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To: cynwoody

Wow. Interesting. So what’s the cause?


10 posted on 01/20/2015 7:25:39 PM PST by STJPII
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To: STJPII

I see anyone talking about the $40/bbl or so baen in by oil speculators.

Once things went from a slight shortage to a glut, the hedge funds bailed out - and oil slumped over $40/bbl.

And guess who allowed hedge funds to start playing games with oil futures....


11 posted on 01/20/2015 8:05:07 PM PST by ASOC (What are you doing now that Mexico has become OUR Chechnya?)
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To: STJPII
Wow. Interesting. So what’s the cause?

I'll tell you, and then you'll know.

The cause of the glut is the same as the cause of the 1973 gas crunch, that is, inelasticity of demand. Consumer habits are fixed. If you need gas, you need gas. If you don't, you don't. In 1973, demand rose in response to an increase in the number of consumers, and exceeded supply. In response, the price rose, but this did not discourage consumers, who were willing to pay for what they saw as a necessity. Thus, lines and rationing.

Now, we have a slackening of demand due to the unrecognized depression of the economy. A lot of people are sitting at home, and don't need gas. Thus supply exceeds demand, and prices fall, but people don't run out and buy gas because it's cheap, and the oversupply turns into a glut, all due to the inelasticity of demand, and the price falls further.

I suppose that ultimately demand will recover, as the reduced expense for "fixed" consumption of gas will release money for other purposes, and stimulate the economy, and gas consumption, but this takes time. It's a sort of ballet.

15 posted on 01/20/2015 11:21:25 PM PST by dr_lew
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