Tuesday, October 02, 2018


Turning away from crass national politics we find a report from Bloomberg Economics that talks about the impact of $100 oil.
The good news is that Bloomberg Economics found that oil at $100 would mean less for global growth in 2018 than it did after the 2011 spike. That’s partly because economies are less reliant on energy and because the shale revolution cushioning the U.S.
Elasticity.  When the quantity demanded increases, the supply tends to increase and the equilibrium price floats on the new supply curve.   That's basic economic theory.  It's taught in most college classes in Eco 101.

Here's the deal with oil.  Oil companies exist to make a profit.   If it costs $XX.XX to take a barrel of oil from the ground, then if the price falls below t hat cost, t hey turn the pumps off and let the oil stay in the ground.  I know of at least one oil field that is sitting idle right now, not because it's dry, but because the price of oil is less than the cost to pump it out of the ground.

Right now, WTI spot prices are at $75.30 and Brent is running at about $84.90.  Let the price of oil rise to $100 and all across the US, pumps will whir to life and the supply curve will shift.  It's basic economics, and it's all based on equilibrium and elasticity of supply.

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