Tuesday, August 29, 2006

Looking a Gift Horse in the Mouth

I've noticed gas prices coming down--to $2.66 around me. Considering that we've had plentiful crude oil supplies for a while now and prices have still been sky high, I don't quite get why this is part of the explanation of recent weakening of oil prices:

"A lot of people were banking on an active tropical (storm) season and so far it has been nonexistent in relation to platforms in the Gulf of Mexico," said James Cordier, president of Liberty Trading in Tampa, Fla.

With economic growth slowing and U.S. crude supplies plentiful, "we're running out of reasons to buy," Cordier added.

And of course the Iran factor. And BP isn't cutting its production from Alaska over the pipeline weakness as originally thought. The article counts both as reasons for the decline.

This makes little sense to me. Basically, we're short of excess oil production capacity, so prices are high based on the worry that any shortage around the world will cut production below usage needs. It has been this way for a while now. Hurricanes haven't cut supplies, it is noted. But that hasn't increased supplies--just not lowered them. BP cut supplies from Alaska only a little. So this still reduced the supply--just not by as much as first feared. Our demand isn't increasing as much as it might if economic growth was faster. So demand just isn't going up by as much--not falling. And Iran is still out there and scary. So the mullah factor is still keeping prices up. And correct me if Venezuela or Nigeria suddenly got stable.

So why are crude oil supplies plentiful right now? So plentiful that it counters the Iranian nuttery worry (and the Venezuela worry and Nigeria worry and whatever other worries are out there) that puts prices up $15 or $20 per barrel over what supply and demand would call for? The stated reasons don't explain why oil supplies are plentiful now. Not to me anyway.

Like I've said before, if I had years to plan an attack on Iran, I'd want higher stockpiles of oil to release on the market when we attack. That way when Iran stops exporting, there is still enough on the market to avoid panic buying in the short run.

I realize that I expect some type of military action so I look for clues that appear to be relevant dots. But I still must ask, what is up with the recent price fall?