Crude Oil Prices: Now for Something Really Scary
By: Andrew Butter
Mar 29, 2012
If oil prices don’t crash down to $67 within the next two months, that means for sure the evil one-eyed-drooling-spirit of Peak Oil, which everyone has been studiously trying to ignore for so long, has finally arrived.
The dotted red-line on the chart is the “fundamental” or if you use International Valuation Standards, the other than market value. That roughly follows the algorithm:
FOOT = 3.3% TOAD/OIK
That basically says the whole world can afford to spend 3.3% of the whole world’s (nominal) GDP buying oil, so the price is that number divided by supply (or consumption – same thing). That’s also called Parasite Economics insofar as the seller of oil needs to judge it right so that he sucks just so much money out of the golden cow (Daisy) so that she stays healthy, it’s a delicate balance, suck too much and Daisy can get mastitis.