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drm
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PostMon Dec 01, 2014 1:37 pm 
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Daryl wrote:
Remember when  some people that do not understand economics argued how more production/supply would not decrease price?

I think that the verdict is still out on all the factors causing the current price drop. I don't doubt that supply is a part of it, but speculation can certainly affect prices as well and there certainly is a lot of speculation on the price of oil. I saw an interview with one oil trader who said that a lot of people bet on high prices and are now dumping their contracts however they can, which is causing prices to drop farther than they would only due to supply and demand factors. This person said that these forces would continue well in 2015.

Furthermore, if OPEC changed its mind and decided to cut back, or if politics or conflict in producing countries picked up, that could also drive prices up. There are also a fair number of people, and just just enviros, who think that the shale oil boom will be fairly short-lived.

I have no way of evaluating these factors myself, just not enough expertise. So I have no idea what the price of a barrel of oil will be in one year.
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MtnGoat
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PostMon Dec 01, 2014 1:42 pm 
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What we can and do know, is that additional production always produces prices which are lower than they would otherwise be without that additional supply.

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drm
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PostMon Dec 01, 2014 2:08 pm 
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MtnGoat wrote:
What we can and do know, is that additional production always produces prices which are lower than they would otherwise be without that additional supply.

I'll grant you that. The problem is that the "otherwise would be" essentially means if all other aspects stay the same, and they often don't.

For OPEC to not counter low prices with supply cuts is new. In the past there was a reasonable expectation that increased production in one place might result in decreased somewhere else. Also, it wouldn't be that unlikely to have a war or something in a producing country that could easily cut production as much as we have increased here. Sure - the price wouldn't go up as much as it would without new US oil on the market.

But simplistic notions of supply and demand, while true as far as they go, sometimes don't go that far in a much more complex market. And it is a matter of debate whether OPEC will succeed in driving higher priced oil out of the market.
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MtnGoat
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PostMon Dec 01, 2014 3:02 pm 
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Prices lower than they would otherwise be is not a minor detail. It is a fundamental property of a market with competitors. The existence of and technology to engage in production from these fields makes OPEC's actions necessarily permanent even if they do succeed in putting some producers on the sidelines until prices rise. At any time should prices rise again, once again intensive extraction becomes economically viable.

So not only is additional supply providing a downward pressure on price, the ability to produce additional supply itself provides a disincentive to allow prices to rise and thus enable competitors. It's a pretty sweet setup that these new techniques have brought to the table.

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RandyHiker
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PostMon Dec 01, 2014 7:24 pm 
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Looks like the OPEC folks are attempting to pull the rug out from shale  and tar sand oil producers.
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drm
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PostMon Dec 01, 2014 9:18 pm 
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I seem to remember that housing prices continued to rise despite lots of new production not all that long ago. Until they collapsed. And are now going back up. Most of those price changes had little to do with supply and demand and a lot more to do with speculation, though supply and demand factors only allow speculation to go so far. Of course there was plenty of tampering with the housing market as well, but so there is with oil too. Nor is the current drop, huge as it seems, taking us back more than 4 or 5 years in the price. The long-term trend is still up.
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PostTue Dec 02, 2014 1:15 am 
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drm wrote:
The long-term trend is still up.

I recall paying $0.58 per gallon when I got my license.  That would be $2.34 adjusted for inflation.   Prices were $3.05 at the same station today.    I have memories of my dad paying $0.29 -- that would be about $2.00 today.

But the number of hours I have to work for a fillup is much less now than when I was pumping gas in high school.
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drm
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PostTue Dec 02, 2014 7:35 am 
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RandyHiker wrote:
But the number of hours I have to work for a fillup is much less now than when I was pumping gas in high school.

Given roughly flat real income for the median worker over some decades, I doubt that this is true for most people (unless your tank is a lot smaller now  lol.gif )
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PostTue Dec 02, 2014 7:54 am 
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My tank is larger now, but my high school job pumping gas ( at a marina fuel rock) was minimum wage.  My job now is bit more skilled.
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MtnGoat
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PostTue Dec 02, 2014 8:46 am 
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RandyHiker wrote:
Looks like the OPEC folks are attempting to pull the rug out from shale  and tar sand oil producers.

That's fine, that's how competition is supposed to work....they're going to try to undercut the other guy by driving prices down. The existence of the new technology means even if they succeed, they have to keep the price below where it creates an opening for those they want to beat.

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RandyHiker
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PostTue Dec 02, 2014 9:21 am 
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MtnGoat wrote:
RandyHiker wrote:
Looks like the OPEC folks are attempting to pull the rug out from shale  and tar sand oil producers.

That's fine, that's how competition is supposed to work....they're going to try to undercut the other guy by driving prices down. The existence of the new technology means even if they succeed, they have to keep the price below where it creates an opening for those they want to beat.

Right -- so I supose then you were against the break up of standard oil?  That used it's market power to drive compeditors to bankruptcy, buy them out and form a monopoly were it could charge whatever it wanted?
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MtnGoat
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PostTue Dec 02, 2014 10:57 am 
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No, I'd have opposed the breakup so long as they could show they had not been violating the rights of any market participants. After Standard Oil broke most of the competition, kerosene prices continued to fall anyway...thanks to Standard Oil's efficiencies. Not everyone falls for the million dollar carrot theory (the farmer only needs to sell one!) , many buisnesses know that they'll make more money by selling vastly more at lower prices than a small number of high profit sales.

Standard oil could not form a monopoly without State backing banning it's competitors.

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RandyHiker
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PostTue Dec 02, 2014 12:34 pm 
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MtnGoat wrote:
Standard oil could not form a monopoly without State backing banning it's competitors.

That seems in conflict with my reading of the history how standard oil developed its controlling market share -- please provide examples of how the state intervened to protect standard oil -- prior to ordering it's breakup in 1911.
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PostTue Dec 02, 2014 2:35 pm 
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I didn't argue they intervened to protect Standard Oil. I noted they did not have a monopoly precisely for this reason. Monopolies are granted and protected by State power.

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PostTue Dec 02, 2014 3:48 pm 
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MtnGoat wrote:
I didn't argue they intervened to protect Standard Oil. I noted they did not have a monopoly precisely for this reason. Monopolies are granted and protected by State power.

From your earlier statement

MtnGoat wrote:
Standard oil could not form a monopoly without State backing banning it's competitors.

Indicates that you believe that the only form of monopolies are state regulated monopolies and that just because a company can through varous schemes control 90% of a market that isn't a monopoly ?
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