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• Friday, April 3, 2009 03:41 AM

  Much shorter version of previous post

  A commenter over at Seeking Alpha (http://seekingalpha.com/user/240285/comment/353287) had a more concise take than my previous post:

  Anyone who buys commodities in the futures market has to eventually sell that contract or take delivery. . . . [T]he US government tracks inventories on a weekly basis and there is no evidence of excessive hoarding.

  Yes...(there may be)...a few large tankers slow-steaming out there on the high seas, but the volumes involved in tanker storage are simply not enough to account for $140 per barrel of oil.

  [N]ow they are playing a different game . . . now that spot prices are below $40 per barrel. This will be to the advantage of the consumer, as it will bring down future prices. Seems to me the market place is working just fine.

  So why did oil go over $140. The obvious answer is supply and demand. No one can deny that China and India, growing at over 10% annually, added greatly to world demand. No on can deny that it takes years for the supply side to react to high prices, due to the enormous capital expenditures required to develop oil producing properties.

  And why did oil go back to $40. Again, simple:

  1) That new supply came to market

  2) high prices caused substitution and economization and reduced demand, and,

  3) RECESSION!**

  In the short term, oil is a highly price inelastic commodity, which makes oil prices potentially highly volatile.

  All of that is exactly right. Now, if people really want to get a handle on what is going with debt, energy and the economy and what we may be facing, click on my signature and spend some time at the link. You may or may not agree with what you find there, but if nothing else you will be forced to think, re-think and re-evaluate much of what it is that you think you know.

  (Just FYI, I am not affiliated with the linked site in any way. I stand to gain absolutely nothing. Best of all, the course I linked is absolutely free, very engrossing and very informative...though the short portion of a segment that deals with Social Security should in my opinion perhaps be ignored. Other than that, it's all good.)

  **Another way to say "Demand Destruction".

  —Roman Berry Read Roman Berry's other letters
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