walkitout (walkitout) wrote,

the question the punditry _should_ have been asking

From Bloomberg: http://www.bloomberg.com/apps/news?pid=20601109&sid=a4f4NqjVsrW8&refer=exclusive

Adam Sieminski, chief energy economist at Deutsche Bank AG: "What price does it take to have demand growth go to zero to match zero supply growth? That's very scary because it might take a really high price."

Yeah. That _is_ very scary. It might take a _really high price_. Independent of oil speculation, which might or might not add a noticeable amount of froth. So how come it has taken so long for the analysis to reach this really very basic point? Well, because typical discussions of supply and demand assume elasticity of _both_. Sieminski has reached the point where instead of _worrying_ that demand destruction might happen (oh, woe for the economy! Remember, Reagan taught us all that the American Economy Runs on Wasted Fuel and Jr. has been doing his best as Fidei Defensor -- did I spell that right?), he's worrying that it might not happen _fast enough_. Why has this suddenly happened? I would point to the recent BusinessWeek article documenting what Simmons and the doom-and-gloomers have been saying for several years now. Supply is hitting a wall. And if supply is inelastic, what happens to price when demand and supply crossover gets really hairy and ugly -- unless demand is _very_ elastic.

Realistically, Sieminski is still not seeing the real problem, any more than BW did. And while the doom-and-gloomers saw the real problem, they have failed _horribly_, by and large, in understanding what would cause it and how it would manifest in our mundane lives. The real problem is that supply will probably start shrinking PDQ, and will absolutely continue to rise in price due to the price of production, if a plateau can be maintained at all.

In other news. the Chevy Volt is go, with a probable price tag of $40K in 2010, but requiring a price of more like $48K to be profitable. Because remember, what GM needs now is another car it can only sell at a loss.
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