Dollars and Jens
Friday, October 01, 2004
Light Sweet Crude settles over $50
I'd like to point out that futures for the next several months drop some 60 cents per month as you go out*, but remain above $35 through 2009. In re that I'd like to note that demand for oil is more elastic over long time periods than over short time periods; if oil is that expensive that long, demand will, other things being equal, drop enough for oil not to be that expensive that long. What the market, presumably, is betting, is that other things are not equal, which, historically, is a very good bet. In this particular case, the market seems to be betting that supply expansion will be limited and that demand will continue to increase, presumably because of economic growth in oil-hungry parts of the world. This particular bet would be considerably less safe, but still not unjustified.
* If I were ostentatious I could use the term "convenience yield", but if I were ostentatious and a smart-ass I could just obliquely refer to the possibility.