As far as I can gather, oil prices in fact do reflect supply and demand. The supply side seems to be the biggest changeable in the price equation. This would lead one to think that the oil supply is intensely scrutinized and monitered; information being something that oil traders must sniff out and devour like hungry wolves. This being said, why is it not obvious and conclusive weather or not that all these pipeline breaks/spills refinery fires and the insuing reduced supply is average or catastrophic? Would someone in the oil sphere please comment? Thanks.

-- Frank T. (FT@aol.com), February 08, 2000

Answers

As far as I can tell, the price of oil and products has -- for the better part of the past six weeks -- been signaling that refinery problems and/or pipeline breaks are something between average and catastrophic. When it becomes something akin to catastrophic, oil will be closer to $40.00/bbl. IMHO, the supply of any commodity isn't all that dictates its price behavior. In the ag commodities, for instance, the best markets have come in the wake of record-high production years. The same might be said for the most recent activity in the oil market. Not all that long ago, oil hit $10.75/bbl in response to supplies that were only high relative to the level of demand. As Asian economies began their recovery in earnest, by late 1998, increased demand helped to propell prices higher. The subsequent supply disruptions (and high rates of stock drawdowns) just magnified the trend (the positive trend) that was already in force. Demand drives a genuine bull market, while disruptions in supply only magnify the underlying trend. Again, we're between average and catastrophic and it appears that prices are set to remain relatively firm (ultimately heading higher) despite any short-term increases in supply.

-- (cashtradr@aol.com), February 08, 2000.

Frank,

Your question got my curiosity up also, so I posted it over at Downstreamers Petroleum forum and got a couple of replys. You might want to cruise over there and check them out.

Link To Downstreamers Forum

-- Zdude (zdude777@hotmail.com), February 08, 2000.