I don't think oil prices affect the stock market nearly as much as many people seem to think. Even still, oil is rather expensive right now and some energy experts expect prices to drop soon.

Here's how Littell sees it. Last year Saudi petrocrats thought demand would slacken at the same time that oil production rose from sources outside the Organization of Petroleum Exporting Nations. They cut back Saudi production from 9.5 million barrels a day in March 2006 to 8.5 million a year later in order to keep supply and demand balanced and crude prices hovering around $60 per barrel. ...

The Saudis hold the key to long-term oil prices since they are one of the few exporters--Kuwait and Abu Dhabi are the others--with the ability to increase production significantly. Littell says the Saudis realized their mistake and began pumping more oil in May. At the most recent opec meeting on Sept. 11 members agreed to boost production by another 500,000 barrels a day starting Nov. 1. That increase included a bump in the Saudi quota to 8.9 million barrels a day. ...

How long before we get some relief? It takes at least a week for the Saudis to complete the paperwork necessary to ship oil to new customers, including arranging letters of credit and other financial details. Then the oil rides in a ship across the Atlantic for 30 days. Add them together and Littell expects the impact of all that additional oil to hit U.S. markets in a couple of months or so. The Saudis "didn't plan on $80 oil," he says. "They wanted to keep it around $60 and did the wrong thing."

Other "experts" disagree, so your mileage may vary. The great thing about a free market is that it's a self-correcting system and doesn't require meddling by "experts" to reach a good solution.

0 TrackBacks

Listed below are links to blogs that reference this entry: Oil Prices Dropping Soon?.

TrackBack URL for this entry: http://www.mwilliams.info/mt5/tb-confess.cgi/3492

Comments

Supporters

Email blogmasterofnoneATgmailDOTcom for text link and key word rates.

Site Info

Support