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Reply #4: Distinguish elasticity of demand from elasticity of supply [View All]

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GliderGuider Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Feb-09-11 03:40 PM
Response to Reply #3
4. Distinguish elasticity of demand from elasticity of supply
Edited on Wed Feb-09-11 03:41 PM by GliderGuider
Falling of economies reduces demand, which is one of the effects we're seeing right now. Demand for oil is quite a bit more elastic than supply.

I agree that there is a long-term supply response to price, but what I noticed is that is seems to be getting more anemic over time.

I also agree that the 2008 spike was due to speculation, however if the supply was more elastic that wouldn't have been possible (or at least not as severe) - an increase in supply could have balanced the price, but only if there was in fact the spare capacity Saudi Arabia always assured us was available.

Net oil exports have been falling for three years, down now about 6.5% from 2005/2006 (the moment we hit the production plateau) to the end of 2009. The market is tightening relentlessly.
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