Wednesday, January 9, 2008

Oil Experts

"Economists, Wall Street commodities traders and even seasoned energy executives were caught flat-footed by oil's dizzying rise. ... The march to $100 seemed unlikely 10 years ago. A glut of oil began to form in the first few weeks of 1998. ... Burned by price crashes in 1986 and 1998, the industry was wary of investing too heavily in new production. ... 'The insensitivity of oil demand vis-a-vis prices has been startling,' says longtime oil observer John Olson [JO], co-manager of Houston Energy Partners, a hedge fund affiliated with Sanders Morris Harris Group", WSJ, 3 January 2008.

Oil's price increase did not surprise me. The majors erred by not increasing exploration expenses when oil was cheap. JO's surprise at oil's demand inelasticity indicates he forgot the economics he learned at Wharton, MBA 1966.

No comments: