[Graeme]

Should $10 a Barrel Be the Real Price of Oil?

In the short run, psychology and entrenched beliefs can drive a market or the price of a commodity. In the long run, the laws surrounding supply and demand win out. No current market shows that better than in the market for a barrel of oil. We at Smead Capital Management (SCM) believe today’s price of oil is driven by belief in the “Peak Oil” theory, the perception of a very long-term transition to electric/hybrids cars and Oil’s use as a trading or investment vehicle to pursue international economic growth and diversification. At SCM we think the day is coming when supply and demand take over.

THE PROBLEM IS THAT THE DEEPEST RECESSIONS SINCE 1946 WERE PRECEDED BY OIL PRICE INCREASES (1973-74, 1981-82 and 2008-09) AND STRONG ECONOMIC GROWTH IS USUALLY TRIGGERED OR ENHANCED BY LOWER ENERGY PRICES! The US economy grew really well from 1995-1999 and Oil fell significantly during that stretch. We believe that gasoline’s importance will be reduced by electric/hybrid cars and that lower oil prices will follow. Those lower oil and gasoline prices will drive consumer confidence in the US.

seekingalpha

[Comp_Lex]

We believe that gasoline’s importance will be reduced by electric/hybrid cars and that lower oil prices will follow.

Wrong, the future oil prices will most likely be influenced by supply and not by demand. Demand is actually very inelastic.

[davep]

We believe that gasoline’s importance will be reduced by electric/hybrid cars and that lower oil prices will follow.

Wrong, the future oil prices will most likely be influenced by supply and not by demand. Demand is actually very inelastic.

I think there may be some core demand that is inelastic, but during the price spike to $147 France for example saw oil consumption decline quite markedly (I don't remember the actual figures) as people did less driving and a lot of people moved from fuel heating to wood.