 2008 at 06:39:16 PM EST none

No, the inflation is the result of how much the money supply has increased. It gets reflected right away in commodities prices.

1	Too Many Loops On That One thefadd. Wed Apr 30, 2008 at 02:28:15 AM EST none

I'm not putting my money anywhere near $2.25/gallon but good call. The more extreme the predictions, the closer the trend tends to actually be toward its given end. But does observing this trend mean it's at its end as well?

It is easy to buy small plaster models of what you think life is like.

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gerrymander.

Posted to Diary on Wed Apr 30, 2008 at 02:03:25 AM EST. RSS.

Re: predictions

T Slothrop.

Wed Apr 30, 2008 at 03:36:45 PM EST

5.00 (informative, informative)

2

Re: predictions

Steve Urkel.

Wed Apr 30, 2008 at 11:14:25 PM EST

5.00 (astute, interesting)

3

Re: predictions

thefadd.

Thu May 01, 2008 at 01:20:17 AM EST

5.00 (interesting)

4

Re: predictions

port1080.

Thu May 01, 2008 at 11:50:39 AM EST

4

Re: predictions

Steve Urkel.

Thu May 01, 2008 at 04:29:06 PM EST

6

Re: predictions

thefadd.

Thu May 01, 2008 at 06:05:55 PM EST

7

Re: predictions

Steve Urkel.

Thu May 01, 2008 at 06:21:06 PM EST

8

Re: predictions

thefadd.

Thu May 01, 2008 at 06:28:40 PM EST

9

Re: predictions

Steve Urkel.

Thu May 01, 2008 at 06:39:16 PM EST

Too Many Loops On That One

thefadd.

Wed Apr 30, 2008 at 02:28:15 AM EST