Oil and the 99 parachutes theory.
Thursday, May 22nd, 2008The key to oil prices is the classic of supply and demand but is supply down so much that prices should be so high. Well the demand for oil is not very flexible and thus if supply drops even a little below demand then prices can go out of whack. The best comparison is that of an airplane that is about to crash with 100 passengers. If that airplane had 100 parachutes for sale how much would they go for? Not much. But if there were only 99 parachutes I suspect that the prices would not be a bit higher but would potentially go into the stratosphere. People would pay their entire life savings for a single chute.
So my three questions for financial the financial future of oil are: Can a 100th parachute be created soon and if the pressure is high enough, as it appears to be, will a 101st chute or more be produced driving the price way down? Are their artificial pressures on the oil supply at work much like Enron with the rolling blackouts in California? And lastly if either of these first two questions turn out to be true when and how low will oil prices drop?
Lastly what impact does this have on my portfolio? I suspect that it will make it go up sharply if oil goes down.
So in summary; I don’t buy all this China and India growth crap. They source their oil from different places. I don’t really buy peak oil as that flag has been flown with every oil peak. The more that oil goes up then the faster it will fall when the 3 spare parachutes are found.