The Herald gets all sensational about petrol prices – it’s naff journalism

The Herald gets all sensational about petrol prices – it’s naff journalism

Here’s a letter I wrote to the editor of the Business Herald about a ludicrous story in the Herald that warned of $10/litre petrol. He sent me a nice email agreeing it was the stupidest story he’d seen on oil prices for a while. For the record the initial story wasn’t in the Business Herald, but the main Herald. Don’t trust what you read…well, except for here. A chap from the AA also had his doubts, but didn’t back up his opinion with the more technical shizzle I’m about to lay down to y’all: “The rubbish being reported about $10/litre petrol is just sensationalist nonsense. There’s a basic law of supply and demand that’s being ignored. Basic economics states that the price of a barrel of oil should be no more than the cost of the most expensive barrel of oil, which is currently around US$70 extracted from the shale in Dakota and Canada. “The fact that oil is trading at twice this is purely a speculative bubble. Recently technical traders will have noticed the bearish rising wedge formation and the MACD (moving average convergence divergence) swinging towards indicating that oil’s bull run is about to take a nasty turn. Add to this the fact that oil producer stocks in general are lower over the past two months, despite oil being over US$20/barrel higher. “And another basic supply/demand equation hasn’t even been considered: global demand for gasoline in developed countries is down over 460,000bpd in the last year according to the Energy Information Administration; our consumption of petrol will tank [pun intended] should petrol’s price quintuple, vastly reducing the demand and forcing the suppliers to lower the price so that they don’t have enormous drilling rigs sitting idle while stockpiles don’t sell. “But wait, there may be one justification for this high projection of an astronomical petrol price: the price of oil is up tenfold in the past ten years, but the price of petrol hasn’t even tripled. Oil is a fairly large component in the price of petrol. “I don’t buy it, though. Just as the housing market bubble has begun to deflate despite people’s steadfast belief in the eternally rising market, the oil bubble will burst. Given that there’s currently over US$70 of profit in each barrel of oil, there’s a huge incentive to find and produce more. It takes a little time to get a well up and running, but as supply increases we could see oil dip below US$100/barrel again.”

Here’s a letter I wrote to the editor of the Business Herald about a ludicrous story in the Herald that warned of $10/litre petrol. He sent me a nice email agreeing it was the stupidest story he’d seen on oil prices for a while. For the record the initial story wasn’t in the Business Herald, but the main Herald. Don’t trust what you read…well, except for here. A chap from the AA also had his doubts, but didn’t back up his opinion with the more technical shizzle I’m about to lay down to y’all: “The rubbish being reported about $10/litre petrol is just sensationalist nonsense. There’s a basic law of supply and demand that’s being ignored. Basic economics states that the price of a barrel of oil should be no more than the cost of the most expensive barrel of oil, which is currently around US$70 extracted from the shale in Dakota and Canada. “The fact that oil is trading at twice this is purely a speculative bubble. Recently technical traders will have noticed the bearish rising wedge formation and the MACD (moving average convergence divergence) swinging towards indicating that oil’s bull run is about to take a nasty turn. Add to this the fact that oil producer stocks in general are lower over the past two months, despite oil being over US$20/barrel higher. “And another basic supply/demand equation hasn’t even been considered: global demand for gasoline in developed countries is down over 460,000bpd in the last year according to the Energy Information Administration; our consumption of petrol will tank [pun intended] should petrol’s price quintuple, vastly reducing the demand and forcing the suppliers to lower the price so that they don’t have enormous drilling rigs sitting idle while stockpiles don’t sell. “But wait, there may be one justification for this high projection of an astronomical petrol price: the price of oil is up tenfold in the past ten years, but the price of petrol hasn’t even tripled. Oil is a fairly large component in the price of petrol. “I don’t buy it, though. Just as the housing market bubble has begun to deflate despite people’s steadfast belief in the eternally rising market, the oil bubble will burst. Given that there’s currently over US$70 of profit in each barrel of oil, there’s a huge incentive to find and produce more. It takes a little time to get a well up and running, but as supply increases we could see oil dip below US$100/barrel again.”

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