Will Oil Inflation Destroy America Or Will 2011 Be The Year of The Rabbit?
By: Andrew Butter
Dec 14, 2010
The good news is that the Saudis are saying $70 to $80 is “Fair”. The bad news is they may change their minds and with oil knocking at the door of $90 and some OPEC malcontents muttering $100, they are starting to look a bit wobbly. Or even if they are “steadfast”, perhaps they won’t be able to pump enough oil to contain prices?
In 1985 OPEC was holding back 11 million barrels a day of capacity, in 1995 that had dwindled to 2 million a day, today no one is sure. The leverage to keep oil prices down is a function of how much “ammo” you have.
In which case oil might start to get priced not at an estimate of the “correct” amount of “blood” to suck out of the world economy, without causing serious harm (Parasite Economics), but instead at the cost to go out and bring 25 million barrels a day or so of “new oil”, on line…like next week.
So how about if oil goes back up to $147 and stays there?
This is an analysis of the “Fair-Price” of oil going back to 1970, before the first oil-shock. The red-line (the fundamental or in valuation-speak the Other-Than-Market-Value), is an estimate of the price at which the world economy does not suffer.