On Jul 14, 2006, at 1:49 PM, Steven L. Robinson wrote:
> True, energy prices have historically fluctuated - boom and bust -
> as in 1986. But at that time Saudi Arabia had the excess capacity
> to flood the market with crude and drive the price down. If it
> still has that capacity now, it hasn't used it.. Either the Saudi
> monarchy is, for unexplained reasons, resisting the entreaties of
> its patron the United State to increase production, or it can't.
>
Oil prices are high in part because of supply/demand fundamentals, but there's a large speculative component too. I couldn't put a number on it, but it's probably at least $25. A US recession would reduce demand enough to change the S/D balance slightly - but it could be enough to prompt a collapse in prices. It doesn't require Saudi Arabia's intervention.
Doug