Even The Mere Threat Of Drilling Will Bring Down The Price Of Oil By DON M. CHANCE
The Bear on Aug 29 2008 at 8:28 am | Filed under: Energy Policy
One of the most contentious issues of late has been the question of whether increased drilling for oil would reduce the price of oil today.
Certainly increased drilling will not bring an immediate increase in the supply of oil. But many people, even so-called experts, believe that the effect on the pump price would not be felt until the oil is actually at the pump, possibly years later.
In fact, the price will fall well before the first hole is drilled. Even the possibility of increased drilling will bring down the price of oil. It already has.
Almost everyone knows that supply and demand determine price in a market. But that knowledge seldom goes beyond understanding how supply and demand themselves are determined.
The belief that the current quantities demanded and supplied are the sole determinants of price misses an important point. Both current and expected future demand and supply interact to determine the quantity demanded and supplied in the current marketplace.
That is true because oil, and indeed almost everything else, is storable.
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